It has been a long time coming, but it appears that the government will (finally) amend the Federal Acquisition Regulation (FAR) to align with prior changes by the Small Business Administration (SBA) concerning credit for lower-tier small business subcontracting.
The proposed rule addresses changes to FAR 19.704 and 52.219-9 to marry the regulation up with SBA’s amendments.
We first covered this issue back in 2016 when SBA issued a final rule amending the small business subcontracting plan regulations. SBA’s amendment allows large prime contractors on federal jobs to receive credit for lower-tier subcontracting awards to small businesses and other socio-economically disadvantaged firms. That is, rather than limit credit to first-tier subcontracts, prime contracts may count the awards their first-tier subcontractors make to small businesses towards their subcontracting goals.
Prime contractors must have two sets of goals in their subcontracting plans: The first set includes the prime contractor’s goals for direct subcontract awards and the second set of goals addresses subcontracts awarded at lower tiers.
Receiving credit for those lower-tier subcontracts is often a big deal for large prime contractors. It provides some much needed flexibility when preparing a federal small business subcontracting plan. The change also benefits small business subcontractors based on the potential for increased subcontracting opportunities that add value to prime contractors.
Of course, among all of these positives, we need a word of caution. Federal contractors (both large and small) must carefully understand subcontracting plan requirements, including these recent changes. Penalties for failure to make good faith efforts to satisfy the requirements are significant – and can include liquidated damages, default termination, and negative performance evaluations.