2024 NDAA will Update DFARS to Require Evaluation of Small Business Affiliate Past Performance

The 2024 NDAA is directing quite a change in past performance evaluations for offerors in Department of Defense acquisitions. Historically, an offeror’s affiliate’s past performance is not automatically considered along with the offeror’s proposal, although an agency could consider it. The 2024 NDAA, though, has actually mandated a change within the DFARS that will up-end this long-held tenet for Department of Defense contracts.

Some background is probably warranted before discussing the change that the 2024 NDAA will cause for DoD acquisitions. We here at SmallGovCon discuss size and affiliation quite often (keep in mind that “affiliation” for federal contracting is different than “affiliation” in private industry). Of course, we highly recommend you read our blogs on affiliation to learn more, but for purposes of this discussion, what matters most is that in federal contracting, affiliates are deemed to be commonly controlled, and their sizes are combined. Based on that foundation of affiliation, many contractors logically think, “well my affiliate is seen by the SBA as under common control and part of my size, so agencies should consider my affiliate’s past performance along with mine as well.” Unfortunately for those under that impression, it is wrong (for now).

Agencies must consider joint venture partner experience, and past performance of a small business teaming partner if it meets the factors under those rules. The FAR has also stated that an agency “should” consider the “past performance information regarding predecessor companies, key personnel who have relevant experience, or subcontractors that will perform major or critical aspects.” Noticeably absent from all of these is any sort of requirement or consideration of an offeror’s affiliates.

Thus, under current rules, a business could be affiliated with a company due to sharing of resources, ownership, management, or other reasons that could directly impact performance, but the agency does not have to look at any of that. An affiliate could have the best past performance possible for a procurement, which could boost an offeror’s performance, but it would all be for naught. This can be frustrating for many contractors who (understandably) think these types of affiliate situations should boost their proposal.

Well, this will soon be changing for Department of Defense procurements. The 2024 NDAA states in section 865:

Not later than July 1, 2024, the Secretary of Defense shall amend section 215.305 of the Defense Federal Acquisition Supplement (or any successor regulation) to require that when small business concerns bid on Department of Defense contracts, the past performance evaluation and source selection processes shall consider, if relevant, the past performance information of affiliate companies of the small business concerns.

The 2024 NDAA was signed into law in late December 2023. Consequently, this will mean that once the DFARS is updated in line with the NDAA (hopefully by July of this year), Department of Defense acquisitions (and only those for now), will take into account any relevant past performance information of affiliates of a small business offeror. This could provide many small businesses a new ability to leverage past performance that is technically not exactly their own.

What is unclear from all this is how such a change will be interpreted for entity-owned 8(a) Program participants, such as those owned by Alaska Native Corporations or Native-American entities. As you may know, when determining the size of an entity-owned 8(a) company, SBA does not consider other entities with common ownership to be affiliates. So, under this change to the DFARS, it could be argued that entity-owned 8(a) Program companies cannot automatically utilize their possibly large network of affiliate resources for a proposal advantage in a DoD acquisition, absent a JV or teaming arrangement (although the FAR would allow it at the discretion of the evaluating agency).

As of the time of this blog post, the subject DFARS provision has not been updated. The NDAA provides a deadline of July 1, 2024, to get such an update complete. Once that update occurs (hopefully by July 1), offerors should be prepared to adjust their DoD proposal approaches to reflect relevant past performance of affiliates, and/or take into account competitors’ affiliates. Make sure to come back and check the link to the specific DFARS above on this blog post through July 1, 2024, to know exactly when this change occurs, and be sure to reach out to your federal contracting attorneys with any questions on the FAR or DFARS.

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