As part of the Small Business Act (Section 8(d)) and, in most cases, FAR 19.7 provide laws and regulations regarding subcontracting to small business. These laws require prime contractors having federal government contracts that exceed the simplified acquisition threshold (SAT) to provide maximum practicable subcontracting opportunities to small business, HUBZone small business, small disadvantaged business, women-owned small business, veteran-owned small business (VOSB), and service-disabled VOSB. The clause "Utilization of Small Business Concerns," must be included in all federal contracts exceeding the SAT.
These laws, among other things, require that:
- on contracts more than $700,000 (or $1,500,000 for construction of a public facility) large prime contractors and other-than-small subcontractors submit subcontracting plans containing specific percentage goals for small business, HUBZone small business, small disadvantaged business, women-owned small business, VOSB, and service-disabled VOSB.
- subcontracting plans must contain a description of the methods and efforts used to assure that small business enterprises have an equitable opportunity to compete for subcontracts.
- subcontracting plans must be submitted by contractors for review prior to the award of any contract; failure to comply in good faith with its approved plan may subject the contractor to liquidated damages or termination for default.
Solicitations or contracts that reference FAR clause 52.219-9, Small Business Subcontracting Plan, is a contract that offers subcontracting possibilities, and if the contract is expected to exceed $700,000 ($1,500,000 for construction of any public facility), it must include the clause 52.219-8 Utilization of Small Business Concerns. These are clauses in the contract that indicate the need for a subcontracting plan.
As part of the FAR 19.7, The Small Business Subcontracting Program, Federal Prime Contractors must submit a subcontracting plan, which provides for maximum opportuntiy for small businesses. There are three types of subcontracting plans that a federal prime contractors can submit:
” means a subcontracting plan (including goals) that covers the offeror’s fiscal year and that applies to the entire production of commercial items sold by either the entire company or a portion thereof (e.g.
, division, plant, or product line).
- “Individual contract plan” means a subcontracting plan that covers the entire contract period (including option periods), applies to a specific contract, and has goals that are based on the offeror’s planned subcontracting in support of the specific contract, except that indirect costs incurred for common or joint purposes may be allocated on a prorated basis to the contract.
- “Master plan” means a subcontracting plan that contains all the required elements of an individual contract plan, except goals, and may be incorporated into individual contract plans, provided the master plan has been approved.
A subcontracting plan must be thoroughly thought out as the federal goverment could cancel a contract and/or imposition of liquidated damages if it determines the prime contactor had a "Failure to make a good faith effort to comply with the subcontracting plan,” which means willful or intentional failure to perform in accordance with the requirements of the subcontracting plan, or willful or intentional action to frustrate the plan.
As stated in 15 U.S.C. 637(d)(8), any contractor or subcontractor failing to comply in good faith with the requirements of the subcontracting plan is in material breach of its contract. Further, 15 U.S.C. 637(d)(4)(f) directs that a contractor’s failure to make a good faith effort to comply with the requirements of the subcontracting plan shall result in the imposition of liquidated damages
A “Subcontract” means any agreement (other than one involving an employer-employee relationship) entered into by a Government prime contractor or subcontractor calling for supplies and/or services required for performance of the contract, contract modification, or subcontract.
Even the federal government has the following designated goals for awarding prime contracts to small businesses:
- 23% to small businesses
- 5% to small disadvantaged businesses for prime and subcontracts
- 5% to small women-owned businesses for prime and subcontracts
- 3% to HUBZone small businesses
- 3% to small service-disabled, veteran-owned businesses for prime and subcontracts
To help federal prime contractors meet their subcontracting requirements, the SBA has a web site where prime contractors can post those subcontracting opportunities for products/services. Click here to access the SBA subnet website.
In addition, we can provide technical assistance in the development of a subcontracting plan and information on additional resources to find subcontractors to meet a subcontracting requirement.