SBA Final Rule Eases Use of Small Business Joint Venture and Subcontractor Past Performance

SBA has issued a final rule that should help small businesses demonstrate their past performance more easily. Perhaps most importantly, the rule will allow for a small business to receive a written performance record, similar to CPARS, showing its performance as a subcontractor to a large business prime. The new rule will also allow a small business to better utilize its past performance that it carried out as a member of a joint venture.

Both of these new rules are rooted in the 2021 National Defense Authorization Act. The final rule will be effective August 22, 2022 and will create a new section 13 CFR 125.11. Here are some of the key aspects of these new rules and how SBA responded to comments on the proposed rule.

Subcontractor Past Performance

The rule will allow small businesses to more easily utilize its past performance as a subcontractor to large business prime contractors. The main aspects of the new subcontractor past performance procedure are:

  1. A small business can request and obtain a past performance rating where the small business performed as a first-tier subcontractor on a large business prime contract that included a subcontracting plan. The subcontractor must request the rating within “30 calendar days after completion of the period of performance for the prime contractor’s contract with the government.” So, small businesses must not wait to request these performance reviews. It may be good to simply include that request as part of a subcontract, rather than having to make a separate request for each performance period.
  2. A prime contractor is required to provide a rating of the small business past performance within 15 calendar days of the request.
  3. The small business can then submit the rating report to an agency, and an agency must consider that past performance rating when evaluating the small business’ offer on a prime contract.

There is no timeliness restriction on using past performance, although that had been in the proposed rule. This means, if a solicitation allows it, a small business past performance has no expiration date.

Some commenters were concerned about enforcement if the prime contractor does not provide a rating. To this, SBA pointed to the various penalties built in to the subcontracting plan regulation, including termination for default; a lower past performance rating; liquidated damages; and even debarment if the failure is willful or repeated. However, SBA also added to the rule that “that subcontractors should notify the contracting officer in the event that the prime contractor fails to submit the requested rating within the rule’s prescribed timeframe.”

As far as the rating format itself, it must follow the the CPARS evaluation factors and include the the five-scale rating system at FAR 42.1503(b)(4): Exceptional, Very Good, Satisfactory, Marginal, and Unsatisfactory. Some commenters asked about rebuttal of the prime contractor’s rating–but the rule doesn’t provide one. SBA noted: “This final rule does not adopt a rebuttal procedure as none is provided or required by the statute. However, subcontractors may be able to negotiate a rebuttal procedure as part of their subcontract.” While it’s not stated in the regulation, “SBA believes that, in most cases, the subcontractor past performance rating should be treated as equivalent to a prime’s past performance rating.”

Finally, a small business member of a joint venture that was a subcontractor to a large prime could also request a past performance rating from the prime contractor for a contract for which the joint venture served as a subcontractor if the prime contract included a subcontracting plan.

This rule should provide an additional avenue to smooth the way for small businesses to enhance their past performance record, and be evaluated for that past performance, even where the small business served as a subcontractor.

Joint Ventures

The new rule will enhance past performance ratings where a small business performed as part of a joint venture. It creates a new requirement to address the circumstance upon which an agency is required to consider past performance of small businesses that have been members of certain joint venture or first-tier subcontractors. Here are the key components:

  • To receive past performance credit, a small business must: (a) identify the joint venture (b) list the contracts of the joint venture the small business wants to use; and (c) tell the agency what duties and responsibilities the company performed within the joint venture. No credit is given for work the small business did not perform.
  • An agency must “consider the past performance of the joint venture when evaluating the past performance of the small business concern, giving due consideration to the information submitted about the duties and responsibilities that the small business carried out.”

The SBA provides a helpful example for how this could work in a solicitation:

For example, a solicitation might require three past performance examples. This final rule authorizes the small business offeror to submit two examples from performance in its own name and one example from performance of a joint venture of which it was a member if the small business cannot independently provide the third example of past performance on its own. This final rule provides that the joint venture’s past performance may supplement the relevant past performance of the small business when the small business cannot independently demonstrate the past performance on its own.

Note that the agency must simply “consider” the past performance example. It doesn’t guaranty that the past performance example will be evaluated positively or result in a high past performance score. But at minimum an agency cannot ignore the joint venture past performance example, provided all the data points are submitted to an agency.

This rule will make it easier for a small business to utilize joint venture past performance as part of its evaluation for a particular solicitation.

It’s nice to see these rules come out that will help small businesses utilize their past performance from various arrangements. Good on Congress and SBA for implementing these new rules.

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