Sub- contracting Plans:

Sub- contracting Plans: 64 Contract Management September 2011

Since a subcontracting plan is one of the tools used by the U.S. government to ensure small business participation, it is very important for the business community to understand its requirements and applicability. BY Jean Marceau Lohier Contract Management September 2011 65

There has been a long debate among contractors and subcontractors with reference to the applicability of a small business subcontracting plan. Although it is a statutory prerequisite for award, and a mandatory flow-down clause when incorporated into a solicitation or contract award, a small business subcontracting plan is not always required or applicable. Specifically, the Federal Acquisition Regulation (FAR) 1 prescribes that a small business subcontracting plan is not needed under the following circumstances: If the contract or the contract modification is expected to be less than $650,000 ($1.5 million for construction), If the contract has no subcontracting possibilities, If the contract is awarded to small, If the contract is for personal services contracts, If the contract is for contracts or contract modifications that will be performed entirely outside of the United States and its outlying areas, or If the contract is for modifications to contracts within the general scope of the contract that do not contain the clause at FAR 52.219-8, Utilization of Small Business Concerns (or equivalent prior clauses; e.g., contracts awarded before the enactment of Public Law 95-507). Applicability of the Subcontracting Plan If none of the exceptions above apply, then as per FAR Subpart 19.702 and clauses 52.219-8 and 52.219-9; Title 13, Part 125.3 of the Code of Federal Regulations; the Office of Management and Budget Policy Letter 80-2, Supplement No. 1 2 ; and Section 8(d) of the Small Business Act, 3 any company receiving a government award is required to have an approved small business subcontracting plan for award greater than the simplified acquisition threshold. 4 The awardee must also agree through the approved small business subcontracting plan that small, veteran-owned small, service-disabled veteran owned small, historically underutilized business zone (HUBZone) small, small disadvantaged, and woman-owned small business concerns (in addition to Alaska Native corporations (ANCs) and Indian Tribes) will have the maximum practicable opportunity to participate in contract performance if the goods and/or services being procured have subcontracting possibilities. In the final rule published in the Federal Register on August 30, 2010, 5 and effective October 2010, 6 the minimum amount required for a prime contractor to have a small business subcontracting plan is $650,000 (an increase from the previous $550,000 threshold) and $1.5 million from $1 million for construction contracts. According to the FAR: Also: [I]n negotiated acquisitions, each solicitation of offers to perform a contract or contract modification that is individually expected to exceed $650,000 ($1.5 million for construction) and that has subcontracting possibilities, shall require the apparently successful offeror to submit an acceptable subcontracting plan. If the apparently successful offeror fails to negotiate a subcontracting plan acceptable to the contracting officer within the time limit prescribed by the contracting officer, the offeror will be ineligible for award. 7 [I]n sealed bidding acquisitions, each invitation for bids to perform a contract or contract modification that individually is expected to exceed $650,000 ($1.5 million for construction) and that has subcontracting possibilities, shall require the bidder selected for award to submit a subcontracting plan. If the selected bidder fails to submit a plan within the time limit prescribed by the contracting officer, the bidder will be ineligible for award. 8 Types of Small Business Subcontracting Plans Once it is determined that the proposed contract, including all options, will meet the dollar threshold prescribed in FAR 19.702(a) (1) (2), then the contractor must select the plan that best fits its industry in accordance with the solicitation requirements. Since a contract cannot have more than one plan, it is important to determine which plan is suitable for the award being made. There are four types of plans 9 that a large business contractor may choose from when preparing the small business subcontracting plan: individual, master, commercial, and comprehensive. For some contractors, the commercial plan is the most appropriate if the contractor s greater part of sales is based on products and services customarily used for non-government purposes. 66 Contract Management September 2011

Individual Plan This plan 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. thereof (e.g., division, plant, or product line). Once a contractor s commercial plan has been approved, the government cannot require another subcontracting plan from the same contractor while the plan remains in effect and as long as the product or service being provided by the contractor continues to meet the definition of a commercial item. Master Plan This plan 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 by the contracting officer. The approved master plan is effective for three years; however, it is incumbent upon the contractor to maintain and update the master plan. Changes required to update the master plan are not effective until approved by the contracting officer. When a master plan is incorporated into an individual plan, it applies to that contract throughout the life of the contract. Commercial Plan This plan is the preferred type of subcontracting plan for contractors furnishing commercial items. This plan (including goals) covers the offeror s fiscal year and applies to the entire production of commercial items sold by either the entire company or a portion Comprehensive Plan 10 This plan has been approved under the Department of Defense Comprehensive Subcontracting Plan Test Program, which authorizes the negotiation, administration, and reporting of subcontracting plans on a plant, division, or companywide basis as appropriate. The purpose of the test is to determine whether comprehensive subcontracting plans will result in increased subcontracting opportunities for small businesses while reducing the administrative burdens on contractors. A model that outlines a small business subcontracting plan can be found in the General Services Administration Acquisition Manual in Part 519, Appendix A, 11 and an official sample of a small business subcontracting plan for individual and master plans can be downloaded in Word format from the Office of Naval Research. 12 What is a? Webinar NCMA s Webinars are live, 90-minute online educational events combining real-time presentation with telephone conferencing. Each month, NCMA presents timely topics drawn from both the government and commercial contracting arenas given by subject-matter experts. Instructors use prepared presentation slides that are available for viewing during the live session. The typical format of the program includes 60 minutes of instructor presentation followed by a 30-minute Q&A period. To access the live session, held from noon to 1:30 p.m. EST on a designated workday, you will need a touch-tone phone, preferably with speakerphone accessibility, and a computer with Internet connectivity. Participants will earn 1.5 CPEs. What is the Cost? For one low fee, there is no limit to the number of people that can listen in at each site. Everyone can participate by registering as a live-participation site. For those who cannot participate live, Webinars on Demand (digital downloads) are available for purchase. For more information, visit www.ncmahq.org/learn/webinars or call 800-344-8096. Contract Management September 2011 67

Required Elements of a Small Business Subcontracting Plan FAR 19.704 states that the small business subcontracting plan must include the following: Separate goals for using a small business, including ANCs and Indian Tribes; A statement of the total dollars planned to be subcontracted and a statement of the total dollars planned to be subcontracted to each small business type; A description of the principal types of supplies and services to be subcontracted and an identification of types planned for subcontracting to each small business type (including ANCs and Indian Tribes); A description of the method used to develop the subcontracting goals; FIGURE 1. Example: Percentage of Subcontracts Planned For Entities Percentage of Contract Value Total Contracts Value: $500 million Large 65% $325 million Small 35% $175 million Small disadvantaged business 10% concerns Woman-owned small business 5% concerns Service-disabled veteran owned 3% small Historically underutilized 3% business zone small business concerns Historically black colleges and 2% universities/minority institutions Alaska native corporations/ Indian Tribes 1% A description of the method used to identify potential sources for solicitation purposes; A statement as to whether or not the offeror included indirect costs in establishing subcontracting goals, and a description of the method used to determine the proportionate share of indirect costs to be incurred with small businesses (including ANCs and Indian Tribes); The name of an individual employed by the offeror who will administer the offeror s subcontracting program, and a description of the duties of the individual; Assurances that the offeror will include the clause at FAR 52.219-8, Utilization of Small Business Concerns, 13 in all subcontracts that offer further subcontracting opportunities, and that the offeror will require all subcontractors (except small ) that receive subcontracts in excess of $650,000 ($1.5 million for construction) to adopt a plan that complies with the requirements of the clause at FAR 52.219-9, Small Business Subcontracting Plan 14 ; Submit the individual subcontract report (ISR) and the summary subcontract report (SSR) using the Electronic Subcontracting Reporting System (esrs) (following the instructions in the esrs); A description of the types of records that will be maintained concerning procedures adopted to comply with the requirements and goals in the plan including establishing source lists; and A description of the offeror s efforts to locate small businesses and to award subcontracts to them. For instance, some of the language that is included in sections L ( Instructions, Conditions, and Notices to Offerors ) and M ( Evaluation Factors for Award ), which are requirements of government solicitations or requests for proposals, can be read as follows. Assurances that the offeror will: Cooperate in any study or survey as may be required, Submit periodic reports so that the government can determine the extent of compliance by the offeror with the subcontracting plan, and 68 Contract Management September 2011

Section L The subcontracting plan is to be completed by large business offerors only. Prime contractors shall submit a subcontracting plan, which includes dollar percentage goals for subcontracting opportunities with ANCs and Indian Tribes. The goal shall be at least two percent and shall include actual IT-related work with the ANCs/Indian Tribes and not represent recruiting/hiring efforts with an ANC/ Indian Tribe. The subcontracting plans will be evaluated and plans that do not include dollar percentage goals for all of the agency subcontracting goals, including ANCs/Indian Tribes, shall be determined to be ineligible for award. Conference Calendar Section M All large business offerors are required to submit a subcontracting plan that meets all of the small business subcontracting goals including the 25 percent overall goal as part of its proposals. Large business offerors that do not meet all of the goals identified in Section J ( List of Attachments ) will be considered nonresponsive, not subject to further proposal evaluation, and not eligible for award. The government reserves the right to conduct clarifications regarding an offeror s subcontracting plan prior to determining if they meet the contract requirements. November 14 15, 2011 Bethesda North Marriott Bethesda, Maryland How to Calculate the Dollar Percentage FAR 19.704(c) states that for multiyear contracts or contracts containing options, the cumulative value of the basic contract and all options is considered in determining whether a subcontracting plan is necessary. 15 If a plan is necessary and the offeror is submitting an individual contract plan, the plan shall contain all the elements required by paragraph (a) of this section and shall contain separate statements and goals for the basic contract and for each option. January 20 21, 2012 Planet Hollywood Resort and Casino Las Vegas, Nevada FIGUREs 1 and 2 feature examples of a contract if its total value is estimated at $500 million and the solicitation has a requirement for 35 percent small business participation. March 22 23, 2012 Hyatt Regency Austin Austin, Texas Conference Benefits Stay in touch with contemporary issues, Gain exposure to best practice models, Network with others in the industry, Participate in career growth programs, and Earn points toward certifi cation. For information, please contact our Meetings Department at 800-344-8096 x408, e-mail meetings@ncmahq.org, or visit us online at www.ncmahq.org. Contract Management September 2011 69

FIGURE 2. A. Base Year Total Contract Value for Year $200,000,000 Percentage of Total Dollars Total to be Subcontracted $112,000,000 56% Large $40,000,000 20% Small $72,000,000 36% Small disadvantaged $10,000,000 5% Woman-owned small $10,000,000 5% Historically underutilized business zone small $6,000,000 3% Veteran-owned small $10,000,000 5% Service-disabled veteran owned small $6,000,000 3% Historically black colleges and universities/ $4,000,000 2% minority institutions Alaska native corporations/indian Tribes $2,000,000 1% B. Option Year 1 Total Contract Value for Year $150,000,000 Percentage of Total Dollars Total to be subcontracted $84,000,000 56% Large $30,000,000 20% Small $54,000,000 36% Small disadvantaged $7,500,000 5% Woman-owned small $7,500,000 5% Historically underutilized business zone small $4,500,000 3% Veteran-owned small $7,500,000 5% Service-disabled veteran owned small $4,500,000 3% Historically black colleges and universities/ $3,000,000 2% minority institutions Alaska native corporations/indian Tribes $1,500,000 1% C. Option Year 2 Total Contract Value for Year $1500,000,000 Percentage of Total Dollars Total to be subcontracted $84,000,000 56% Large $30,000,000 20% Small $54,000,000 36% Small disadvantaged $7,500,000 5% Woman-owned small $7,500,000 5% Historically underutilized business zone small $4,500,000 3% Veteran-owned small $7,500,000 5% Service-disabled veteran owned small $4,500,000 3% Historically black colleges and universities/ $3,000,000 2% minority institutions Alaska native corporations/indian Tribes $1,500,000 1% FIGURE 1 on page 68 shows the total percentage of planned subcontracting with small and includes the total dollars planned to be subcontracted with small disadvantaged, woman-owned, servicedisabled veteran owned, HUBZone small, Historically Black Colleges and Universities, and ANCs/Indian Tribes. FIGURE 2 at left shows the total dollars planned for subcontracting with small business concerns and includes the total dollars planned to be subcontracted with small disadvantaged, womanowned, service-disabled veteran owned, HUB- Zone small, Historically Black Colleges and Universities, and ANCs/ Indian Tribes. For each year listed in FIGURE 2, the category for small business represents a certain percentage of the total subcontract value. All the percentages are in relation to total contract dollars. Flow Down to Subcontractors In spite of the fact that an award made to a small business is exempt from the requirements listed in FAR 19.702(a)(1) and (2), small receiving an award are encouraged to subcontract with small to the maximum extent possible and, per FAR 52.219-8 (if incorporated into the award), to obtain a small business subcontracting plan from its large business subcontractors if the initial contract or any modification thereof does not fall under one of the FAR exceptions listed in FAR 19.704(b). It is also important to note that it is a mandatory requirement for prime contractors (large and small businesses) to insert FAR 52.219-8, Utilization of Small Business Concerns, in all subcontracts that offer further subcontracting opportunities. FAR 19.704(a)(9) and (10) state: 70 Contract Management September 2011

RGB Blue: 0 40 85 Red: 162 33 33 Subcontracting Plans: Required or Exempt? What You Need to Know 9. Assurances that the offeror will include the clause at 52.219-8, Utilization of Small Business Concerns (see 19.708(a)), in all subcontracts that offer further subcontracting opportunities, and that the offeror will require all subcontractors (except small ) that receive subcontracts in excess of $650,000 ($1,500,000 for construction) to adopt a plan that complies with the requirements of the clause at 52.219-9, Small Business Subcontracting Plan (see 19.708(b)); 10. Assurances that the offeror will: i. Cooperate in any studies or surveys as may be required; ii. Submit periodic reports so that the government can determine the extent of compliance by the offeror with the subcontracting plan; iii. Submit the Individual Subcontract Report (ISR), and the Summary Subcontract Report (SSR) using the Electronic Subcontracting Reporting System (esrs) (www.esrs. gov), following the instructions in the esrs; iv. Ensure that its subcontractors with subcontracting plans agree to submit the ISR and/or the SSR using the esrs; NCMA Corporate Sponsors enhance their industry image as premier businesses in the contract management community. Learn how your company can take advantage of our growing resources by becoming a corporate sponsor. Contact: CHRIS MARTIN 410-584-1967 cmartin@networkmediapartners.com -OR BRUCE TACKETT 410-584-1981 btackett@networkmediapartners.com Sponsors Bechtel Corporation www.bechtel.com The Boeing Company www.boeing.com Defense Acquisition University www.dau.mil Department of Veterans Affairs Center for Acquisition Innovation www.va.gov v. Provide its prime contract number and its DUNS number and the e-mail address of the government or contractor official responsible for acknowledging or rejecting the reports, to all first-tier subcontractors with subcontracting plans so they can enter this information into the esrs when submitting their reports; and vi. Require that each subcontractor with a subcontracting plan provide the prime contract number and its own DUNS number, and the e-mail address of the government or contractor official responsible for acknowledging or rejecting the reports, to its subcontractors with subcontracting plans. Contractors Failure to Meet the Small Business Goals FAR 19.705-5(a)(5) states that in making an award that requires a subcontracting plan, the contracting officer shall be responsible for ensuring that an acceptable plan is incorporated into and made a material part of the contract. If the prime contractor fails to comply with the small business subcontracting plan requirements and is not meeting the percentage of all awarded dollars requirement, the prime contractor may be subject to penalties in the form of liquidated damages, termination, and prohibition from the contracting officer to participate in or submit proposals for future task orders until an action plan has been submitted to and approved by the contracting officer showing how the percentage requirement Box represents protected space FedBid www.fedbid.com Fluor Corporation www.fluor.com Kellogg Brown & Root www.kbr.com imany www.imany.com Integrity Management Consulting www.integritymc.com NASA SEWP www.sewp.nasa.gov ProPricer www.propricer.com Technical and Project Engineering (TAPE) LLC www.tape-llc.com Wolters Kluwer Law & Business www.wolterskluwer.com Contract Management September 2011 71

About the Author JEAN MARCEAU LOHIER, CFCM, is a senior contracts manager with AT&T Government Solutions, Inc. He earned a graduate certificate in procurement and contracts management from the University of Virginia and a graduate certificate in paralegal studies from Georgetown University. He has published several professional articles involving contract management. He has been an NCMA member for the past six years and is currently a member of the Tysons Corner Chapter. Send comments about this article to cm@ncmahq.org. Endnotes 1. FAR 52.219-702(b). 2. See www.whitehouse.gov/omb/procurement_policy_letter_80_2_supp1/. will be met by the next reporting cycle. In addition to the solicitation or contract requirements, the amount to be paid in liquidated damages if the contractor is found to fail to make a good faith effort to comply with its subcontracting plan 16 is addressed in FAR 19.705-7, Liquidated Damages, which stipulates: [W]hen a contractor fails to make a good faith effort to comply with a subcontracting plan, these objectives are not achieved, and 15 U.S.C. 637(d)(4)(F) directs that liquidated damages shall be paid by the contractor. Liquidated damages shall be in addition to any other remedies that the government may have. Furthermore, according to the Small Business Administration and the Small Business Jobs Act of 2010 enacted by Congress and signed by the president into law on September 27, 2010, large prime contractors are held more accountable to their own subcontracting plans by requiring written justification when plans aren t met and when small business subcontractors aren t paid on time. This helps eliminate bait-and-switch tactics that occur when large primes after winning the prime contract don t follow through with their own plans to give subcontracts to small businesses. 17 3. 15 U.S.C. 637(d). 4. On August 30, 2010, the regulators increased the simplified acquisition threshold to $650,000 from the previous $550,000 threshold and to $1.5 million from $1 million for construction contracts. 5. Volume 75, Number 167, 53129 53135. 6. 2011 government fiscal year. 7. FAR 19.702(a)(1). 8. FAR 19.702(a)(2). 9. As described in FAR 19.701, Definitions. 10. DFARS 252.219-7004 Small Business Subcontracting Plan (Test Program). 11. See www.acquisition.gov/gsam/current/html/part519appa.html. 12. See www.onr.navy.mil/en/contracts-grants/small-business/subcontracting-plans.aspx. 13. See FAR 19.708(a). 14. See FAR 19.708(b). 15. See FAR 19.705-2(a). 16. Failure to make a good faith effort to comply with the subcontracting plan 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. 17. See www.sba.gov/content/small-business-jobs-act-2010. Conclusion In closing, a proposed contract, including all options, that does not fall under one of the exemptions prescribed in FAR 19.702(a)(1) or (2) is not only required to have an approved small business subcontracting plan with specific goals signed by the contracting officer in order to be eligible for awards, but is also required to flow it down to other non-exempt subcontractors in accordance with FAR 52.219-8. Furthermore, the contractor is obligated to make a good faith effort to meet the target goals to avoid being penalized and to submit periodic reports so that the government can determine the extent of compliance by the offeror with the subcontracting plan. CM 72 Contract Management September 2011