Tag Archives: Limitations on Subcontracting

Convictions in Massive DOT DBE Fraud Case Put Spotlight on Illegal Small Business “Pass-Throughs”

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“Guilty.”

That was the verdict Pennsylvania jurors handed down on 26 of 30 charges against Joseph W. Nagle, stemming from what an FBI press release called a 15-year scheme to commit fraud within the DOT’s Disadvantaged Business Enterprise program.  Nagle, the former president, CEO and part-owner of Schuylkill Products Inc. was convicted of conspiracy to defraud the DOT, 11 counts of wire fraud, six counts of mail fraud, and 11 counts of money laundering, among other charges.  Nagle faces the possibility of many years in federal prison and millions of dollars in fines and restitution.

Nagle’s crimes, which involved using a small company as a “front” to pass DBE work through to non-DBE concerns, should serve as a warning that small government contractors can face penalties much more severe than a successful SBA size protest for serving as “pass-throughs” to other businesses.

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FAR Subcontracting Limitation Mishap Proves Costly

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“Pop quiz, hot shot.”

Sound familiar?  It’s from the 1994 thriller Speed, in which Dennis Hopper’s deranged character straps a bomb to a passenger bus and rigs the bomb to blow up if the bus’s speed dips below 50 miles per hour.

So why do I bring up one of the few decent movies either Keanu Reeves or Sandra Bullock ever made?  Because today’s edition of SmallGovCon also involves a pop quiz, and here it is: what is the subcontracting limit on a small business set-aside contract for services?  If you answered “50% of the prime contract’s value,” sorry, your bus just blew up.

Contrary to common wisdom, the subcontracting limit for a services contract encompasses only the costs associated with personnel, not the entire cost of the contract.  Confusion over which costs count toward the subcontracting limit can result in the proposal being excluded from the competition, as one contractor recently learned the hard way.

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The FAR’s Limitations on Subcontracting and IDIQ Contracts

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Here’s a question I get with some frequency: “do I have to comply with the FAR’s subcontracting limitations for every task or delivery order?”  You will be happy to learn that the GAO, at least, has answered this question “no.”

Although the FAR Limitations on Subcontracting clause, FAR 52.219-14, does not address IDIQs, task or delivery orders, the GAO has held that the subcontracting limitation FAR clause “applies to the contract as a whole and does not require that each delivery order placed under the contract satisfy the requirements of the clause.”  Spectrum Security Servs., Inc., B-297320.2 (Dec. 29, 2005).  According to the GAO in the Spectrum Security Services bid protest, the “contract as a whole” means that where a solicitation provides for the price evaluation of base and option years, the entire contract—both base and all priced options—will be reviewed to determine whether the offer complies with the subcontracting limits.

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