Georgia Tech Procurement Assistance Center

DoD makes immediate change to limitations on subcontracting rule; FAR Council issues proposed rule

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The Department of Defense (DoD) has issued a class deviation that resolves the inconsistency between the Small Business Administration (SBA) regulations and the clause at Federal Acquisition Regulation (FAR) 52.219-14 related to the Limitations on Subcontracting Rule (LOSR).

The FAR Council has also issued a proposed rule to amend FAR 52.219-14 to fully resolve this issue for all small businesses. Government contractors should be aware of these new changes and proposed changes.

Generally, the LOSR prevents small business prime contractors from subcontracting the majority of the work under a prime contract to large businesses. The LOSR is intended to ensure that small businesses get the benefit of the set-aside prime contract. The government does not want a small business to get an award, perform only a small portion of the work, and then subcontract out everything else to large businesses.

Since 2016, SBA small businesses have struggled to comply with the LOSR because the regulations at 13 C.F.R. § 125.6 are inconsistent with the contract clause at FAR 52.219-14.

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=777544

See DoD’s Jan. 8, 2019 Class Deviation 2019-O0003 on this subject at: https://www.acq.osd.mil/dpap/policy/policyvault/USA000039-19-DPC_Class_Deviation_2019-O0003.pdf

See the proposed rule here: https://www.govinfo.gov/content/pkg/FR-2018-12-04/pdf/2018-25506.pdf

While FAR Council proposes change to subcontracting limitation rules, DoD issues immediate class deviation

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More than five years after Congress directed the Executive Branch to change the way small business contract performance requirements are calculated, the U.S. Department of Defense (DoD) and the Federal Acquisition Regulation (FAR) Council announced significant steps yesterday to adopt these new requirements.

By way of background, in June 2016, the U.S. Small Business Administration (SBA) issued a final rule changing its regulations regarding the limitations on subcontracting applicable to small business set-aside contracts. SBA’s amended regulations were promulgated in response to a directive in the 2013 National Defense Authorization Act (2013 NDAA) which required changes to how limitations on subcontracting requirements are quantified and which required inclusion of “Similarly Situated Entities” (SSEs) in the prime contractor’s portion of the work under set-aside contracts.

The contracting community has been anxiously awaiting an amendment to the FAR, which has been asserted to be necessary for these Congressionally-mandated changes to become effective.  On Dec. 5th, the DoD issued a Class Deviation which adopts SBA’s current approach to Limitations on Subcontracting. The Class Deviation is effective immediately and applies to all DoD solicitations and contract awards from that date forward.

DoD’s Class Deviation was issued in conjunction with a notice of proposed rule-making issued by the FAR Council, which proposes to amend the FAR’s Limitations on Subcontracting clause (52.219-14) to conform with the statutory requirement and SBA’s previously announced final rule.

Keep reading this article at: https://www.jdsupra.com/legalnews/dod-issues-a-limitations-on-58789/

See commentary about the limitations on subcontracting rule at: http://smallgovcon.com/statutes-and-regulations/limitations-on-subcontracting-far-council-finally-proposes-rule-change/

Limitations on subcontracting: FAR change in the works

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It’s been more than a year since the SBA issued a final rule overhauling the limitations on subcontracting for small business contracts.  The SBA’s rule, now codified at 13 C.F.R. 125.6, changes the formulas for calculating compliance with the limitations on subcontracting, and allows small businesses to take credit for work performed by similarly situated subcontractors.

But the FAR’s corresponding clauses have yet to be changed, and this has led to a lot of confusion about which rule applies – especially since many contracting officers abide by the legally-dubious proposition that “if it ain’t in the FAR, it doesn’t count.”  Now, finally, there is some good news: the FAR Council is moving forward with a proposed rule to align the FAR with the SBA’s regulations.

By way of quick background, way back in January 2013, former President Obama signed the 2013 National Defense Authorization Act (NDAA) into law.  The 2013 NDAA made major changes to the limitations on subcontracting.  The law changed the way that compliance with the limitations on subcontracting is calculated for service and supply contracts – from formulas based on “cost of personnel” and “cost of manufacturing,” to formulas based on the amount paid by the government.  And, importantly, the 2013 NDAA allowed small primes to claim performance credit for “similarly situated entities.”

Keep reading this article at: http://smallgovcon.com/uncategorized/limitations-on-subcontracting-far-change-in-the-works/

Ostensible subcontractor rule: SBA OHA confirms ‘four key factors’ to avoid

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In determining whether a prime contractor and subcontractor are affiliated under the ostensible subcontractor rule, the SBA is supposed to consider the totality of the relationship between the parties.  But when it comes to determining whether the ostensible subcontractor rule has been violated, not all components of the prime/subcontractor relationship are created equal.

In a recent decision, the SBA Office of Hearings and Appeals confirmed that there are “four key factors” that are strongly suggestive of ostensible subcontractor affiliation–especially if the subcontractor will perform a large percentage of the overall contract work.

OHA’s decision in Size Appeal of Charitar Realty, SBA No. SIZ-5806 (2017) involved a GSA solicitation for custodial, landscaping and grounds maintenance at two federal courthouses.  The solicitation was issued as an 8(a) set-aside under NAICS code 561720 (Janitorial Services), with a corresponding $18 million size standard.  The solicitation required, among other things, that offerors provide at least three past performance references, completed over the last three years, for similar work.

Keep reading this article at: http://smallgovcon.com/sbaohadecisions/ostensible-subcontractor-rule-oha-confirms-four-key-factors-to-avoid/

Set-aside decision need not consider compliance with limitation on subcontracting

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GAO-GovernmentAccountabilityOffice-SealBefore deciding whether to set-aside a solicitation for small businesses under FAR 19.502-2, should the contracting officer first determine whether those small business will be able to provide the needed services while, at the same time, complying with the limitation on subcontracting?

No, according to a recent Government Accountability Office (GAO) bid protest decision. Instead, an agency’s determination whether a small business will comply with the limitation on subcontracting should be made as part of its award decision (following the evaluation of proposals), not during its initial set-aside determination.

Under FAR 19.502-2(b), a procurement with an anticipated dollar amount greater than $150,000 must be set-aside for small businesses where there is a reasonable expectation that offers will be received from at least two responsible small businesses and that award will be made at fair market prices. Though orders under Federal Supply Schedule (FSS) contracts (issued under FAR part 8.4) are exempt from these small business programs, a contracting officer nonetheless has discretion to set-aside FSS orders for small businesses.

Keep reading this article at: http://smallgovcon.com/gaobidprotests/set-aside-decision-need-not-consider-compliance-with-limitation-on-subcontracting/

SBA issues new rules affecting small business affiliation — and lots more

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Federal RegisterBack when the U.S. Congress was adopting the 2013 version of the National Defense Authorization Act (NDAA), it included directives to the Small Business Administration (SBA) to make changes to multiple rules pertaining to small business set-aside contracts and subcontracting.  On Monday, May 31, 2016, the SBA published final rules in the Federal Register implementing each of these changes.

The rule changes are wide ranging, amending SBA’s nonmanufacturer rule and affiliation rules, and for the first time allowing joint ventures to qualify as small for any government procurement as long as each partner to the joint venture qualifies individually as small under applicable size standards.

All of the changes can be seen at: https://www.federalregister.gov/articles/2016/05/31/2016-12494/small-business-government-contracting-and-national-defense-authorization-act-of-2013-amendments.

Here is a summary view of some of the most significant changes being made:

  • Affiliation. In the case of a solicitation for a bundled contract, a small business contractor may enter into a Small Business Teaming Arrangement with one or more small business subcontractors and submit an offer as a small business without regard to affiliation, so long as each team member is small for the size standard assigned to the contract or subcontract. This is a major change.  Previously, small businesses risked losing small business status if combined employees or gross revenues exceeded SBA’ s size standards.  This new concept applies to joint ventures as well.  A joint venture of two or more business concerns may submit an offer as a small business for a federal procurement, subcontract or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract.  In addition, the new rule provides that firms owned or controlled by married couples — in addition to parties to a civil union, parents, children, and siblings — are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships.
  • Procurement Center Representatives.  The SBA has Procurement Center Representatives (PCRs) located at federal agencies and military bases which have major contracting programs.  Under the new rules, PCRs are to review all acquisitions that are not totally set aside for small businesses to determine whether a set-aside or sole source award to a small business is appropriate and to identify alternative strategies to maximize the participation of small businesses in the procurement. PCRs are also to advocate against the consolidation or bundling of contract requirements (which tend to adversely impact small business contract participation), and reviewing any justification provided by the agency for consolidation or bundling. This review includes acquisitions that are Multiple Award Contracts (MACs) where the agency has not set-aside all or part of the acquisition or reserved the acquisition for small businesses. It also includes acquisitions where the agency has not set-aside orders placed against MACs for small businesses.  Also, for the first time, PCRs may receive unsolicited proposals from small businesses.  They are to send such proposals to the agency personnel responsible for reviewing such proposals, and the agency personnel are to provide PCRs with information regarding the disposition of each proposal.
  • Subcontracting to Small Businesses.  A prime contractor that identifies a small business by name as a subcontractor in a proposal, offer, bid or subcontracting plan is now obligated to notify those subcontractors, in writing, prior to identifying the concern in the proposal, bid, offer or subcontracting plan.  Safeguards against naming a subcontractor that the prime really doesn’t intent to use are also strengthened.  The new rules state that anyone who has a reasonable basis to believe that a prime or a subcontractor may have made a false statement with respect to subcontracting plans is to report the matter to the SBA’s Office of Inspector General. All other concerns as to whether a prime contractor or subcontractor has complied with SBA regulations or otherwise acted in bad faith may be reported to the Government Contracting Area Office where the firm is headquartered.  Contractors who are judged to have acted in bad faith may be found to be in material breach of contract and subject to liquidated damages under their contract.
  • Limitations on Subcontracting.  The rules have changed for the amount of work a small business may subcontract out.  In order to be awarded a full or partial small business set-aside contract with a value greater than $150,000, a small business concern now must agree that:

    (1) In the case of a contract for services (except construction), it will not pay more than 50% of the amount paid by the government to it to firms that are not similarly situated.  (Any work that a similarly situated subcontractor further subcontracts will count towards the 50% subcontract amount that cannot be exceeded.)

    (2) In the case of a contract for supplies or products (other than from a non-manufacturer of such supplies), it will not pay more than 50% of the amount paid by the government to it to firms that are not similarly situated. (Any work that a similarly situated subcontractor further subcontracts will count towards the 50% subcontract amount that cannot be exceeded.) Cost of materials are excluded and not considered to be subcontracted.

    (3) In the case of a contract for supplies from a non-manufacturer, it will supply the product of a domestic small business manufacturer or processor, unless a waiver is granted.

    (4) For a multiple item procurement where a waiver has not been granted for one or more items, more than 50% of the value of the products to be supplied by the non-manufacturer must be the products of one or more domestic small business manufacturers or processors.

    (5) For a multiple item procurement where a waiver is granted for one or more items, compliance with the limitation on subcontracting requirement will not consider the value of items subject to a waiver. As such, more than 50% of the value of the products to be supplied by the non-manufacturer that are not subject to a waiver must be the products of one or more domestic small business manufacturers or processors.

    (6) For a multiple item procurement, the same small business concern may act as both a manufacturer and a non-manufacturer.

  • Contracts Set-Aside for Service Disabled Veteran Owned Small Businesses.  Under the new rules, a joint venture comprised of at least one Service Disabled Veteran Owned Small Business (SDVOSB) and one or more other businesses may submit an offer as a small business for a competitive SDVOSB set-aside procurement, or be awarded a sole source SDVOSB contract, so long as each concern is small under the size standard corresponding to the NAICS code assigned to the procurement.

All of these rule changes are effective on June 30, 2016.

 

SBA proposed rule would let small businesses join together for single contract

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The Small Business Administration issued a proposed rule that would let two or more small businesses join together to bid on single small business contracts, a Dec. 29, 2014 Federal Register notice says.

The proposed rule comes as part of an update in the 2013 National Defense Authorization Act that changed some provisions in the Small Business Act.

“SBA proposes to remove the restriction on the type of contract for which small businesses may joint venture without being affiliated for size determination purposes,” the proposed rule says.

SBA says it’s proposing the change because it would encourage more small business joint venturing and would help agencies meet goals for small business participation in federal contracting.

Keep reading this article at: http://www.fiercegovernment.com/story/sba-proposed-rule-would-let-small-businesses-join-together-single-contract/2015-01-08

8(a) subcontracting limitations: Compliance oversight lacking

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Compliance with the limitations on subcontracting are not adequately being monitored by the contracting officers responsible for 8(a) contracts, according to a recent GAO report.

After reviewing a representative sample of ten 8(a) contracts, the GAO determined that contracting officers effectively monitored subcontracting limit compliance on two of those contracts.  In other cases, agency contracting officers failed to effectively monitor compliance, even in situations presenting a heightened risk of potential violations–such as where ineligible incumbents were serving as subcontractors.

The GAO report documents “confusion” among contracting officers regarding their obligations to ensure compliance with subcontracting limits.  Some contracting officers were confused about what sba-logothe FAR, Small Business Act, and SBA partnership agreements require.  Other contracting officers seemed to assume that their CORs were primarily responsible for ensuring compliance with the subcontracting limits – although all 10 of the CORs in question “stated that contracting officers have not delegated this responsibility to them and they do not take steps to monitor the amount of subcontracted work.”

Keep reading this article at: http://smallgovcon.com/statutes-and-regulations/8a-subcontracting-limitations-compliance-oversight-lacking/

Limitations on subcontracting: 1099 contractor’s work didn’t count

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Under the FAR’s limitations on subcontracting clause, the work to be performed by a 1099 independent contractor did not count toward the prime contractor’s performance.

In a recent bid protest decision, the GAO held that a procuring agency properly rejected an offeror’s proposal because the offeror was relying, in part, on an independent contractor to meet its obligations under the limitations on subcontracting clause.

The GAO’s decision in MindPoint Group, LLC, B-409562 (May 8, 2014) involved a Department of Justice solicitation for information technology infrastructure support.  The proposal was issued as a set-aside for Economically Disadvantaged Woman Owned Small Businesses (EDWOSBs), and incorporated FAR 52.219-14, the standard limitation on subcontracting clause.  For a services contract, FAR 52.219-14 requires the EDWOSB to perform at least 50 percent of the cost of contract performance incurred for personnel with its own employees.

MindPoint Group, LLC submitted a proposal.  MindPoint’s proposal stated that MindPoint would self-perform 53.3 percent of the contract effort using seven individuals, including an individual designated as the “Systems Administrator MS.”  However, MindPoint’s proposal included a letter of commitment stating that the Systems Administrator MS would be an “independent consultant,” and MindPoint’s price proposal referred to the individual as a “1099 Consultant.”

Keep reading this article at: http://smallgovcon.com/gaobidprotests/limitations-on-subcontracting-1099-contractors-work-didnt-count/

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