Section 8(d) of the Small Business Act (15 USC 637(d)) and FAR 52.219-8 requires that small businesses, small disadvantaged businesses, HUBZone small businesses, woman-owned small businesses, veteran-owned small businesses, and service-disabled veteran-owned small businesses have maximum practicable opportunity to participate as subcontractors under Federal contracts, to the extent that such opportunity is consistent with efficient contract performance.
Note: “Small Businesses” hereafter in intended to include small, disadvantaged, HUBZone, woman, veteran and service-disabled -owned small businesses.
The term “other-than-small” business refers to any entity that is not classified as a small business. This includes large businesses, state and local governments, non-profit organizations, public utilities, educational institutions, and foreign-owned firms that receive Federal contracts, if any portion of the contract is to be performed in the United States.
The NIH Small Business Office (SBO), in collaboration with the Department of Health and Human Services (DHHS), developed “Model Subcontracting Plan(s)” for use by contracting officers as well as the business community when developing subcontracting plan(s) under Federal contracts. The model plan(s) outlines subcontracting plans that would meet the intent and statutory requirements of Public Law 95-507.
Any “other-than-small” business that receives a Federal contract or subcontract over $500,000 (over $1,000,000 for construction of a public facility) must adopt a subcontracting plan with separate and distinct goals for each category of small business. The proposed subcontracting plan must be accepted and approved by the contracting officer before the contract can be awarded. Once approved, the subcontracting plan is incorporated into contract. This is significant because an “other-than-small” contractor that fails to make a good faith effort to achieve the goals established in the subcontracting plan may be assessed liquidated damages or found in material breach of contract and terminated for default.
The “other-than-small contractor” or subcontractor submits periodic reports, Federal Standard Forms (SF) 294 and 295, to the Government showing its achievements as measured against the goals in its subcontracting plans, along with a summary report showing its aggregate subcontracting achievements through direct and indirect dollars on all Federal contracts.
Any concern that receives a Federal contract exceeding the simplified acquisition threshold must agree to provide maximum practicable opportunities to small business, consistent with the efficient performance of the contract. This requirement is sometimes referred to as the “best effort” clause and applies to small businesses as well as to “other-than-small” businesses.
The Flow-Down Process
The requirement for a subcontracting plan flows down to all “other-than-small” business subcontractors with subcontracts over $500,000 (over $1 million for construction). According to the statute, an “other-than-small” prime contractor with a subcontracting plan must require all “other-than-small” subcontractors to adopt a plan similar to its own. The prime contractor is responsible for obtaining, approving, and monitoring the subcontracting plans of its lower tier “other-than-small” subcontractors.
A prime contractor’s subcontractor is referred to as the first-tier subcontractor. If the first-tier subcontractor is an “other-than-small” business and it subcontracts to another “other-than-small” business, it must require that firm (the second-tier subcontractor) to adopt a subcontracting plan similar to its own. If the second-tier subcontractor subcontracts to yet another “other-than-small” business (the third-tier subcontractor), it would require that company to adopt a subcontracting plan as well. This process continues indefinitely, as long as the subcontractors are not small businesses and their subcontracts are over $500,000 (over $1 million for construction).
Under the flow-down provision, “other-than-small” business subcontractors with subcontracting plans must comply with Federal reporting requirements and submit the SF 294 and 295 just as the prime contractors do. However, the “other-than-small” subcontractor must submit the SF 294 to its prime contractor or immediate higher-tier subcontractor rather than to the Government. This is done for monitoring purposes, and continues in this manner for all tiers. The “other-than-small” subcontractor still submits the SF 295 to the Government in accordance with the reporting form’s instructions. This enables the Government to collect subcontracting statistics from all of the subcontracting tiers.
The flow-down process is intended to ensure that all small businesses receive “maximum practicable opportunity” to perform on Government contracts and subcontracts.
The Major Elements of a Subcontracting Plan
There are major elements for an acceptable subcontracting plan and requirements are outlined in Federal Acquisition Regulations (FAR) Part 19.7 and detailed in FAR Part 52.219.9, solicitation provisions and contract clauses. Major elements are: (1) separate percentage goals for each small business category; (2) the name of the organization’s subcontracting plan administrator and a description of his or her duties; (3) a description of the efforts that the company will make to ensure that all small businesses will have an equitable opportunity to compete for subcontracts; (4) assurances that the company will "flow down" the subcontracting requirements to its subcontractors; (5) assurances that the company will cooperate in any studies or surveys and submit periodic reports to the Government, including the SF 294 and 295; and (6) a recitation of the types of records the company will maintain to demonstrate its compliance with the plan.
Types of Subcontracting Plans
The Individual Subcontracting Plan outlines the six elements of a subcontracting plan, including specific goals for small business subcontracting under the contract. Goals are developed in each category; however, the disadvantaged, woman-owned, HUBZone-owned, and veteran-owned goals are in fact subsets of small business and may intersect multiple categories. The veteran-owned goal includes a Federal target goal of 3% for service disabled veteran-owned businesses.
Master Subcontracting Plan
A Master Subcontracting Plan is a subcontracting plan, which contains the five elements of a subcontracting plan, except goals for the small business categories. Thereafter, as the company receives Government contracts requiring subcontracting plans, it simply incorporates the Master Plan and develops specific small business goals for each contract. This process avoids redundant effort regarding the five other elements of a subcontracting plan, allowing more time and effort for the substantive task of developing goals.
A Master Subcontracting Plan must be approved by the first Federal agency awarding the concern a contract requiring a subcontracting plan during the fiscal year. A Master Subcontracting Plan is effective for three years; however, when incorporated under a specific contract, a master plan applies to that contract throughout its the life.
Commercial Products Plan
If an “other-than-small” business is selling a product or service to the Government, which differs just slightly from what it is selling to the general public, it may develop a Commercial Products Plan, which is the preferred type of plan for contractors furnishing “commercial” type products and services to the Federal government. The Commercial Products Plan(s) is developed on a company-wide, division-wide or portion thereof basis and relates to the concern’s production generally, for both commercial and noncommercial business activity, rather than solely to the Government contract. The Commercial Products Plan(s) is approved by the first Federal agency awarding the concern a contract requiring a subcontracting plan during the fiscal year. Subcontracting goals are percentages of projected subcontracting activity under projected revenues and related business activity for the concern’s fiscal year. Once approved, the plan remains in effect during the company's fiscal year, is accepted by all Federal agencies and is incorporated into all subsequent Federal contracts, requiring the development of subcontracting plans.
A Commercial Products Plan(s) has several advantages over Individual or Master Subcontracting Plans. Paperwork and record keeping are minimized, since there is only one plan for the entire company or division. Further, the concern is not required to submit individual SF 294 reports to contracting officers, only the summary and annual SF 295 report to the contracting officer and Federal agencies that have awarded it contracts.
Subcontracting Plan(s) Goals
Contractors establish goals in all small business categories base on subcontracting opportunities available in susceptible commodity areas. Goals are developed in each category; however, the disadvantaged, woman-owned, HUBZone-owned and veteran owned goals are in fact subsets of small business and may intersect multiple categories.
Further, the veteran goal includes a Federal 3% goal for service disabled veteran-owned small business. It should be noted that contractors are not required to submit a separate service disabled veteran-owned small business goal, but are required to separately report dollar awards in this category on the SF 295 report.
The small and “other-than-small” business goals should sum to the total subcontracting base, as reflected in the offeror’s cost proposal. When reviewing the goals targeted for small business, consideration of the offeror’s efforts toward and methodology for identifying business opportunities will assist in determining whether goals reflect good faith efforts for maximizing opportunities in susceptible industry arenas.
Any contract modification affecting dollars awarded under the contract, should modify subcontracting goals, accordingly.
Subcontracting Plan(s) Reviews
The contracting officer must review the subcontracting plan(s) for adequacy, ensuring that the required information, goals, and other commitments and assurances are included (see FAR 19.704) in the plan, prior to award. The contracting officer may have included in solicitation, the requirement for developing a subcontracting plan from all offerors, which would have been a factor considered when establishing the competitive range or possibly weighted as an evaluative factor for award. The contracting officer also may include in the contract incentives for optimal performance. All of these efforts must be evaluated by the contracting officer prior to award and documented in past performance reviews.
Any determination that a subcontracting plan requirement should be waived or that no subcontracting opportunities exist under a contract is reviewed and concurred with one level above the contracting officer and by the respective NIH Small Business Office and Small Business Administration (SBA) Procurement Center Representative (PCR), if assigned.
In a sealed bid solicitation, if a bidder submits a plan that does not cover each of the six required elements (see FAR 10.704), the contracting officer shall advise the bidder of the deficiency and request submission of a revised plan by a specific date. If the bidder does not submit a plan that incorporates the required elements within the time allotted, the bidder shall be ineligible for award.
In negotiated acquisitions, the contracting officer shall determine whether the plan is acceptable based on the negotiation of each of the six elements of the plan (see FAR 19.704). Again; subcontracting goals should be set at a level that the parties reasonably expect can result from the offeror expending good faith efforts to maximize small business opportunities in each category.
Submissions of modifications to subcontracting goals should be reviewed in the same manner that the initial goals were reviewed. Reporting should reflect cumulative goals and related accomplishments.
Post award Responsibilities
After a contract or contract modification containing a subcontracting plan is awarded, the contracting officer who approved the plan is responsible for the following:
Notifying the SBA of the award by sending a copy of the award document to the Area Director, Office of Government Contracting, in the SBA area office where the contract will be performed; http://www.sba.gov/
Forwarding a copy of each Commercial Products Plan and any associated approvals to the Area Director, Office of Government Contracting, in the SBA area office where the contractor’s headquarters is located; http://www.sba.gov/; and
Giving the assigned SBA PCR a copy of --
*Any subcontracting plan submitted in response to a sealed bid solicitation; and
*The final negotiated subcontracting plan that was incorporated into a negotiated contract or contract modification.
Notifying the SBA/PCR of the opportunity to review subcontracting plans in connection with contract modifications
Initiating action to assess liquidated damages termination for default for performance deficiencies or non-compliance in accordance with FAR 19.705.
Reporting Requirements for Other-Than-Small Businesses
Standard Form 294 (SF 294): In accordance with the form’s instructions, “other-than-small” business prime contractors must submit an SF 294, “Subcontract Report for Individual Contracts,” to the awarding contracting officer, semi-annually during the performance of the contract and annually at the end of the fiscal year or upon each contract’s completion. “Other-than-small” business subcontractors must file the SF 294 with the prime contractor or immediate higher-tier subcontractor rather than with the Government. The SF 294 is not required if the company is operating under a traditional commercial products plan.
Standard Form 295 (SF 295): In accordance with the form’s instructions and other special provisions “other-than-small” business prime contractors and subcontractors must annually file an SF 295, “Summary Subcontract Report,” to the awarding contracting officer and to the appropriate headquarter department or agencies under which contracts have been awarded. If the procuring agency is a civilian agency, the SF 295 is required annually (by October 30th for the previous fiscal year ended September 30th); if the procuring agency is the Department of Defense, the SF 295 is required semi-annually (by April 30 for the first six months of the fiscal year and by October 30 for the entire fiscal year).
In the case of all types of commercial products/service plans, the SF 295 is required only once a year (by October 30th for the previous fiscal year ended September 30th).
Both “other-than-small” prime contractors and subcontractors must submit a copy of the SF 295 to the appropriate Federal agency and assigned SBA Commercial Market Representative (CMR) posted at http://www.sba.gov/.
The SF 294 and 295 are intended to document the dollars awarded in each goaled category. Again, the SF 295 also requires documentation of the dollars awarded to service disabled veteran-owned small businesses. It is important to note that prime contractors only report the subcontracts they award, not for the dollars awarded by subcontractors at lower tiers. This is explained in more detail on the instructions on the back of the forms. It also is important to note that the SF 295 does not cumulatively sum the individual SF 294 report, since indirect dollars and other subcontract dollars are reported through the SF 295.
The Small Business Administrations Role (SBA) http://www.sba.gov/
Assistance to Federal agencies in evaluating proposed subcontracting plans is provided by SBA PCRs, who are stationed at Federal buying activities throughout the country. PCRs advise Federal contracting officers whether the goals for small business, reflect maximum practicable opportunities and whether the proposed plan contains all of the other elements required by the Public Law.
The SBA CMRs, assigned throughout the Nation, also provide assistance to small businesses in obtaining subcontracts and to evaluate other-than-small businesses subcontracting programs, plans and related activity. The CMRs perform reviews of “other-than-small” Federal contractors to identify opportunities for small business and to ensure that subcontracting plan requirements and are met and to evaluate the efficacy of the concern’s small business program. The CMRs also counsel small businesses on how to market their products and services as subcontractors.