Additional Small Business Subcontracting Plan Compliance Requirements Underway

February 9, 2017

Significant regulatory changes instituting small business subcontracting improvements have been incorporated into the Federal Acquisition Regulations (FAR), imposing additional small business-related obligations on large prime contractors (“Prime”). Although these changes went into effect on November 1, 2016, businesses may not experience their full impact until later this year. Existing government systems, such as the Electronic Subcontracting Reporting System (eSRS), need to be modified to accommodate several of these compliance requirements.

The GSA has started incorporating the updated FAR clauses containing these provisions into its Schedule solicitations via refreshes and mandatory modifications. The most significant changes being implemented are as follows:

  1. Identifying Small Business Subcontractors in a Bid or Proposal

Large business prime contractors shall make good faith efforts to utilize proposed small business subcontractors during contract performance to the same degree they relied on the small business in preparing and submitting the bid or proposal. A Prime that identifies a small business subcontractor by name in its proposal or subcontracting plan must notify the contracting officer in writing within 30 days of contract completion if it was unable to utilize the subcontractor and explain why.

A Prime should not name potential small business subcontractors in proposals unless they intend to work with them. The contracting officer determines whether the contractor made good faith efforts to comply. Failure to do so may result in negative past performance evaluations or even the assessment of liquidated damages.

  1. Requiring Order-Level Reporting on IDIQ Contracts

A Prime with subcontracting plans on multiple agency Indefinite-Delivery, Indefinite-Quantity (IDIQ) contracts (such as the GSA Schedules) will be required to report order-level subcontracting information after November 30, 2017. eSRS is being modified to accommodate this requirement.

  1. Updating Business Recertification

The new rule provides contracting officers the discretion to require a subcontracting plan in instances where a small business re-represents its size as “other than small business.” It also allows for a business to re-certify from large to small.

GSA Schedule holders who have an acquisition, or other triggering event, within 210 days of their option will have the subcontracting plan effective date at the start of the new option. If the trigger occurs outside the 210-day period, the subcontracting plan will become effective immediately. If a contractor goes from large to small, this works in the reverse, with the date the subcontracting plan is removed from their contract following the same guidelines.

  1. Permitting Subcontractors Access to Contracting Officers

Subcontractors must be permitted to discuss payment or utilization matters directly with contracting officers with no monitoring by the Prime. The Prime is prohibited from blocking such communication between the subcontractor and the contracting officer. The contracting officer is allowed to communicate with the subcontractor, even if they are otherwise not used to doing so.

  1. Assigning NAICS Codes to Subcontracts

Primes are required to identify and assign appropriate NAICS codes to subcontracts rather than simply flowing down the NAICS assigned to the prime contract without considering the scope of the subcontract. The NAICS code should best describe the principal purpose of the subcontract. This may mean that a Prime has to assign multiple NAICS codes to a subcontract.

  1. Notifying Unsuccessful Offerors

Primes are required to notify unsuccessful bidders on competitive subcontracts in writing of the name, location, and socioeconomic status of the successful subcontractor before awarding the subcontract.

  1. Establishing Subcontracting Goals at the Order Level

On IDIQ contracts, the contracting officer may establish subcontracting goals at the order level, but not a new subcontracting plan.

Government contractors should review and understand these compliance requirements regarding small business subcontracting plans. Contractors can run the risk of potentially being in breach and receive negative past performance ratings for non-compliance with their subcontracting plans.

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