BLOG: Long-Awaited Proposed Rule for Lower-Tier Subcontracting Plan Credit Finally Arrives to the FAR

June 28, 2019

By Kathryn V. Flood
Practice Area: Government Contracts Law

The FAR Council is beginning to catch up with the SBA’s allowance that prime contractors with small business subcontracting plans may take credit for lower-tier small business subcontracting—albeit, three years behind schedule. PilieroMazza attorneys will monitor and report on these developments, which could affect prime contractors and their subcontracting plan reporting, as well as their ability to win and maintain government contracts.

In 2016, SBA issued its final rule implementing directives found in the 2014 National Defense Authorization Act (NDAA) to allow prime contractors with individual subcontracting plans to receive credit towards their subcontracting goals for awards made to small business concerns at any tier by subcontractors with individual subcontracting plans. SBA’s regulations require prime contractors to establish two sets of small business subcontracting goals—those for their first-tier subcontractors and those for the lower-tier subcontractors.

Despite the fact that SBA’s rules have been in place since 2016, the ability for prime contractors to utilize lower-tier small business subcontracting spending towards their own subcontracting goals was put on hold until the FAR’s subcontracting plan regulations were also updated to reflect the 2014 NDAA requirements. Until the FAR clauses are updated, prime contractors simply will not have a mechanism to report small business subcontractor spending at a lower-tier level.

The FAR Council finally released its proposed rule to allow prime contractors to take credit for lower-tier small business subcontracting. Following the SBA’s lead, the proposed rule includes separate goals for first-tier and lower-tier small business subcontracting for individual subcontracting plans. The proposed rule also adopts additional assurances from SBA’s subcontracting regulations—requiring prime contractors to utilize small business subcontractors to the extent they identified the subcontractor in their bid or proposal information or used the subcontractor’s information in their bid or proposal. The proposed changes to the FAR also include SBA’s policies that offer small business subcontractors a degree of protection relating to timely payments and give the subcontractor the ability to discuss issues relating to payment or utilization directly with the contracting officer.

Comments on the proposed rule are due before August 26, 2019. Please contact an attorney in PilieroMazza’s Government Contracts Law Group if you have concerns or comments on how the proposed rule will affect your subcontracting plan reporting.

Kathryn Flood, the author of this blog, is a member of the firm’s Government Contracts Law and Small Business Programs & Advisory Services practice groups.

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