Tag Archives: Subcontracting

Limitations On Subcontracting: Congress Enacts Major Changes

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Congress has enacted major changes to the limitations on subcontracting rules for small government contractors.

The 2013 National Defense Authorization Act, signed into law by President Obama on January 3, contains two important changes to the subcontracting limits.  First, for services contracts, compliance with the limitations on subcontracting will be based on the total amount paid to the small business, not the cost of the contract incurred for personnel.  Second, small businesses will be able to meet their own performance requirements by subcontracting to other small companies.

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Federal Court Upholds Agency’s 40% Small Business Subcontracting Goal

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The United States Court of Federal Claims has denied a challenge to the Transportation Security Administration’s establishment of a 40% small business subcontracting goal–measured by total contract price, not total subcontracting dollars.

In Firstline Transportation Security v. The United States, No,. 12-601C (2012), Judge Thomas Wheeler  rejected arguments that the TSA’s 40% small business subcontracting goal was unreasonable, contrary to the FAR, and improperly established a partial small business set-aside.

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Agency to Offerors: Show Us Your Subcontracts

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Small government contractors sometimes rely on subcontractors to help satisfy experience, certification, past performance, and other solicitation requirements.  But if one recent GAO bid protest decision is an indication of things to come, procuring agencies may begin requiring more information up front about major subcontractors–including a copy of the final subcontract agreement itself.

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GAO: Procuring Agency May Withhold Names Of Incumbent’s Subcontractors

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Bidding against an incumbent prime contractor often presents unique challenges.  In some cases, the incumbent has been highly successful, and the procuring agency may hope to award the follow-on to the same company.  Even if the agency is not predisposed to favor the incumbent, the incumbent often knows more than its challengers about how the new procurement will actually operate “in real life.”

But just because an incumbent has unique information about the ongoing procurement does not mean that the procuring agency is necessarily required to level the playing field by releasing that information to challengers.  For instance, in one recent GAO bid protest decision, the GAO held that the procuring agency was not required to release the names of the incumbent’s subcontractors or other proprietary and confidential information about the incumbent contract.

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OMB Pushes Prompt Payment To Small Subcontractors

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Small subcontractors sometimes find themselves facing a cash flow crunch when they take on new work.  Under some subcontract payment clauses, a small subcontractor might not be entitled to payment until 30 days or more after the prime contractor receives payment from the government for the subcontractor’s work.  Even subcontracts with more generous payment terms often require small subcontractors to make significant up-front investments in terms of employee salaries, materials, and the like before receiving payment.

The Office of Management and Budget apparently recognizes that there is a problem, because yesterday OMB issued a memorandum entitled “Providing Prompt Payment to Small Business Subcontractors,” setting forth three steps the government is taking to address the matter.  One of these steps–if it comes to fruition–may even have some “teeth.”

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Subcontractors And Past Performance: What Are The Risks?

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Inexperienced small government contractors sometimes rely primarily (or completely) on larger subcontractors to boost their past performance scores.  Although this practice sometimes results in better past performance scores, there are two risks small government contractors should be aware of when it comes to relying on a subcontractor’s past performance: poor evaluations and ostensible subcontractor affiliation.

A recent GAO bid protest decision, coupled with a decision of the SBA Office of Hearings and Appeals, demonstrates how each risk may affect a small government contractor.

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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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