Limitations on Subcontracting: DoD Issues Comprehensive FAR Deviation

Earlier this week, the FAR Council issued a proposed rule to conform the FAR to the SBA’s regulation governing limitations on subcontracting.  But the DoD isn’t waiting around while the FAR Council finishes the process.

The DoD has issued a comprehensive FAR deviation, effective immediately.  The DoD’s FAR deviation will, effectively, temporarily conform the DoD’s use of the FAR to the SBA’s regulation while the FAR Council works on a final rule.

The deviation instructs DoD contracting officers to use alternate FAR clauses when issuing small business set-asides, small business partial set-asides, and set-asides or sole source awards to 8(a) Program participants, HUBZones, SDVOSBs, EDWOSBs and WOSBs.  The alternate FAR clauses, in turn, use the same formulas as the SBA’s regulation (and underlying statute) to calculate compliance with the limitations on subcontracting.  Importantly, the alternate FAR clauses allow small prime contractors to count work performed by “similarly situated entities” toward the primes’ own performance thresholds.

The language of the deviations tracks the language of the FAR Council’s proposed rule.  Overall, that’s a good thing, but as I mentioned in my post earlier this week, I don’t agree with the requirement in the FAR Council’s proposal (and now the DoD’s alternate clauses), requiring the HUBZone member(s) of a joint venture to comply with the limitations on subcontracting–without, apparently, counting work performed by non-HUBZone members.  To me, this requirement incorrectly conflates the limitations on subcontracting with the internal work split requirements of a joint venture.  Further, imposing this requirement only on HUBZone joint ventures seems to deviate from the SBA’s policy from mid-2016 onward, which has been to avoid imposing more restrictive provisions on HUBZone contractors than on other socioeconomic categories.

That nit aside, the DoD’s action is good news.  Small prime contractors have long been confused about which limitations on subcontracting–FAR or SBA–they must follow.  At the DoD, at least, that confusion should now effectively be resolved.  I hope to see something similar on the civilian side.