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Federal Market Intelligence for Small Business |
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Set-Aside Alert news analysis:Significant clarifications now in effect for subcontracting rulesAmidst the flurry of recent Small Business Administration final rules going into effect, the provisions related to small business federal subcontracting should get extra attention. Significant changes to subcontracting regulations and practices went into effect on Dec. 30, including provisions affecting limitations on subcontracting and also on so-called ostensible subcontractors. The SBA added new requirements for contractors to demonstrate compliance with subcontracting regulations. The goal was to close various loopholes and tighten up against fraud. With the new terms, some analysts say enforcement is likely to step up, too. “We expect enforcement to be a more significant focus in 2020,” Jonathan Williams, government contracting attorney for PilieroMazza PLLC, wrote in a recent blog entry regarding limitations on subcontracting in set-aside contracts. Limitations on subcontracting Under SBA’s limitations on subcontracting clauses, for a set-aside service contract, the prime contractor must not pay more than 50% of the total award to firms that are not similarly situated. A similarly-situated subcontractor must be small and must be in the same SBA set-aside program as the prime. Under the new rule, there are several measures impacting limitations on subcontracting: The officers may request invoices, copies of subcontracts or teaming agreements, lists of the value of tasks performed, details on pricing, or lists of how much the prime has paid to subcontractors and whether those subs are similarly situated “We have already seen an uptick in solicitations that require the offeror to provide a price breakdown and narrative explanation of how the prime will meet the applicable limitation on subcontracting. We expect this to increase based on SBA’s new rules,” Williams wrote in his blog. Past Government Accountability Office reports have noted that contracting officers generally have not been monitoring compliance with the limitations. This provision aims to change that. Subcontracting plan compliance The final rule states that it would be a material breach if a contractor with a subcontracting plan does not make a good faith effort to comply with plan. Such a breach may be considered in any past performance evaluation. Examples of such failures include not submitting reports, failure to pay subcontractors under the terms of their contracts, and failure to designate a company official to carry out the plan. Ostensible subcontractors The final rule allows protests in situations in which the prime contractor on a socioeconomic set-aside contract is subcontracting most or all of the work to a small business that is not similarly situated. If a prime is “unduly reliant” on such a subcontractor then the SBA considers the sub an ostensible subcontractor and treats the relationship as a joint venture. “Where a subcontractor that is not similarly situated performs primary and vital requirements of a set-aside or sole-source service contract or order, or where a prime contractor is unduly reliant on a small business that is not similarly situated to perform the set-aside or sole source service contract or order, the prime contractor is not eligible for award of an [SDVOSB, HUBZone, or WOSB/EDWOSB] contract,” Nicole Potroff, associate attorney for Koprince Law LLC, wrote in a blog.
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