GovGovernment Small Business Subcontracting Plan FAR 19.7ernment bids have increased the requirement to submit small business subcontracting plans under FAR 19.7 and FAR 52.219 or small business participation plan. There is a huge concern as to why small businesses should still have to submit such plans. Furthermore, there are several companies that have lost bids because there was no strategy or thought when the solicitation gave the minimum criteria for either a Small Business Participation Plan or Subcontracting Plan

Some agencies have chosen to name the requirement as “small business participation plan” or ” small business utilization plans”  since subcontracting plans were initially put in place for large businesses that compete in full and open bidding requirements. 

As a bidder, you should focus on a few things.

  • First, seek out credible small businesses that can actually perform the work. Fighting the solicitation requirement has proven not to work in the courts.
  • Second, make sure that you do not fall short of the solicitation’s proposed goal requirements. If you fall short, the government may rate you lower (if subcontracting plans are part of the evaluation criteria.
  • Third, make sure that you identify the percentage of work and of the contract for each subcategory (e.g. SDVOSB, HUBZone etc.)

Be aware of the new SBA rules regarding small business subcontracting and limitations.

Origin of Small Business Subcontracting Plan Requirements FAR 52.219

The Small Business Subcontracting plan Program is based on Public Law 95-507  that was passed in 1978 to ensure that prime contractors further the goal of increasing participation of small businesses in federal procurement. 

The reason is to ensure that some of the contracting dollars are passed down to small businesses that are service disabled veteran-owned, HUBZone, Small Disadvantaged Businesses, Woman-owned, and Veteran-owned.

Many solicitations now require contractors to submit plans with their proposals. However, many bidders do not put enough emphasis on their plans. As a result, they receive a lower technical score.

Are there exceptions to the FAR subcontracting plan requirements? Subcontracting plans are not required from subcontractors when the prime contract contains the clause at FAR 52.212–5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders—Commercial Items, or when the subcontractor provides a commercial item subject to the clause at FAR 52.244–6, Subcontracts for Commercial Items, under a prime contract.  

Other subcontracting plan exceptions include: Small businesses Personal services contracts; Contract performed outside the US; Modifications that do not contain the clause at FAR 52.219-8, Utilization of Small Business Concerns.

Government Oversight of  Small Business Subcontracting Plans — a Continuing Problem: Oversight has been an ongoing problem throughout the United States. FAR 52.219-9 small business subcontracting plan requires government contracts awarded to over $650,000 (over $1.5 million for the construction of a public facility) to have a mandatory subcontracting plan included in the prime contract. However, companies submitting federal bids offer the minimum pass through work to small businesses.

  • After the government awards the contract, many federal agencies do not diligently follow up on the prime contractor’s compliance requirement.
  • Recently, large prime contractors have been scrutinized and given show-cause letters for not complying with their subcontracting plans in good faith.

Small Business Subcontracting Goals Versus Legal Obligations: Although it is true that a small business utilization plan only set forth goals, each prime contractor now has a legal obligation (through the expressed terms of the prime contract) to demonstrate a good faith effort to seek out qualified subcontractors in the various socio-economic categories (service disabled veteran-owned, HUBZone, Small Disadvantaged Businesses, Woman-owned, and Veteran-owned).

Reporting Requirements 15 USC 637 and FAR 52.219: To amplify the legal obligation, primes have to submit reports to support their progress (SF 294 and 295) in addition to other reports showing their interaction with small businesses. Good faith must be present, or the prime contractor runs the risk of breaching the contract.

  • As stated in 15 USC 637 (d)(8) and FAR 19.7, any contractor or subcontractor failing to comply in good faith with the requirements of the subcontracting plan is in material breach of its contract.
  • Further, 15 USC 637 directs that a contractor’s failure to make a good faith effort to comply with the requirements of the subcontracting plan shall result in the imposition of liquidated damages.

Legal Rights for Government Small Businesses Subcontracting Plan Under FAR 19.7

Revisiting the lack of privity of contract excuse from government agencies, one has to ask what rights the small subcontractor has. Given the language of federal statutes and Federal Acquisition Regulations (FAR Part 19.7), it appears that subcontractors are third party beneficiaries to the terms of the prime contract.

  • Regulations for government small business subcontracting plans tend to give rise to the contracting officer’s legal obligation to enforce the terms of the contract. 
  • More specifically, to ensure that large prime contractors do no just ‘blow off’ their responsibility to pass on work to small businesses.
  • Companies should realize that their compliance with a small business subcontracting plan is measured in future government bids.

For small businesses affected, having a government contracts lawyer that understands the underlying principles of subcontracting plans can be the difference between getting work or not.

The Problem: Large businesses that bid on full and open government contracts have no problem submitting plans. However, when the bid is awarded, most large prime contractors know that government agencies genuinely do not follow up or enforce the statutory requirements for subcontracting plans.  

As stated in 15 USC 637 (d)(8), any contractor or subcontractor failing to comply in good faith with the requirements of the subcontracting plan is in material breach of its contract. Further, 15 USC 637 (d)(4)(F) directs that a contractor’s failure to make a good faith effort to comply with the requirements of the subcontracting plan shall result in the imposition of liquidated damages. It is clear that prime contractors have an affirmative responsibility to comply with laws.

Under FAR 19.705-2, the contracting officer must take individual actions to determine whether a proposed contract requires subcontracting plans.

Contracting Officer Enforcement Authority Under FAR 19.7 and 15 USC 637: The Contracting Officer has the statutory power to enforce plans under FAR 19.7 and 15 USC 637 . If, after consideration of all the pertinent data, the contracting officer finds that the contractor failed to make a good faith effort to comply with its subcontracting plan, the contracting officer shall issue a final decision to the contractor to that effect and require the payment of liquidated damages in an amount stated.

SBA Responsibility for Small Business Participation Plans

Does the SBA have authority and responsibility to participate in the oversight of your small business participations plans or small business subcontracting under FAR 52.219? Of course, it does. Under FAR Part 19.707. Although the rules state that the SBA “may” act, there should be an inclination to show that it will act. See information about SBA 8a small business plan.

GAO Reports: The Government Accounting Office  (GAO) has submitted reports addressing this very problem. In fact, it made stern recommendations to at least two agencies to implement more oversight into their government contract subcontracting goal plan obligations.

See How We Can Help You With Joint Venture & Teaming Matters

 For more information or help with your government small business subcontracting plans under FAR 19.7 and 15 USC 637, contact the government contract law attorneys at Watson & Associates, LLC or call 1-1-866-601-5518. FREE INITIAL CONSULTATION.

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