Federal Small Business Subcontracting Plan Compliance Training Webinar

RLI Design Professionals

Design Professionals Learning Event

Reggie Jones & Nick Solosky Fox Rothschild LLP November 5, 2014

RLI Design Professionals is a Registered Provider with The American Institute of Architects Continuing Education Systems. Credit earned on completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-AIA members are available on request.

This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation.

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© RLI Design Professionals

The Federal Government sets measureable

small business subcontracting goals that

design professionals must make a “good

faith effort” to meet or exceed

Failure to make this effort could result in

liquidated damages, default determination,

and/or negative performance reviews

Why We’re Here …

Other Federally mandated small business

regulations are vital for design

professionals to understand and follow

- SBA Size Regulations; Limitations on Subcontracting; Understanding Affiliation Rules

False Claims Act implications

Increased Government enforcement

Why We’re Here …

Learning Objectives

Participants will learn:

I. SMALL BUSINESS

SUBCONTRACTING PLANS

II. SBA SIZE REGULATION UPDATE

III. LIMITATIONS ON

SUBCONTRACTING

IV. AFFILIATION

Subcontracting Plan PrimerThe General Requirement:

All Federal contracts over $650K ($1.5M for construction of public facilities) include FAR Clauses 52.219-8 (Utilization of Small Business Concerns) and 52.219-9 (Small Business Subcontracting Plan), which require contractorsand first-tier subcontractors to make a “good faith effort” to meet or exceed the procuring agency's small business subcontracting goals.

Tip:Failure to make a good faith effort could result in liquidated damages, default determination,

and negative performance reviews

FAR Contract Clause 52.219-9• An offeror must submit a subcontracting plan for all

proposals with a value in excess of $650,000 (or, again, $1.5M for construction of public facilities)

• Plan must separately address subcontracting with small businesses and other disadvantaged business categories

• Subcontracting goals are expressed in terms of % of total planned subcontracted dollars

• The plan is included in and made a part of the contract

• Failure to submit a subcontracting plan makes the offeror ineligible for award of the contract.

Subcontracting Plan Talking Points

• Flow down to first-tier subcontractors

• Prime contractor is responsible for obtaining, approving and monitoring the sub’s plan

• Evaluated as part of the procurement

process

• Refer to FAR 19.701–705 (Definitions,

Requirements, and Responsibilities)

Subcontracting Plan Goals

Government Wide Goals:• 23 % of prime contracts for small businesses

• 5 % of prime and subcontracts for women-owned small

businesses (WOSB)

• 5 % of prime contracts and subcontracts for Small

Disadvantaged Businesses

• 3 % of prime contracts and subcontracts for HUBZone

small businesses

• 3 % of prime and subcontracts for service-disabled

veteran-owned small businesses (SDVOSB)

Agencies have their own, specific goals.

Solicitations may have higher goals.

Developing a Compliant Plan

The Required Elements of a Compliant Small

Business Subcontracting Plan:- Percentage goals for the use of small business and

disadvantaged firms

- Total value to be subcontracted

- Description of principal types of suppliers or servicesto be subcontracted

- The method(s) used to develop these goals

- The method(s) used to identify potential small business sources

Required Elements (Continued)- Explanation of whether indirect costs are included

- The name of an individual in the offeror’s firm who will administer the program

- A description of the efforts the offeror will take to assure an equitable opportunity for competition by small businesses for subcontracts

- Assurances that the same requirements will be included in subcontracts

- Agreement to cooperate with studies and surveys

- Agreement to maintain records to demonstrate procedures adopted to comply with requirements and goals.

Tips:• A design professional may only count first-

tier subcontractors (for now)

• ANC and Indian Tribes Always Count

• SBA Mentor-Protégé teams count

Penalties for Non-Compliance

Default Termination

Liquidated Damages in proportion to

the amount of subcontracting promised,

but not attained

Bad Past Performance Evaluations

Potential False Claims Act Liability

Good Faith Efforts

The SBA small business participation

policy (found at 15 U.S.C. 637(d)(3)(A))

does not require that SBCs actually

receive subcontract awards, only that

SBCs be given the “maximum

practicable opportunity to participate

in the performance of subcontracts

let by any Federal agency”

What Are Good Faith Efforts?

Breaking out work items into units that are

economically feasible for SBCs.

Conducting market research to identify

eligible SBCs.

Seeking out SBCs early in the process.

Negotiating in Good Faith.

Utilizing organizations that help SBCs.

Participating in the mentor-protégé program.

Good Faith Efforts – Talking Points

Can you reject a higher-priced SBC in favor of

a less expensive non-small business?

Have you made a “good faith effort” if you do

not meet your subcontracting goal in one

socio-economic category, but exceed it in one

or more of the other categories?

Do you have to adopt a new subcontracting

plan or amend your existing plan to account

for change orders to the base contract?

Reporting Requirements

• Contractors should maintain the following records:- Source lists

- List of organizations contracted to locate sources

- Records on each subcontract of $150,000+ indicating whether SBCs were solicited, or why not (and reason award was not made to SBC)

- Outreach efforts

- Internal guidance and encouragement provided to buyers

Reporting Requirements - eSRS

Electronic Subcontractor Reporting System

(eSRS)

- Award data reported by contractor and subcontractors is limited to awards made to immediate next-tier subs

- Individual Subcontract Report (ISR)

Submitted semiannually and within 30 days of contract completion

Prime contractor ISR accepted or rejected by Contracting Officer; Subcontractor ISRaccepted or rejected by prime contractor

Reporting Requirements - eSRS

eSRS

- Summary Subcontractor Report (SSR) Encompasses all subcontracting under prime contracts

and subcontracts with the awarding agency

Report may be submitted on a corporate, company, or subdivision basis

Separate reports shall be submitted to each executive agency for only that agency’s contracts

– PROVIDED at least one contract exceeds $650K

Authority to accept or reject prime contractor or subcontractor SSR is with the procuring agency

Tips:Prime Must Notify CO of:

• Failure to Follow Subcontracting Plan

• Past Due / Reduced Payments SBCs

• Unsuccessful SBC Subcontracting Offerors

SBA Size Regulation Update

Exception to Affiliation for Mentor/Protégé

Programs

- SBA clarified that the mentor/protégé affiliation exception only applies to: SBA-approved mentor/protégé agreements; or

Where an exception to affiliation is specifically authorized by statute or by SBA

Coming Soon?: Mentor/Protégé Programs for

HUBZones, SDVOSBs, and WOSBs (Small

Business Jobs Act of 2010)

SBA Size Regulation Update

Changes to Mentor/Protégé Program

- Limits the number of protégés a mentor may have to three

- Allows a joint venture between a mentor and protégé to be small for government prime contracts or subcontracts, provided that the protégé qualifies as “small”

- Clarified that in order to receive exclusion from affiliation, JV must meet 8(a) JV requirements even on non-8(a) procurements

Small Business Jobs Act (2010)

Encourages the prosecution of false claims related

to misrepresentation of a firm’s size or status

Civil Damages Increased

- $7 million set aside amount means $21 millioncivil damages exposure, plus any statutory fine

Liability extends to those who “conspire” to violate

the Act

Section 1341 requires small business certification,

which makes proving a “knowing” violation easier

Limitations on Subcontracting

FAR 52.219-14; 13 C.F.R. §125.6

- Only inserted if the Contract is a small business set aside

- For Services Contracts (except construction) At least 50% of the cost of contract performance incurred for personnel shall be expended for employees of the Small Business Concern

Affiliation

13 C.F.R. 121.103(a)(6)

- In determining a concern’s size, SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit.

SBA is given exclusive authority to determine if entities are affiliated.

Affiliation?

13 C.F.R. 121.103(a) - General Principles:- Entities are affiliates of each other when one controls or

has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists. “Control” can be affirmative or negative

SBA considers factors such as ownership, management,

previous relationships with or ties to another concern,

and contractual relationships, in determining whether

affiliation exists.

“Totality Of The Circumstances” Test.

The Ostensible Subcontractor Rule

The Ostensible Subcontractor Rule is the most significant Affiliation Rule involving large and small contractor teams in today’s federal procurement market.

Affiliation exists between a prime/sub team when:

(1) prime is “unusually reliant” on sub to perform or

(2) sub performs “primary and vital requirements” of the contract.

This concludes The American Institute of Architects Continuing Education Systems Program

Reggie Jones, Partner202-461-3111rjones@foxrothschild.com

Nick Solosky, Senior Associate202-696-1460nsolosky@foxrothschild.com