Regulatory amendments related to small-business subcontracting will take effect on November 1, 2016.

On July 14, the Federal Acquisition Regulatory Council issued a final rule in the Federal Register to implement regulatory changes that the Small Business Administration (SBA) made. The final rule makes many important changes to the Federal Acquisition Regulation (FAR) Part 19 and FAR clause 52.219-9 to implement the statutory requirements of Sections 1321 and 1322 of the Small Business Jobs Act of 2010 (Pub. L. 111-240). These changes, which take effect on November 1, are summarized below.

Use of Small-Business Subcontractors During Contract Performance

The new rule amends FAR clause 52.219-9, Small Business Subcontracting Plan, to require prime contractors to make good-faith efforts to utilize their proposed small-business subcontractors during a contract’s performance to the same degree that such small businesses were relied on in preparing or submitting the contract bid or proposal. If the prime contractor is unable to make this effort, it must explain in writing to the contracting officer, within 30 days of contract completion, the reasons why it is unable to do so.

Calculation of Subcontracting Goals

Under amended FAR subpart 19.704(a)(2), contracting officers will have discretionary authority to require a contractor to establish subcontracting goals both in terms of total subcontract dollars and in terms of total contract dollars. The Federal Acquisition Regulatory Council clarified that use of total contract dollars is in no way an attempt to influence a contractor’s make or buy decision and clarified that a contracting officer will make such decisions on a case-by-case basis. In addition, under the amended FAR subpart 19.705-1, the contracting officer may establish small-business subcontracting goals at the order level for indefinite-delivery, indefinite-quantity contracts.

Subcontracting Plan Requirements

The rule provides a contracting officer with the authority to require a subcontracting plan from a prime contractor during contract performance in two situations:

1. Under the amended FAR 19.301-2, contracting officers will be able to require a subcontracting plan in the event that a prime contractor’s size changes from small to other-than-small as a result of a size rerepresentation on a contract that contains FAR clause 52.219-9.

2. In addition, the amended FAR 19.702 will allow a contracting officer to require a subcontracting plan when a contract modification of any value causes a contract’s value without a subcontracting plan to exceed the subcontracting plan threshold and subcontracting opportunities exist.

Assigning NAICS Codes to Subcontracts

Under the revised FAR clause 52.219-9, prime contractors will be required to assign a North American Industry Classification System (NAICS) code and corresponding size standard to each subcontract with a small-business concern.

Subcontractor Discussions with the Contracting Officer

Under the amended FAR clause 52.219-9, prime contractors may not prohibit a subcontractor from discussing with the contracting officer any material matter pertaining to payment or use of a particular subcontractor.

Subcontracting Reports

Also under 52.219-9, prime contractors are directed to resubmit corrected subcontracting reports within 30 days of receiving notification that a report has been rejected.

Notification to Unsuccessful Offerors

Under the revised FAR clause 52.219-9, prime contractors must notify unsuccessful small-business offerors for subcontracts in writing and provide the successful offeror’s name, location, and socioeconomic status.

Subcontracting Credit

Historically, the agency that awarded a contract also received the small-business subcontracting credit. The new rule changes this model by allowing funding agencies to receive the small-business credit.

Conclusion

The proposed rule imposes some significant new compliance obligations and will require contractors to be vigilant in meeting those obligations. Large and small businesses alike should familiarize themselves with the final rule’s changes to prepare for the November effective date.