SBA Gives Dangerous Warning to Prime Contractors Naming Subcontractors In BidsPossible relief to named subcontractors in government bids: Under the new SBA regulations, there seems to be some relief to small businesses that are named as subcontractors and teaming partners but are never used on the contract.

This seems to be an increasing problem across the United States. In previous approaches, the SBA or the Contracting Officer would have to give the bad news to the subcontractor that there is no privity of contract between the government and the subcontractor. However, the new rules seem to add teeth to the bidding process.

Prime contractors beware: The SBA seems to send a dangerous warning to prime contractors who submit named subcontractors in their bids and then do not use them during the performance phase.

The new SBA regulations show that the government can now create its “hook” under the proposal certification requirements instead of being precluded by the previous privity of contract bar.

Under SBA regulations, 13 CFR 125.6 if a prime contractor that identifies a small business by name as a subcontractor in a proposal, offer, bid or subcontracting plan it MUST notify those subcontractors in writing prior to identifying the concern in the proposal, bid, offer or small business subcontracting plan.

Along with this requirement, prime contractors may also want to capture a commitment letter from the subcontracting entities. Any perceived violations of this rule can be costly to the prime contractor.

Apparently, no interested party requirement: 13 CFR 125.6 also creates legal standing to anyone having reason to believe that the prime contractor violates this rule to bring forth complaints to either the SBA IG or the contracting officer.

The language of the regulation suggests that:

Anyone who has a reasonable basis to believe that a prime contractor or a subcontractor may have made a false statement to an employee or representative of the Federal Government, or to an employee or representative of the prime contractor, with respect to subcontracting plans must report the matter to the SBA Office of Inspector General.

All other concerns as to whether a prime contractor or subcontractor has complied with SBA regulations or otherwise acted in bad faith may be reported to the Government Contracting Area Office where the firm is headquartered.

Tip for prime contractors: it appears that the new regulations only require written notice to proposed subcontractors. However, an issue still remains as to whether there was a legal commitment made by the subcontractor. Agencies may still require commitment letters in their solicitations. You must read the RFP language carefully.

Exposure to procurement fraud: Prime contractors can easily be exposed to adverse investigations or even procurement fraud. It is clear from the language of the new SBA regulations that subcontractors can now arguably become the intended beneficiaries for question bidding actions by the prime contractor.

It would also seem that named teaming partners or subcontractors should mitigate any damages by submitted a letter of commitment to the prime in response to the written notification.

Why? Because simply signing a teaming agreement may not be enforceable in court. You may need to more to show that you truly fall under the purview of the new regulations. Any claims brought against the prime contractor must still show that you attempted to mitigate your damages.

Get Your FREE Joint Venture Agreement Checklist

Get Help. For help applying the new SBA subcontractor and teaming partner issues call Watson & Associates LLC government small business lawyers at 1-866-601- 5518.

One comment on “SBA Gives Dangerous Warning to Prime Contractors Naming Subcontractors In Bids

Comments are closed.