Is the Revision to the FAR’s Limitations on Subcontracting Finally Nearing the Finish Line?

On June 30, 2016, a major new SBA regulation took effect, overhauling the limitations on subcontracting. The SBA’s new regulation, codified at 13 C.F.R. 125.6, replaced the “old” formulas for calculating compliance–like “cost of the contract incurred for personnel,” for service contracts, with new, easier-to-use formulas based on the amount paid by the government. And, in a major boon for small businesses, the SBA’s new regulation allowed small primes to count work performed by “similarly situated entities” toward the prime’s own self-performance.

But more than five years after the SBA regulation took effect, the FAR’s provisions governing the limitations on subcontracting still resemble Marty McFly: stuck in the past. The FAR Council still has not updated the FAR to conform with the SBA’s regulations and the underlying Congressional mandate, causing considerable confusion for contractors trying to figure out which rule to follow.

Now, though, we may finally (hopefully!) be nearing the finish line for this important and long-delayed FAR change.

June 30, 2016 was an important date in the ongoing limitations on subcontracting saga, but the story begins even longer ago, way back on January 3, 2013. That day, former President Obama signed the 2013 National Defense Authorization Act into law.

The 2013 NDAA amended the Small Business Act, a series of statutes set forth in Title 15 of the United States Code. Through this amendment, Congress mandated that the formulas used to calculate compliance with the limitations on subcontracting be based on the amount paid by the government. Congress also directed that small primes be able to claim credit for work performed by similarly situated entities.

Agency regulations, including the FAR, must comply with the underlying statutes. In this case, the statutory change affected two regulatory bodies: the SBA and the FAR Council (the entity responsible for drafting the FAR). The SBA has primary authority for interpreting and applying the Small Business Act, so the SBA took the lead in drafting regulations to comply with the 2013 NDAA. This work culminated in the June 30, 2016 overhaul of SBA’s regulations.

I’m oversimplifying a bit (but only a bit), but at that point, all the FAR Council had to do, essentially, was copy-and-paste the SBA’s regulation into the FAR. Even knowing that the FAR Council isn’t exactly the Usain Bolt of regulation-writing, one might reasonably have guessed that the FAR change to the limitations on subcontracting would take effect in 2017.

Instead, the FAR Council moved about as quickly as a tectonic plate, waiting until late 2018 to even propose a rule to align the FAR with the Small Business Act and 13 C.F.R. 125.6. The next two years came and went with no final rule. As the procurement world waited, some agencies, including the DoD, began adopting FAR deviations to temporarily stop using the outdated FAR provisions. But other agencies are still using the outdated FAR provisions in mid-2021.

If you’re thinking that five years sounds like an awfully long time to import the SBA’s limitations on subcontracting rule into the FAR, I would have to agree. By way of historical comparison, U.S. involvement in World War II–from Pearl Harbor to V-J Day–was three years and eight months. The Civil War lasted a little longer, at about four years and one month, but still significantly shorter than it has taken the FAR Council to update the limitations on subcontracting. Five years is longer than a majority of Presidents have served, including Abraham Lincoln (four years and 42 days). If you’re more of a pop culture fan than a history buff, five years is longer than the first runs of The Brady Bunch, Star Trek and The Addams Family.

I could do these examples all day (and I’m kind of tempted, because they’re fun), but the point is that the FAR Council has taken a rather absurd amount of time to make this change. After all, if America could plan, prosecute and win a global two-theater war in under four years, it doesn’t seem unreasonable to expect that the FAR could be updated in under five. The FAR Council’s unnecessary delays have had real impacts on the procurement community: while the FAR Council dragged its feet, countless small businesses and their large teammates have been frustrated and confused trying to understand their compliance obligations.

But now it seems that, maybe, hopefully, we are almost at the finish line. The FAR Open Case Report says that the final rule has been sent to the FAR Secretariat for preparation of a Federal Acquisition Circular publishing the rule. This means that the final rule is basically ready to go–we are just waiting for it to be published.

This doesn’t mean that the revision will come tomorrow, of course. In fact, in looks like the FAR Secretariat may have been sitting on the rule for several months at this point, because, you know, what’s the rush? But I am cautiously optimistic that we won’t reach the six-year anniversary of the SBA’s 2016 rule change without a corresponding FAR revision. In case you’re wondering, six years is longer than World War II lasted in Europe, from Germany’s invasion of Poland to V-E Day.

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