Federal Small Business Subcontracting Plan Compliance Training Webinar
RLI Design Professionals
Design Professionals Learning Event
Reggie Jones & Nick Solosky Fox Rothschild LLP November 5, 2014
RLI Design Professionals is a Registered Provider with The American Institute of Architects Continuing Education Systems. Credit earned on completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-AIA members are available on request.
This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation.
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© RLI Design Professionals
The Federal Government sets measureable
small business subcontracting goals that
design professionals must make a “good
faith effort” to meet or exceed
Failure to make this effort could result in
liquidated damages, default determination,
and/or negative performance reviews
Why We’re Here …
Other Federally mandated small business
regulations are vital for design
professionals to understand and follow
- SBA Size Regulations; Limitations on Subcontracting; Understanding Affiliation Rules
False Claims Act implications
Increased Government enforcement
Why We’re Here …
Learning Objectives
Participants will learn:
I. SMALL BUSINESS
SUBCONTRACTING PLANS
II. SBA SIZE REGULATION UPDATE
III. LIMITATIONS ON
SUBCONTRACTING
IV. AFFILIATION
Subcontracting Plan PrimerThe General Requirement:
All Federal contracts over $650K ($1.5M for construction of public facilities) include FAR Clauses 52.219-8 (Utilization of Small Business Concerns) and 52.219-9 (Small Business Subcontracting Plan), which require contractorsand first-tier subcontractors to make a “good faith effort” to meet or exceed the procuring agency's small business subcontracting goals.
Tip:Failure to make a good faith effort could result in liquidated damages, default determination,
and negative performance reviews
FAR Contract Clause 52.219-9• An offeror must submit a subcontracting plan for all
proposals with a value in excess of $650,000 (or, again, $1.5M for construction of public facilities)
• Plan must separately address subcontracting with small businesses and other disadvantaged business categories
• Subcontracting goals are expressed in terms of % of total planned subcontracted dollars
• The plan is included in and made a part of the contract
• Failure to submit a subcontracting plan makes the offeror ineligible for award of the contract.
Subcontracting Plan Talking Points
• Flow down to first-tier subcontractors
• Prime contractor is responsible for obtaining, approving and monitoring the sub’s plan
• Evaluated as part of the procurement
process
• Refer to FAR 19.701–705 (Definitions,
Requirements, and Responsibilities)
Subcontracting Plan Goals
Government Wide Goals:• 23 % of prime contracts for small businesses
• 5 % of prime and subcontracts for women-owned small
businesses (WOSB)
• 5 % of prime contracts and subcontracts for Small
Disadvantaged Businesses
• 3 % of prime contracts and subcontracts for HUBZone
small businesses
• 3 % of prime and subcontracts for service-disabled
veteran-owned small businesses (SDVOSB)
Agencies have their own, specific goals.
Solicitations may have higher goals.
Developing a Compliant Plan
The Required Elements of a Compliant Small
Business Subcontracting Plan:- Percentage goals for the use of small business and
disadvantaged firms
- Total value to be subcontracted
- Description of principal types of suppliers or servicesto be subcontracted
- The method(s) used to develop these goals
- The method(s) used to identify potential small business sources
Required Elements (Continued)- Explanation of whether indirect costs are included
- The name of an individual in the offeror’s firm who will administer the program
- A description of the efforts the offeror will take to assure an equitable opportunity for competition by small businesses for subcontracts
- Assurances that the same requirements will be included in subcontracts
- Agreement to cooperate with studies and surveys
- Agreement to maintain records to demonstrate procedures adopted to comply with requirements and goals.
Tips:• A design professional may only count first-
tier subcontractors (for now)
• ANC and Indian Tribes Always Count
• SBA Mentor-Protégé teams count
Penalties for Non-Compliance
Default Termination
Liquidated Damages in proportion to
the amount of subcontracting promised,
but not attained
Bad Past Performance Evaluations
Potential False Claims Act Liability
Good Faith Efforts
The SBA small business participation
policy (found at 15 U.S.C. 637(d)(3)(A))
does not require that SBCs actually
receive subcontract awards, only that
SBCs be given the “maximum
practicable opportunity to participate
in the performance of subcontracts
let by any Federal agency”
What Are Good Faith Efforts?
Breaking out work items into units that are
economically feasible for SBCs.
Conducting market research to identify
eligible SBCs.
Seeking out SBCs early in the process.
Negotiating in Good Faith.
Utilizing organizations that help SBCs.
Participating in the mentor-protégé program.
Good Faith Efforts – Talking Points
Can you reject a higher-priced SBC in favor of
a less expensive non-small business?
Have you made a “good faith effort” if you do
not meet your subcontracting goal in one
socio-economic category, but exceed it in one
or more of the other categories?
Do you have to adopt a new subcontracting
plan or amend your existing plan to account
for change orders to the base contract?
Reporting Requirements
• Contractors should maintain the following records:- Source lists
- List of organizations contracted to locate sources
- Records on each subcontract of $150,000+ indicating whether SBCs were solicited, or why not (and reason award was not made to SBC)
- Outreach efforts
- Internal guidance and encouragement provided to buyers
Reporting Requirements - eSRS
Electronic Subcontractor Reporting System
(eSRS)
- Award data reported by contractor and subcontractors is limited to awards made to immediate next-tier subs
- Individual Subcontract Report (ISR)
Submitted semiannually and within 30 days of contract completion
Prime contractor ISR accepted or rejected by Contracting Officer; Subcontractor ISRaccepted or rejected by prime contractor
Reporting Requirements - eSRS
eSRS
- Summary Subcontractor Report (SSR) Encompasses all subcontracting under prime contracts
and subcontracts with the awarding agency
Report may be submitted on a corporate, company, or subdivision basis
Separate reports shall be submitted to each executive agency for only that agency’s contracts
– PROVIDED at least one contract exceeds $650K
Authority to accept or reject prime contractor or subcontractor SSR is with the procuring agency
Tips:Prime Must Notify CO of:
• Failure to Follow Subcontracting Plan
• Past Due / Reduced Payments SBCs
• Unsuccessful SBC Subcontracting Offerors
SBA Size Regulation Update
Exception to Affiliation for Mentor/Protégé
Programs
- SBA clarified that the mentor/protégé affiliation exception only applies to: SBA-approved mentor/protégé agreements; or
Where an exception to affiliation is specifically authorized by statute or by SBA
Coming Soon?: Mentor/Protégé Programs for
HUBZones, SDVOSBs, and WOSBs (Small
Business Jobs Act of 2010)
SBA Size Regulation Update
Changes to Mentor/Protégé Program
- Limits the number of protégés a mentor may have to three
- Allows a joint venture between a mentor and protégé to be small for government prime contracts or subcontracts, provided that the protégé qualifies as “small”
- Clarified that in order to receive exclusion from affiliation, JV must meet 8(a) JV requirements even on non-8(a) procurements
Small Business Jobs Act (2010)
Encourages the prosecution of false claims related
to misrepresentation of a firm’s size or status
Civil Damages Increased
- $7 million set aside amount means $21 millioncivil damages exposure, plus any statutory fine
Liability extends to those who “conspire” to violate
the Act
Section 1341 requires small business certification,
which makes proving a “knowing” violation easier
Limitations on Subcontracting
FAR 52.219-14; 13 C.F.R. §125.6
- Only inserted if the Contract is a small business set aside
- For Services Contracts (except construction) At least 50% of the cost of contract performance incurred for personnel shall be expended for employees of the Small Business Concern
Affiliation
13 C.F.R. 121.103(a)(6)
- In determining a concern’s size, SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit.
SBA is given exclusive authority to determine if entities are affiliated.
Affiliation?
13 C.F.R. 121.103(a) - General Principles:- Entities are affiliates of each other when one controls or
has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists. “Control” can be affirmative or negative
SBA considers factors such as ownership, management,
previous relationships with or ties to another concern,
and contractual relationships, in determining whether
affiliation exists.
“Totality Of The Circumstances” Test.
The Ostensible Subcontractor Rule
The Ostensible Subcontractor Rule is the most significant Affiliation Rule involving large and small contractor teams in today’s federal procurement market.
Affiliation exists between a prime/sub team when:
(1) prime is “unusually reliant” on sub to perform or
(2) sub performs “primary and vital requirements” of the contract.
This concludes The American Institute of Architects Continuing Education Systems Program
Reggie Jones, [email protected]
Nick Solosky, Senior [email protected]
