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The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published a final rule, effective September 10, 2021, that updates the Federal Acquisition Regulation to conform to two changes regarding small business subcontracting, namely by providing examples of what does—and what does not—constitute good faith efforts to comply with a small business subcontracting plan, as well as when indirect costs must be used in commercial subcontracting plans.

The NDAA at issue:  Section 1821 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 (section 1821(c) of Pub. L. 114–328; 15 U.S.C. 637) requires the Small Business Administration (SBA) to amend its regulations to provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan.

SBA Implementation:  SBA issued a final rule at 84 FR 65647, dated November 29, 2019, to implement section 1821 of the NDAA for FY 2017.  SBA added a non-exclusive list of examples of what could and could not be considered good faith efforts to comply with a small business subcontracting plan at 13 C.F.R. § 125.3(d)(3).

Proposed Rulemaking:  DoD, GSA, and NASA published a proposed rule on June 3, 2020, at 85 FR 34155, to implement section 1821 of the FY 2017 NDAA.

Key Change of the Rule:

As noted above, SBA updated 13 C.F.R. § 125.3(d)(3) in 2019 to provide contracting officers guidance on evaluating whether a prime contractor made a good faith effort to comply with its small business subcontracting plan.  The final rule updates FAR 19.705-7, Compliance with the subcontracting plan, to provide similar examples of activities that contracting officers may consider when evaluating whether the prime contractor made a good faith effort to comply with its small business subcontracting plan.  Per commentary in the rule, this change provides contracting officers with consistent and uniform examples to identify and hold large prime contractors accountable for failing to make a good faith effort to comply with their subcontracting plans.

Similar to the SBA final rule, FAR 19.705-7(d) now discusses the corrective actions available to contracting officers when a contractor fails to make a good faith effort to comply with the subcontracting plan and that, in this context, “a failure to make a good faith effort to comply with a subcontracting plan is a material breach, sufficient for the assessment of liquidated damages, and also for other remedies the Government may have.”  The final rule also updates FAR 19.705-6 to address the contracting officer’s responsibilities vis-à-vis a small business subcontracting plan, including initiating action to assess liquidated damages in accordance with FAR 19.705-7.

Commentary in the final rule makes clear that it does not implicate when a small business subcontracting plan is required—merely what activities would be considered a failure to make a good faith effort to comply with such a plan. That means that the rule does not change (1) whether a small business subcontracting plan is required in the acquisition of commercial items, including commercially available off-the-shelf items, nor (2) does it expand the applicability of the small business subcontracting plan requirement to contracts at or below the simplified acquisition threshold.
Continue Reading Assessing Good Faith Efforts to Comply with a Small Business Subcontracting Plan

The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published a final rule, effective September 10, 2021, that finally updates the methodology to calculate compliance with the limitations on subcontracting.

The NDAA:  Section 1651 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 (15 U.S.C. 657s) revised and standardized the limitations on subcontracting, including the nonmanufacturer rule, that apply to small business concerns.

Implementation in SBA’s Regulations:  The Small Business Administration (SBA) implemented section 1651 of the FY 2013 NDAA in a final rule published at 81 FR 34243 on May 31, 2016, which became effective on June 30, 2016.

Proposed Rulemaking to Update the FAR:  DoD, GSA, and NASA published a proposed rule at 83 FR 62540 on December 4, 2018, to implement regulatory changes made by the SBA.

Key Set of Changes Made to the FAR:

The final rule updates the methodology for complying with the limitations on subcontracting.  FAR 19.505 and FAR clause 52.219-14 provide that a small business concern subject to the limitations on subcontracting will pay no more than a certain percentage of the amount paid by the Government for contract performance to subcontractors that are not similarly situated entities.  As with 13 C.F.R. § 125.6, the relevant thresholds are set as follows:

  • For a contract assigned a services NAICS code, the small business concern must not pay more than 50% of the amount paid by the Government for contract performance to non-similarly situated subcontractors;
  • For a contract assigned a NAICS code for supplies or products (other than a procurement from a nonmanufacturer), the small business concern must not pay more than 50% of the amount paid by the Government for contract performance, excluding the cost of materials, to non-similarly situated subcontractors;
  • For a contract assigned a general construction NAICS code, the small business concern must not pay more than 85% of the of the amount paid by the Government for contract performance, excluding the cost of materials, to non-similarly situated subcontractors; and
  • For a contract assigned a special trade contracting NAICS code, the small business concern must not pay more than 75% of the amount paid by the Government for contract performance, excluding the cost of materials, to non-similarly situated subcontractors.


Continue Reading FAR Conformed to the “New” Limitations on Subcontracting Methodology at 13 C.F.R. § 125.6

In an August 27, 2021 decision, GAO sided with protester InfoPoint LLC (“InfoPoint”), and the Small Business Administration (“SBA”) which was invited to submit comments, in finding that a Department of Defense (“DoD”) solicitation provision requiring a small business joint venture offeror to itself hold a facility clearance was inconsistent with the National Defense

On July 29, 2021, the Small Business Administration announced in an FAQ that it is discontinuing any reliance on the Loan Necessity Questionnaires, which the SBA had required of each borrower, that together with its affiliates, received Paycheck Protection Program loans with a principal amount of $2 million or greater. As we’ve previously discussed,

Crowell & Moring’s “All Things Protest” podcast keeps you up to date on major trends in bid protest litigation, key developments in high-profile cases, and best practices in state and federal procurement. In this episode, hosts Olivia Lynch and Rob Sneckenberg discuss a recent set of protests addressing “contingent” pricing and the importance of updating

Crowell & Moring’s “All Things Protest” podcast keeps you up to date on major trends in bid protest litigation, key developments in high-profile cases, and best practices in state and federal procurement. In this episode, hosts Rob Sneckenberg, Olivia Lynch, and Christian Curran discuss considerations and best practices when the Government inadvertently releases competition-sensitive information.

In U.S. ex rel. Howard v. Caddell Construction Company, Inc., 2021 WL 1206584 (E.D.N.C. Mar. 30, 2021), the District Court for the Eastern District of North Carolina held that status reports certifying compliance with subcontracting rules do not constitute false claims under the False Claims Act (“FCA”) because the claims were not relevant to the contract payments.
Continue Reading Subcontracting Status Reports, Even if False, Are Not Claims Under the FCA

In its recent decision, CVE Appeal of First State Manufacturing, Inc., SBA No. CVE-184-A (2021), the Small Business Administration Office of Hearing and Appeals (OHA) denied an appeal of a decision by the Department of Veterans Affairs Center for Verification and Evaluation (CVE) to cancel First State Manufacturing, Inc.’s verification of service-disabled veteran-owned small business (SDVOSB) status. CVE issued its Notice of Verified Status Cancellation based on concerns of present responsibility related to a consent judgment entered into merely a month before to resolve a False Claims Act (FCA) lawsuit against First State that required First State to pay over $393,000. Prior to the FCA lawsuit, First State’s Vice President for Marketing/Contract Administration and Chief Executive Vice President/Chief Financial Officer were criminally charged, pled guilty, and were sentenced to prison terms for bribing an Amtrak official to win federal Government contracts. In the appeal before OHA, First State argued that CVE erred in cancelling its verified SDVOSB status for two reasons: (1) the FCA consent judgment was based upon an underlying FCA settlement agreement that did not admit liability or wrongdoing by First State; and (2) the Federal Railway Administration, which oversees Amtrak funding, determined that First State was “presently responsible,” and that the likelihood of future harm to the Government did not warrant suspension or debarment. First State further argued that as the Federal Railway Administration is the agency with the potential injury, its determination of present responsibility should have been given greater deference by CVE.
Continue Reading False Claims Act Consent Judgment Prompts Termination of SDVOSB Status Even Without an Admission of Liability

This week’s episode covers a new Executive Order on Climate-Related Financial Risk, the final DFARS provision on contract closeout, a new SBA decision involving a mentor-protégé joint venture, and a FedRAMP update, and is hosted by partners Peter Eyre and Olivia Lynch. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a

In this bullet point Olivia Lynch, Amy O’Sullivan, Michael Samuels, and Zachary Schroeder discuss a proposed Department of Defense rule requiring contracting officers to consider an offeror’s past performance as a first-tier subcontractor or individual partner of a joint venture under construction and/or architect-engineer services contracts.