The U.S. House of Representatives recently passed HR 7694, the Strengthening Small Business Outsourcing Act of 2022, which seeks to amend the Small Business Act to require the federal government to consider prior compliance with a subcontracting plan when evaluating a bidder’s past performance.
The June 8 bill was part of a group of seven bipartisan bills aimed at improving the operation and oversight of Small Business Administration (SBA) programs by encouraging small business development, ensuring greater accountability for pandemic-related small business fraud, developing the small business workforce, and supporting small business government contractors.
The bill would reward contractors with a strong track record of working with small businesses and complying with the subcontracting plans they submit to federal agencies when bidding on government contracts. Accordingly, large companies would be encouraged to outsource to small companies in an effort to achieve these small business outsourcing objectives.
EVALUATING SUBCONTRACTING OFFERS FROM SMALL BUSINESSES
The Small Business Act currently designates two significant factors for evaluating bids when the agency “determines that the contract provides a significant outsourcing opportunity”:
- The rate provided in the Offeror’s small business subcontracting plan for small business participation in the contract.
- When evaluating the Offeror’s past performance, the extent to which the Offeror has met its small business participation goals.
See 15 USC § 637(d)(4)(G). “Rate Delivered” refers to participation targets expressed as a percentage of products and services to be outsourced to small businesses.
The bill would broaden the application of these important factors in two important ways.
First, a federal agency would need to consider these factors when evaluating bids for any contract requiring a subcontracting plan, not just those with a significant potential for subcontracting. This extension would increase the scope of the contracts for which compliance with a subcontracting plan would be considered.
Second, and related to the first factor above, the bill would require federal agencies to assess the description of the extent to which a bidder proposes to use small business subcontractors, rather than simply considering the rate of participation.
Federal Acquisitions Regulation (FAR) 19.704 outlines what is required in a small business outsourcing plan, which includes goals for outsourcing efforts to provide fair competitive opportunities for outsourcing contractors. contracts, a statement of the dollars planned to be subcontracted, a description of the supplies and services to be subcontracted, the method used to develop the subcontracting objectives and potential sources, and a description of the ” duties” or good faith efforts that the Offeror will make to ensure a fair opportunity to compete, among other representations and assurances. Failure to make a good faith effort to comply with the outsourcing plan may result in damages under FAR 52.219-16.
Some federal contracts awarded to large businesses must include small business subcontracting plans that detail the prime contractor’s objectives and efforts to award subcontracts to small businesses. Typically, this applies to contracts over $750,000 for goods or services and $1.5 million for construction, including commercial and COTS items, where opportunities for subcontracting exist .
Contracting a larger government project provides small businesses with an opportunity to participate and expand their participation in government procurement. However, there are concerns that contractors’ lack of compliance with outsourcing plan objectives and inconsistent agency monitoring of small business outsourcing plans – both before and after contract awards – will lead to less opportunities for small businesses.
CONSIDERING THE ACHIEVEMENT OF OBJECTIVES
The bill would require agencies to consider not only the objectives of the outsourcing plan, but also the content of that plan and whether the stated objectives have been achieved. In doing so, the bill increases the transparency and oversight of small business outsourcing, which has been promoted in various ways in recent years.
In June 2020, the Government Accountability Office published a small business outsourcing report, recommending several opportunities for improving the monitoring of contractor compliance with subcontracting plans. The SBA updated its rules on subcontracting plans in late 2019 to increase the liability of large prime contractors in meeting subcontracting plan objectives, making it a material breach of contract if a contractor does not comply in good faith with the obligation to submit reports and to cooperate with the agencies. to determine plan compliance. The FAR followed suit in an updated rule effective September 10, 2021, which eliminated inconsistencies between the FAR and the updated SBA rule. Making outsourcing plans and plan performance important factors for consideration by large offerors is likely to influence those offerors to use small companies, document such use, and actively monitor compliance with their plan objectives. of subcontracting.
The bill reminds federal contractors that Congress is focused on subcontracting small businesses in federal government contracts. With strong bipartisan support, the Strengthening Outsourcing for Small Businesses Act of 2022 is set to pass the Senate.
Contractors should be prepared to review their current policies to ensure that all small business outsourcing plans are managed appropriately and that the outsourcing plan manager adequately documents the good faith efforts of company to achieve the outsourcing objectives identified in the plan.
In the event that a contractor fails to achieve stated objectives, documentation supporting the company’s good faith effort will be important to show that the contractor did what they said they would do in an attempt to achieve these goals, and has thus fulfilled its good faith. effort requirement.