FAR Council Publishes Final Rule on Good Faith in Small Business Subcontracting
Last week, the Federal Acquisition Regulation (“FAR”) Council published a final rule amending the FAR to implement a portion of the National Defense Authorization Act for Fiscal Year 2017 (“2017 NDAA”), which requires examples of failure to make good faith efforts to comply with a small business subcontracting plan.
The final rule also provides that “failure to make a good faith effort to comply with the plan may result in the assessment of liquidated damages per FAR 52.219-16, Liquidated Damages—Subcontracting Plan,” and requires that “all indirect costs, with certain exceptions, are included in commercial plans and SSRs.”
The final rule is effective on September 10, 2021.
Under the FAR, small business subcontracting plans are required from large prime contractors when a contract is expected to exceed $750,000 ($1.5 million for construction) and that has subcontracting possibilities. FAR 19.704 provides the elements of a subcontracting plan, which include, for example, the prime contractor’s small business subcontracting percentage goals, a provision regarding the total dollars the prime plans to subcontract to small businesses, and a description of the efforts the prime contractor will make to ensure that small businesses have an equitable opportunity to compete for subcontracts.
As provided in the final rule, below are some (but not all) examples that indicate a contractor’s good faith effort to comply with its subcontracting plan:
- Breaking out work to be subcontracted into economically feasible units, as appropriate, to facilitate small business participation.
- 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.
- Directing small businesses that need additional assistance to SBA.
- Assisting interested small businesses in obtaining bonding, lines of credit, required insurance, necessary equipment, supplies, materials, or services.
- Participating in a formal mentor-protégé program with one or more small business protégés that results in developmental assistance to the protégés.
- 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.
As provided in the final rule, below are some (but not all) examples that indicate a contractor’s failure to make a good faith effort to comply with its subcontracting plan:
- Failure to designate and maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan.
- 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.
- Failure to maintain records or otherwise demonstrate procedures adopted to comply with the plan including subcontracting flowdown requirements.
- Adoption of company policies or documented procedures that have as their objectives the frustration of the objectives of the plan.
While SBA’s regulations already provide guidance on good faith efforts to comply with small business subcontracting plans,  this new FAR rule might cause contracting officers to rethink how they approach whether large primes are indeed making a good faith effort. And, because the final rule provides for a flexible “totality of the contractor’s actions” analysis, large primes should also document (beyond the listed items) what actions they are taking that show a good faith effort to comply with their small business subcontracting plans. As a reminder, this new rule does provide the government with an option to pursue liquidated damages in the event a large contractor fails to make good faith efforts.
 See 13 C.F.R. § 125(d)(3) (implemented in November 2019 pursuant to the 2017 NDAA).
Please reach out to a member of Maynard Cooper’s Government Solutions Group if you have any questions or need assistance.