Firms that participate in the U.S. Small Business Administration (“SBA”) 8(a) program operate in a highly regulated environment. For years, 8(a) firms were required to seek approval, or “consent to subcontract,” from contracting officers and SBA to subcontract work on an 8(a) contract. In September, with little fanfare, the Federal Acquisition Regulatory Council removed the consent-to-subcontract requirement from two Federal Acquisition Regulation (“FAR”) clauses (FAR 52.219-12 and 52.219-17), which are supposed to be incorporated in all 8(a) contracts. According to the Council, this was done after SBA removed the rarely enforced requirement from its regulations. The final regulations took effect in October. The removal of the consent-to-subcontract requirement is welcome news for 8(a) firms, who faced exposure to adverse contractual remedies if accused of violating the requirement.
Although the requirement was rarely enforced, some agencies have viewed a lack of approval to subcontract as reason to question payments made by 8(a) firms to subcontractors. Indeed, more than one of our 8(a) clients has had to battle audit agencies that have attempted to claw back funds because there was no evidence that SBA and/or the contracting officer had consented to subcontract(s). In our experience, 8(a) firms reasonably assumed that the government had approved their subcontracts based on the 8(a) firm’s proposal identifying teaming partners. Acceptance of the proposal arguably implied that the agency had consented to the subcontract(s). Unfortunately, due to the FAR clauses, some audit agencies would make the now obsolete requirement a bone of contention years after work was performed.
Now, fortunately, 8(a) firms no longer need to worry about the consent-to-subcontract requirement specific to 8(a) contracts. Of course, like all government contractors, 8(a) firms still need to make sure other consent-to-subcontract requirements are not buried in a FAR clause within the prime contract. Consent-to-subcontract requirements are incorporated in many prime contracts, such as cost reimbursement, time and material, labor hour, and architect-engineer services contracts. 8(a) firms should not view the change in the FAR clauses specific to 8(a) contracts as giving them a pass on the need to seek agency approval to subcontract on a particular prime contract — 8(a) or non-8(a). For questions regarding consent-to-subcontract requirements in your contract, please reach out to a member of PilieroMazza’s Government Contracts Group.