The Department of Defense, General Services Administration, and National Aeronautics and Space Administration recently published a final rule that amends the Federal Acquisition Regulation (FAR) to better explain how contracting officers should evaluate “good faith efforts” on the part of prime contractors to comply with their small business subcontracting plans. These explanations were already included in Small Business Administration (SBA) regulations through a final rule published on November 29, 2019. But, the FAR amendments will allow contracting officers to more easily determine when and how liquidated damages should apply if a prime contractor fails to make a good faith effort to comply with its subcontracting plan.
Small business subcontracting plans are required from large prime contractors when a contract has subcontracting possibilities and is expected to exceed $750,000—or $1.5 million for construction. Subcontracting plans include the contractor’s goals for subcontracting to different categories of small business concerns and a description of the efforts the contractor will make to ensure that such concerns have an equitable opportunity to compete for subcontracts. Failure to make a good faith effort to comply with the plan may result in assessment of liquidated damages, which can often equal the actual dollar amount by which the contractor failed to achieve each subcontract goal.
Before the recent regulatory update, the FAR only provided that liquidated damages ought to be assessed if a contractor failed to comply with its subcontracting plan. Now the FAR mirrors SBA’s guidance regarding compliance, which includes examples of good faith efforts and of failure to make good faith efforts. Additionally, the final rule adds guidance regarding what contracting officers should document when assessing whether a contractor has made good faith efforts to comply. It also explains the notice a contracting officer should provide in the event a contractor is failing to make good faith efforts, providing a 15-day window for contractors who have received notice to respond and demonstrate what good faith efforts have been made.
While the FAR update largely restates SBA’s existing guidance, it streamlines contracting officers’ assessments of good faith efforts prime contractors make to comply with their small business subcontracting plans by placing all the relevant guidance in one place. It also provides a clear roadmap of how contracting officers should allow contractors to respond in the event the contracting officer finds that the contractor has failed to make good faith efforts. This welcome change will assist both contracting officers and contractors in assessing compliance—and complying—with small business subcontracting plans.