The Federal Acquisition Regulatory (FAR) Council published three final rules on Aug. 11, 2021, amending the FAR to implement changes mandated by various National Defense Authorization Acts (NDAAs) and to homogenize the FAR with regulatory changes made by the U.S. Small Business Administration (SBA).

Specifically, the final rules 1) provide examples of what constitutes a good faith effort to comply with a small business subcontracting plan, 2) revise the limitations on subcontracting under FAR 19.505, Limitations on Subcontracting and Nonmanufacturer Rule and 3) allow SBA procurement center representatives to review any proposed acquisition so that they may make recommendations for improving competition from small business concerns.

The long awaited changes bring the FAR small business contracting requirements in line with SBA’s existing regulations, and, in the case of the limitation on subcontracting provisions, a deviation to the Defense Federal Acquisition Regulation Supplement (DFARS), which was issued in late 2018.

Each of the final rules, summarized below, become effective on Sept. 10, 2021 (arguably once the revised FAR clauses are incorporated into new solicitations, contracts and orders).

Small Business Subcontracting Plans and “Good Faith” Efforts

For negotiated procurements with an expected contract value in excess of $750,000 ($1.5 million for construction), a large prime offeror (i.e., an other than small business offeror) must submit an acceptable small business subcontracting plan to the contracting officer in order to be eligible for award. FAR 19.704, Small Business Subcontracting Plan Requirements, and FAR 52.219-9, Small Business Subcontracting Plan, list the required contents of small business subcontracting plans, which must include an offeror’s percentage goals for subcontracting work to small business concerns and a description of the efforts the offeror will make to ensure small business concerns “have an equitable opportunity to compete for subcontracts.”

Subcontracting goals for commercial plans must include indirect costs

Under the existing regulations, contractors using commercial small business subcontracting plans – the “preferred type of subcontracting plan for contractors furnishing commercial items” – must include their indirect costs in their Summary Subcontract Reports (SSRs), which must be submitted to the government annually using the Electronic Subcontracting Reporting System (eSRS). While contractors are required to include their indirect costs in their SSRs submitted to eSRS, they are not required to include their indirect costs in establishing their small business subcontracting goals when creating a commercial plan. According to the FAR Council, this has led to inconsistencies when comparing the data reported in contractors’ SSRs with their small business subcontracting goals.

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