Limitations on Subcontracting: FAR Council Finally Proposes Rule Change

For small government contractors, the disconnect between the SBA’s updated limitations on subcontracting rule and the FAR’s outdated rules has been very confusing.  For more than two years, the FAR and SBA regulation have used different formulas to determine compliance, and the SBA rule–but not the FAR–allows the use of “similarly situated entities” on small business set-asides and 8(a) contracts.

This has created major headaches for small businesses, who have had no definitive answer to what should be a simple question: “which rule do I follow?”  Now, finally, there is some important progress to report in clearing up this discrepancy: yesterday, the FAR Council issued a proposed rule to update the FAR’s limitations on subcontracting provisions and conform them to the SBA’s rule.

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GAO: Subcontracting Uncertainty Means No HUBZone Price Preference Required

An agency properly refused to apply the HUBZone price preference when the agency determined HUBZone company’s proposal was unclear as to whether the company would comply with the subcontracting limits set forth in the FAR’s HUBZone price preference clause.

In a recent bid protest decision, the GAO held that the Defense Logistics Agency reasonably refused to apply the HUBZone price preference in a procurement for supplies because the HUBZone company’s proposal suggested that HUBZone companies might perform less than 50% of the manufacturing costs.

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HUBZone Price Preference: GAO Confirms Application to GSA Leases

The HUBZone price preference applies to GSA leasehold acquisitions, according to a GAO decision confirming a prior bid protest ruling.

In General Services Administration–Reconsideration, B-406040.2 (Oct. 24, 2012), the GSA asked the GAO to reconsider its decision in The Argos Group, LLC, B-406040 (Jan. 24, 2012), in which the GAO initially held that the HUBZone price evaluation preference applies to GSA lease acquisitions.  The GAO–with the SBA’s support–confirmed its prior ruling, holding that the GSA cannot evade the HUBZone price preference when it issues a competitive procurement to acquire a lease.

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GAO: HUBZone Price Preference Applies to GSA Lease Procurements

Is the GAO the new best friend of small businesses?  That might be going a bit too far, but in recent years, the GAO has sided with small businesses in several important bid protests regarding the scope of small business preferences and set-asides.

First, in GAO Protest of Delex Systems, Inc., B-400403 (Oct. 8, 2008), the GAO held that the small business set-aside provisions of FAR 19.502-2(b)—the so-called “rule of two”—apply to competitions for task and delivery orders under multiple-award contracts.  In GAO Protest of Aldevra, B-405271, B-405524 (Oct. 11, 2011) and GAO Protest of Kingdomware Technologies, B-405727 (Dec. 19, 2011), the GAO sided with service-disabled veteran-owned small businesses against the very federal agency created to support veterans, holding that the VA had improperly used the Federal Supply Schedule rather than set-asides for SDVOSBs.  The decision in GAO Protest of The Argos Group, LLC, B-406040 (Jan. 24, 2012), follows in this vein—and this time is a nice win for HUBZone small businesses.

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GAO: HUBZone Price Preference Not Optional

When a contract contains FAR 52.219-4, the so-called “HUBZone price preference” clause, a procuring agency must apply the HUBZone price preference by adding a factor of 10 percent to the price of all other offerors, except HUBZone firms and otherwise successful small businesses.

For procuring agencies, applying the HUBZone price preference is not optional.  In GAO Protest of Explo Systems, Inc., B-404952 (July 8, 2011), the GAO sustained a bid protest because the procuring agency failed to apply the HUBZone price preference.

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