A newly published Small Business Administration Final Rule provides small businesses with two new ways to satisfy Past Performance requirements when competing for federal prime contracts. The Rule takes effect on August 22, 2022.

The Rule is a slam dunk for small business contractors that will open the door to increased contracting opportunities. But, as so often happens, small business rules and regulations do not exist in a vacuum. Other-than-small (or large) contractors with contracts requiring subcontracting plans must be on notice of new compliance requirements created by the Final Rule.

Let’s start by looking at the new Past Performance avenues created by the Final Rule and soon-to-be available for small business contractors.

First, a small business that “previously participated in a joint venture with another business concern (whether or not the other concern was small) may use the past performance of the joint venture with the small business’ offer on a prime contract.” The Rule requires the small business to identify the relevant contract(s) performed by the JV and the duties/responsibilities of the small business in performing the work. Once established, the contracting officer must “consider the past performance of the joint venture when evaluating the past performance of the small business concern, giving due consideration to the information submitted about the duties and responsibilities that the small business carried out.”

Second, small businesses can rely on Past Performance based on performing as a first-tier subcontractor on a prime contract that required a subcontracting plan. The small business must request the Past Performance rating directly from the prime contractor and provide it to the contracting officer as part of its proposal.

It is this second part of the Final Rule that creates additional compliance obligations for large prime contractors.

Once requested, the prime contractor must provide the Past Performance rating to the small business within 15 calendar days. The rating must utilize the default five-scale CPARS ratings system found at FAR 42.1503 (Exceptional to Unsatisfactory) and must evaluate (at a minimum) the small business’s performance in terms of (1) Technical, (2) Cost Control, (3) Schedule/Timeliness, (4) Management, and (5) Other (as applicable).

The Final Rule also puts teeth in the prime contractor’s new compliance requirement. The obligation to respond to a proper request for a Past Performance rating must be included in the prime contractor’s subcontracting plan. As such, there are consequences for failing to comply, including termination for default, negative CPARS ratings, and liquidated damages for failure to make a good faith effort towards compliance. The Rule even goes so far as to encourage subcontractors to notify the contracting officer in the event that the prime contractor fails to submit the requested rating within the prescribed timeframe.

Not surprisingly, the Final Rule results in two sets of takeaways:

For small businesses, become familiar with the new options for showcasing Past Performance on federal contracts.

Large contractors, act now to update your compliance program to include this new requirement as part of your small business subcontracting plan.

Nick Solosky is a Partner in Fox Rothschild’s Government Contracts Practice Group.  You can reach Nick directly at NSolosky@FoxRothschild.com or 202-696-1460.