Government Contracts Monitor

Short Take: Final FAR Rule Addressing SBA Regulatory Changes

July 18, 2016

On July 14, the DoD, GSA and NASA finalized a rule to amend the FAR, implementing regulatory changes to the federal government’s policy on small business subcontracting. The changes reflect new regulations issued by the Small Business Administration (SBA) in 2013 that stemmed from the 2010 Small Business Jobs Act. The final rule, which takes effect November 1, calls for significant changes to the way prime contractors do business with small business subcontractors.

The rule requires prime contractors to make “good faith efforts” to use small business subcontractors to the same degree upon which prime contractors relied on those small businesses during preparation and submission of bids or proposals. In other words, if a prime contractor prepared its submission in conjunction with a particular subcontractor, it is required to use that same subcontractor in performance, for the same proportional level of effort originally proposed. This requirement represents an effort to alleviate the frustrating “bait and switch” dynamic too often experienced by subcontractors -- when they team with a prime contractor, expend resources to assist in bid preparation, and are even named in the prime’s proposal only to ultimately replaced for performance by another subcontractor or by the prime contractor’s own workforce. The rule states that if the prime contractor is unable to use subcontractors as originally proposed, it must explain in writing to the contracting officer (CO) why it failed to do so, within 30 days of contract completion. Thus, CO’s are ultimately responsible for enforcing the rule. A CO may take a prime contractor’s use of small business subcontractors, or lack thereof, into account when evaluating the prime contractor’s performance in the Contractor Performance Assessment Reporting System (CPARS), the federal government’s tool for assessing and reporting on a contractor’s past performance.

Additionally, the rule allows COs the discretion to quantify subcontracting goals as total contract dollars in addition to the current requirement of quantifying goals in terms of total subcontracted dollars, and to require subcontracting plans when a small business represents its size as other-than-small businesses. It also expands the requirement for subcontracting plans by mandating their submission for modifications under the subcontracting plan threshold (currently $700,000.00) where the modification would cause the total contract value to exceed that threshold. Further, it requires prime contractors to assign North American Industry Classification System (NAICS) codes to subcontracts. If a CO rejects a subcontracting report, the new rule requires that contractor to resubmit a corrected subcontracting report within 30 days.

Initially the new rule will only apply these requirements to standalone contracts, but it will expand their applicability to task and delivery order contracts, at the order level, beginning in November 2017. For ID/IQ contracts, the CO will also be permitted to establish subcontracting goals, but not a requirement for a new subcontracting plan, at the order level.

The new rule will require cooperation by government acquisition professionals, prime contractors and subcontractors in order to ensure successful implementation, compliance and performance of government contracts.