Deficiencies in Small Business Subcontracting Goal Oversight

The Federal Government does a pretty good job of meeting its small and disadvantaged subcontracting goals. (See, for example, Proposed Legislation to Increase Small/Minority/Disadvantaged Subcontracting Goals). Prime contractors have not been doing as well and some of the blame has been pinned on Government contracting officers for inattention to what their prime contractors are doing.

In March 2018, the DoD Office of Inspector General (DoD-IG) issued an audit report on its review to determine whether contracting officers were taking appropriate actions to ensure that prime contractors met their small business subcontracting goals. The review focused on two Army contracting centers, Redstone and Warren and covered 50 contracts worth $1.6 billion.

The results were woeful. The DoD-IG found that, in general, contracting officers were not ensuring that its prime contractors were providing adequate subcontracting opportunities to small businesses.

The DoD-IG made a series of recommendations, largely related to the need for additional training.

These challenges existed because training and guidance provided to contracting officials were not adequate, and administering subcontracting plans was often not a high priority. Shortfalls also commonly existed with high turnover rates among contracting personnel negatively impacting transferring duties to administer subcontracting plans from one contracting official to another.

Contracting officers also did not consistently enter data correctly into the Federal procurement system databases that allowed contracting officials to monitor compliance with small business subcontracting plans or enable contractors to submit individual subcontracting reports in the Electronic Subcontracting Reporting System.

 One of the recurring problems pointed out in the report had to do with the disconnect between subcontracting plans and actual performance. Prime contractors dutifully developed their plans and submitted them to contracting officers but that became almost perfunctory with no subsequent oversight to determine whether contractors were fulfilling those plans or at least attempting to comply with those plans.

New FAR Rules for Small Business Subcontracting Plans

A little over a year ago, DoD, GSA, and NASA (the FAR Councils) published a proposed FAR rule to implement small business subcontracting improvements among Government contractors. A number of commentators provided written comments and suggestions to the proposed regulations, most of them positive. Yesterday, the FAR Council's made it formal by publishing the rules in final form.

The new rule in intended to provide for the following items (among many other provisions).

• It will require prime contractors to make good faith efforts to utilize their proposed small business subcontractors during performance of a contract to the same degree the prime contractor relied on the small business in preparing and submitting its bid or proposal. In other words, if you proposed it, you've must award it. If the prime contractor cannot make a good faith effort, it must explain, in writing, to the contracting officer the reasons for its failures.
• The rules authorize contracting officers to calculate subcontracting goals in terms of total contract dollars in addition to the required goals in terms of total subcontracted dollars.
• It provides contracting officers with the discretion to require a subcontracting plan in instances where a small business represents its size as an other than small business.
• It requires subcontracting plans for modifications under the subcontracting plan threshold if the modification causes the contract to exceed the plan threshold.
• It restricts prime contractors from prohibiting a subcontractor from discussing payment or utilization matters with the contracting officer.
• It allows contracting officers to establish subcontracting goals at the order level on ID/IQ (Indefinite-delivery, indefinite-quantity) contracts.

Perhaps the most problematic of the foregoing requirements is the "good faith effort" provision because it, by its very nature, requires the exercise of judgment. Whenever the exercise of judgment is involved, two sides can have differing opinions and they can both appear reasonable positions.

FAR does not provide a definition for the phrase "good faith effort" but FAR 19.705(d) offers some insight into the Government's thinking. FAR states:

In determining whether a contractor failed to make a good faith effort to comply with its subcontracting plan, a contracting officer must look to the totality of the contractor's actions, consistent with the information and assurances provided in its plan. The fact that the contractor failed to meet its subcontracting goals does not, in and of itself, constitute a failure to make a good faith effort. For example ... factors such as unavailability of anticipated sources or unreasonable prices may frustrate achievement of the contractor's goals. However, when considered in the context of the contractor's total effort in accordance with its plan, the following, though not all inclusive may be considered as indicators of a failure to make a good faith effort:

• a failure to attempt to identify, contact, solicit, or consider for contract award small businesses

• a failure to designate and maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan

• a failure to maintain records or otherwise demonstrate procedures adopted to comply with the plan

• the adoption of company policies or procedures that have as their objectives the frustration of the objectives of the plan.

If your company is required to develop and implement a subcontracting plan, you need to ensure that you have someone in charge of compliance to preclude a non-good-faith effort assessment.