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New FAR Rule Provides Examples of Good Faith Effort to Meet Subcontracting Plan

August 12, 2021

On August 11, 2021, the U.S. Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration issued a final rule (FAR Final Rule) implementing requirements under the National Defense Authorization Act for Fiscal Year 2017 (NDAA 2017) mandating that the Federal Acquisition Regulation (FAR) include examples of a failure to make a good faith effort to comply with a small business subcontracting plan. 

FAR Part 19 requires large business prime contractors to submit small business subcontracting plans with their bids for negotiated contracts over $750,000 ($1.5 million for construction contracts) that have subcontracting possibilities.  Absent some indication or demonstration by contractors that they made good-faith efforts to meet their subcontracting plan goals, contractors that do not comply with their plans face paying liquidated damages equal to their subcontracting goal short-falls.

NDAA 2017 required the U.S. Small Business Administration (SBA) to amend its regulations in order to include examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan.  Consequently, in November 2019, the SBA issued a final rule that provided guidance for evaluating whether a prime contractor has made a good faith effort to comply with its small business subcontracting plan and that listed examples of activities reflecting a failure to make a good faith effort.  The SBA’s final rule also required prime contractors with commercial subcontracting plans to include indirect costs in their subcontracting goals. 

The changes made by the SBA to its regulations are now implemented in FAR by the FAR Final Rule.  Specifically, as revised by the Final FAR Rule, FAR Part 19 now requires the subcontracting goal for a commercial plan to include all indirect costs, with certain exceptions that include depreciation, interest, income and property taxes, and bank fees.  As revised, FAR Part 19 now also states that a contracting officer may consider any of the following, though not inclusive, to be indicators of a good faith effort:

(i) Breaking out work to be subcontracted into economically feasible units, as appropriate, to facilitate small business participation.
(ii) Conducting market research to identify potential small business subcontractors through all reasonable means, such as searching SAM, posting notices or solicitations on SBA's SUBNet, participating in business matchmaking events, and attending preproposal conferences.
(iii) Soliciting small business concerns as early in the acquisition process as practicable to allow them sufficient time to submit a timely offer for the subcontract.
(iv) Providing interested small businesses with adequate and timely information about plans, specifications, and requirements for performance of the prime contract to assist them in submitting a timely offer for the subcontract.
(v) Negotiating in good faith with interested small businesses.
(vi) Directing small businesses that need additional assistance to SBA.
(vii) Assisting interested small businesses in obtaining bonding, lines of credit, required insurance, necessary equipment, supplies, materials, or services.
(viii) Utilizing the available services of small business associations; local, state, and Federal small business assistance offices; and other organizations.
(ix) Participating in a formal mentor-protégé program with one or more small business protégés that results in developmental assistance to the protégés.
(x) Although failing to meet the subcontracting goal in one socioeconomic category, exceeding the goal by an equal or greater amount in one or more of the other categories.
(xi) Fulfilling all of the requirements of the subcontracting plan.

Under the Final FAR Rule, FAR states, conversely, that a contracting officer may consider any of the following, although not all inclusive, as indicators of a failure to make a good faith effort:

(i) Failure to attempt through market research to identify, contact, solicit, or consider for contract award small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, or women-owned small business concerns, through all reasonable means including outreach, industry days, or the use of Federal systems such as SBA's Dynamic Small Business Search or SUBNet systems.
(ii) Failure to designate and maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan.
(iii) Failure to submit an acceptable ISR, or the SSR, using the eSRS, or as provided in agency regulations, by the report due dates specified in 52.219-9, Small Business Subcontracting Plan.
(iv) Failure to maintain records or otherwise demonstrate procedures adopted to comply with the plan including subcontracting flowdown requirements.
(v) Adoption of company policies or documented procedures that have as their objectives the frustration of the objectives of the plan.
(vi) Failure to pay small business subcontractors in accordance with the terms of the contract with the prime contractor.
(vii) Failure to correct substantiated findings from Federal subcontracting compliance reviews or participate in subcontracting plan management training offered by the Government.
(viii) Failure to provide the contracting officer with a written explanation if the contractor fails to acquire articles, equipment, supplies, services, or materials or obtain the performance of construction work as described in FAR 19.704(a)(12).
(ix) Falsifying records of subcontract awards to small business concerns.

The requirements under the Final FAR Rule do not apply to contracts at or below the simplified acquisition threshold, but do apply to commercial contracts, including contracts for commercially-available off-the-shelf items.  Prime contractors that have submitted subcontracting plans with their bids should take care to implement the new guidance under the Final FAR Rule in their contract administration policies and procedures.

The Final FAR Rule becomes effective September 10, 2021.  To read the Final FAR Rule go here

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Proposed FAR Rule Implements New Buy American Requirements

August 6, 2021

Last week, on July 28, 2021, the Biden Administration announced (here) that it would increase American-made content in federal procurement purchases and that it would bolster support for domestic production of products and services that are critical to national and economic security.  Quickly thereafter, on July 30, 2021, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA), issued a proposed rule under the Federal Acquisition Regulation (FAR) intended to strengthen certain aspects of the Buy American Act.

The Buy American Act encourages acquisitions of domestic products and materials not by prohibiting foreign purchases, but instead by requiring agencies to implement a price preference when evaluating bids from offerors that use domestic end products and construction materials.  The Buy American Act is implemented in FAR, which gives large businesses that use domestic supplies a 20 percent price preference and small businesses that use domestic supplies a 30 percent price preference.  As for when supplies are considered domestic, FAR currently applies a two-part test.  First, an end product or construction material must be manufactured in the U.S.  Second, a certain percentage of all of the component parts must be mined, produced, or manufactured in the U.S.  For an end product that does not consist wholly or predominantly of iron or steel or a combination of both, the cost of domestic components must exceed 55 percent of the cost of all components; the test is waived for acquisitions of commercially available off-the-shelf items.  For an end product that consists wholly or predominantly of iron or steel or a combination of both, the cost of foreign iron and steel must constitute less than 5 percent of the cost of all the components.

Under the recently proposed rule, the domestic component threshold described above increases initially from 55% to 60%, then to 65% in two years, and then, five years later, to 75%.  Suppliers should note that if they perform under a contract that spans the threshold increases, under the proposed rule, they will be required to increase the domestic content of their deliverables to meet any increased thresholds that apply in the years of delivery. 

The proposed rule also provides for a “fallback threshold” until one year after the increase of the domestic content to 75%.  During that initial time period, a former domestic content threshold may be accepted if end products or construction materials meeting a new threshold are not available or are of unacceptable cost.

As for pricing preferences, the proposed rule offers a framework through which higher price preferences are applied for end products and construction materials that are critical or that are made up of critical components and/or critical items, as identified in FAR in a newly added list of critical items and components.

Lastly, the proposed rule includes a new post-award reporting requirement mandating that contractors provide the specific domestic content of critical items, domestic end products containing a critical component, and domestic construction material containing a critical component.

Comments to the proposed rule are due by September 28, 2021.  To read or obtain a copy of the proposed rule go here.

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DoD Issues Final DFARS Rule on Service Contract Annual Reporting Requirements

July 9, 2021

Earlier today, on July 9, 2021, the U.S. Department of Defense (DoD) issued a final rule that requires service contractors to report annually certain data regarding contracts or tasks orders over $3 million that are for logistics management services, equipment-related services, knowledge-based services, or electronics and communications services.

By way of background, section 807 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2008 required DoD to establish a data collection system to provide certain data on the purchasing of services by DoD and to submit to Congress an annual inventory of services contracts awarded by or on behalf of DoD.  To accomplish this, in June 2014, DoD first proposed a service contractor data collection rule that required contractors to enter data into a system that was unique to DoD - the Enterprise Contractor Manpower Reporting Application (ECMRA).  Although that rule was never finalized, in the current iteration of the data reporting requirement that has become final, service contractors are required to instead enter certain service contract data in the System for Award Management (SAM) and DoD will access information using the Federal Procurement Data System (FPDS).

In particular, under the final rule, when a contract or task order exceeds $3 million (including options) and is for services in any of the four service acquisition categories described above, contractors are required to report annually in SAM by October 31 the following information with regard to services performed under the contract or order, including services provided under any first-tier contracts:

  • The total dollar amount invoiced for services performed during the preceding government fiscal year under the contract or order; and
  • The number of contractor direct labor hours, including first-tier subcontractor direct labor hours, expended on the services performed under the contract or order during the previous government fiscal year.

The final rule, which becomes immediately effective, does not apply to contracts at or below the simplified acquisition threshold (SAT) or for commercially available off-the-shelf items (COTS) items, but does apply to contracts for the acquisition of commercial items.  To read or obtain a copy of the final rule go here.

To read other articles from The GovCon Bulletin™ go here.

GovCon Legal Round Up™ - July 2, 2021

The GovCon Legal Round Up™                                                                                                                                                           July 2, 2021


Harmonia Holdings Group, LLC v. U.S. (June 8, 2021)
A government contractor (Harmonia Holdings Group, LLC) appealed a decision by the Court of Federal Claims dismissing in part and denying in part its post-award protest.  The agency (U.S. Census Bureau) issued an RFP as a women-owned small business set-aside but awarded the contract to another bidder.  Harmonia then filed a protest with the Court of Federal Claims challenging the agency's technical evaluation and best-value determination.  Harmonia also alleged that the agency violated FAR 19.301-1(b), as numbered at time of the solicitation but which was subsequently designated FAR 19.301-1(f) in March 2020, by failing to refer the awarded contractor to the SBA for a size determination.  The Court of Federal Claims considered and rejected Harmonia's arguments regarding the Census Bureau's evaluation and best-value determination, but dismissed outright Harmonia's claim based on the agency's failure to seek a size determination from the SBA.  The Court of Federal Claims ruled that Harmonia failed to exhaust its administrative remedies on that claim.   In the court's view, that claim was a size protest that should have first been presented to the agency's contracting officer.  On appeal, the U.S. Court of Appeals for the Federal Circuit upheld the lower court's ruling on the proposal evaluation claims.  With regard to the size determination claim, the U.S. Court of Appeals for the Federal Circuit first concluded that since Harmonia was not actually challenging the awardee's size, but rather was contesting the agency's failure to follow FAR, the claim was a bid protest claim and not a size protest claim and should not have been dismissed on failure to exhaust grounds.  However, rather than remand that claim back to the lower court, the U.S. Court of Appeals went on to consider it and ruled that Harmonia, in any event, had failed to allege facts sufficient to support its claim that the contracting officer abused his discretion in failing to refer the awardee to the SBA for a size determination.  (Read decision here.)


M.R. Pittman Group, LLC v. U.S. (June 24, 2021)
In this decision, the U.S. Court of Federal Claims dismissed a protest lawsuit by a government contractor (M.R. Pittman Group, LLC) on the basis that the contractor, M.R. Pittman, waived its grounds for protest by not objecting to the terms of the solicitation before the conclusion of the bidding process.  The agency (U.S. Army Corps of Engineers) issued a solicitation for repair services at a pump station, and the webpage with the link to the solicitation stated that the solicitation was for a small business set-aside procurement under NAICS code 811310. The solicitation itself, however, omitted the NAICS code in violation of FAR 19.501(e).  The solicitation did incorporate by reference FAR 52.219-6, “Notice of Total Small Business SetAside.”  The agency ultimately informed M.R. Pittman, which does not qualify as a small business under NAICS code 811310, that it was ineligible for the award.  As we reported in a prior GovCon Legal Round Up™ (here),  M.R. Pitrman filed its protest with GAO claiming that the solicitation should not have been treated as a small business set-aside.  GAO dismissed the protest on the grounds that the solicitation was patently ambiguous on the issue of small business set-aside and that the contractor failed to timely challenge the ambiguity before bid closing.  Contractor then filed suit at the Court of Federal Claims arguing that the NAICS code omission precluded the solicitation from being treated as a small business set-aside and that it was unaware of the solicitation defect prior to bid closing.  The Court of Federal Claims ruled that pre-solicitation information and solicitation’s incorporation of FAR clause 52.219-6 could have been discovered by reasonable and customary care and that the contractor, thus, had the opportunity to object to the solicitation’s error before close of bidding.  (Read decision here.)


In re Inmarsat Government, Inc. (Released June 16, 2021)
An incumbent contractor (Inmarsat Government, Inc.) protested the terms of a request for proposal (RFP) issued by the Defense Information Systems Agency (DISA) for commercial broadband satellite services for the Department of Navy under a follow-on contract.  When DISA published a draft solicitation in a pre-solicitation announcement, it inadvertently included Inmarsat's detailed pricing information.  When Inmarsat alerted DISA of the release of its pricing information, DISA did nothing more than remove the draft solicitation from the federal business opportunities website.  After DISA published the solicitation, a competitor of Inmarsat informed DISA that its employees had accessed the draft solicitation and Inmarsat's pricing information, but that the pricing information was removed from the competitor's servers and the employees were walled off from the competitor's proposal writing team.  Inmarset subsequently protested the solicitation.  GAO ruled that the disclosure of Inmarsat's pricing resulted in competitive harm and recommended that DISA either cancel the solicitation or revise it so that the harm from the disclosure can be mitigated.  GAO also recommended that Inmarsat's protests costs, including reasonable attorneys' fees, be reimbursed.  (Read decision here.)

In re Yang Enterprises, Inc. (Released June 4, 2021)
A women-owned small disadvantaged business (Yang Enterprises, Inc.) protested the award of a small business set-aside contract by a defense agency (Air Force) to a small business mentor-protégé joint-venture that comprised a large business that was the incumbent contractor.  Yang protested the award on several grounds, all of which were rejected except for its argument that Air Force improperly evaluated the joint venture's past performance.  Yang argued that the agency unreasonably overlooked the lack of past performance by the joint venture and the small business protégé and, instead, credited the joint venture with the past performance of the large business venturer.  Air Force contended that in reviewing the joint venture's past performance, it relied on the version of  the SBA regulation 13 C.F.R. § 125.8(e) that became effective in November 2020 - after the solicitation was issued.  That version of the regulation provides that an agency cannot require a protégé firm to individually meet the same evaluation or responsibility criteria required of other offerors and that past performance can be demonstrated "in the aggregate" by the joint venture partners.  In its decision, GAO ruled that the version of the SBA regulation that Air Force relied on was irrelevant and that Air Force unreasonably credited the large business joint venture partner with past performance in areas of the procurement that it was not proposed to perform.  GAO recommended that Air Force reevaluate the joint venture's past peformence, make a new selection decision, and reimburse Yang its protest costs, including reasonable attorneys' fees.  (Read decision here.)


In re CVE Protest of: Land Shark Shredding, LLC Protestor re: Griffin Resources LLC (June 3, 2021)
In this decision, the SBA’s Office of Hearings and Appeals (OHA) sustained the protest of a contractor (Land Shark Shredding, LLC) that protested the service-disabled veteran-owned small business (SDVOSB) status of another contractor (Griffin Resources LLC) that was awarded an SDVOSB set-aside contract by the U.S. Veterans Administration.  The protestor, Land Shark, alleged that Griffin Resources had no experience with providing the procured services - sensitive document collection and destruction - and was unusually reliant upon its non-SDVOSB subcontractor to perform the contract.  OHA agreed, concluding that because it appears that the subcontractor will perform all or nearly all of the contract, the awarded contractor was not an eligible SDVOSB for the contract.  (Read decision here.)

In re Size Appeal of: Leumas Residential, LLC (June 10, 2021)
In this decision, the SBA’s Office of Hearings and Appeals (OHA) granted the contractor’s (Leumas Residential, LLC) appeal and overturned a decision by the SBA’s Area Office that Leumas, an 8(a) small business, was other than small for purposes of an 8(a) set-aside contract.  As we discussed in an earlier GovCon Legal Round Up™ (here), previously OHA granted Leumas’ appeal of a similar finding by the Area Office that the contractor was not a small business, and remanded the size determination back to the Area Office for a complete assessment of whether Leumas was in violation of the ostensible contractor rule.  After the remand, the Area Office concluded that Leumas was unduly reliant on its subcontractor and, thus, in an ostensible contractor relationship, and also that Leumas was generally affiliated with the subcontractor based on the totality of the circumstances.  Leumas appealed again and, on appeal, OHA first concluded that the primary and vital requirements of the procurement were narrower than the Area Office had determined.  OHA then concluded that only one of the Dover Staffing factors were present and, thus, Leumas was not unduly reliant upon its subcontractor.  OHA also concluded that the Area Office’s findings of fact with regard to general affiliation were flawed, based on speculation, and in some cases outright error.  Consequently, OHA ruled that Leumas was a small business for purposes of the 8(a) set-aside procurement.  (Read decision here.) 


In re Najmaa Alshimal Company (June 2, 2021)
In this decision, the Armed Services Board of Contract Appeals (ASBCA) granted the agency’s (Air Force) motion to dismiss a company’s (Najmaa Alshimal Company) claims under the Contract Disputes Act (CDA) for payment it alleged was due after the company submitted a quotation for a contract.  Air Force denied that it had ever contracted with the company, arguing that it had instead made the award to another offeror and that the company’s documents reflecting a signed contract were, in fact, doctored.  In dismissing the claim, ASBCA ultimately agreed with Air Force that the company’s attempted CDA claim failed to specify the amount of its claim in a sum certain.  (Read decision here.)