Federal Small Business Subcontracting Plan Compliance Training Webinar

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1 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

2 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.

3 Copyright Materials This presentation is protected by US and International Copyright laws. Reproduction, distribution, display and use of the presentation without written permission of the speakers is prohibited. RLI Design Professionals

4 Why We re Here 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

5 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

6 Learning Objectives Participants will learn: I. SMALL BUSINESS SUBCONTRACTING PLANS II. SBA SIZE REGULATION UPDATE III. LIMITATIONS ON SUBCONTRACTING IV. AFFILIATION

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

8 Tip: Failure to make a good faith effort could result in liquidated damages, default determination, and negative performance reviews

9 FAR Contract Clause 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.

10 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 (Definitions, Requirements, and Responsibilities)

11 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.

12 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 services to be subcontracted - The method(s) used to develop these goals - The method(s) used to identify potential small business sources

13 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.

14 Tips: A design professional may only count firsttier subcontractors (for now) ANC and Indian Tribes Always Count SBA Mentor-Protégé teams count

15 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

16 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

17 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.

18 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?

19 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

20 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 ISR accepted or rejected by prime contractor

21 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

22 Tips: Prime Must Notify CO of: Failure to Follow Subcontracting Plan Past Due / Reduced Payments SBCs Unsuccessful SBC Subcontracting Offerors

23 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)

24 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

25 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 million civil 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

26 Limitations on Subcontracting FAR ; 13 C.F.R 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

27 Affiliation 13 C.F.R (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.

28 Affiliation? 13 C.F.R (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.

29 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.

30 This concludes The American Institute of Architects Continuing Education Systems Program Reggie Jones, Partner Nick Solosky, Senior Associate

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