At least a couple times a month, I’m asked when the FAR’s limitations on subcontracting provisions will be updated to correspond with SBA regulations adopted in 2016, and underlying statutory changes adopted way back in the 2013 National Defense Authorization Act.
Well, now it seems that the FAR updates may take longer than I’d hoped. In its most recent “Open Cases” update, the FAR Council says that it’s made a switch in the procedure that will be used to implement the changes to the limitations on subcontracting–and that switch will likely delay the implementation of those changes by several months.
It’s been more than a year since the SBA issued a final rule overhauling the limitations on subcontracting for small business contracts. The SBA’s rule, now codified at 13 C.F.R. 125.6, changes the formulas for calculating compliance with the limitations on subcontracting, and allows small businesses to take credit for work performed by similarly situated subcontractors.
But the FAR’s corresponding clauses have yet to be changed, and this has led to a lot of confusion about which rule applies–especially since many contracting officers abide by the legally-dubious proposition that “if it ain’t in the FAR, it doesn’t count.” Now, finally, there is some good news: the FAR Council is moving forward with a proposed rule to align the FAR with the SBA’s regulations.
Large businesses’ subcontracting plans would be subject to stricter compliance standards under a SBA proposed rule introduced December 29.
The intent of the new regulations is to compel prime contractors to make good faith efforts to comply with their subcontracting plans by implementing reporting mechanisms and harsher penalties for fraudulent actions or actions made in bad faith. Small businesses subcontractors are likely to agree that these are positive changes.
The ostensible subcontractor affiliation rule would be modified to include an exception for “similarly situated” entities serving as subcontractors, if a recent rule change proposed by the SBA goes into effect.
Under the SBA’s proposal, a small business would be exempt from ostensible subcontractor affiliation with another small business for a small business set-aside contract, an 8(a) participant with another 8(a) participant for an 8(a) set-aside contract, and so on.