Proposed FAR Changes To Implement SBA Small Business Subcontracting Rules

June 15, 2015

DOD, GSA, and NASA have proposed a number of changes to the FAR to implement changes made by the Small Business Administration in 2013 regarding small business subcontracting goals and plans. While the proposed FAR changes include a number of technical and definitional updates, a few of the substantive changes could be significant and are worthy of some discussion.

First, a proposed change to FAR 19.301-2 would allow a contracting officer to require a subcontracting plan from a prime contractor whose size status changes from small to not small as a result of a size re-representation during contract performance. Obviously the criteria by which contracting officers might exercise this discretionary authority will be important, but even more important will be the implications to primes of having a subcontracting plan obligation imposed on a contract that could be entering its sixth year of performance (one point at which a size re-representation would be required). Presumably the prime by this point would have established contractual relationships with subs for performance on the contract, making it difficult- if not impossible- to add new subcontractors to the existing team in order to satisfy a newly imposed subcontracting plan obligation.

A second potentially significant change to FAR 19.702 would require the addition of a subcontracting plan to an existing contract without a plan if the contract is modified after award to exceed the dollar threshold for subcontracting plans. Though the proposed FAR change requires the addition of a subcontracting plan, the language does include the caveat “if the contracting officer determines that subcontracting opportunities exist,” creating at least some amount of discretion for the CO. Like in the case of a re-representation, though, this proposed change will be problematic for prime contractors with existing teaming or subcontract obligations already in place on an existing program.

Finally, a proposed change to the little-noticed FAR 2.101 (and also to FAR 19.703) would modify the definition of “Small Business Subcontractor.” Currently, the definition states that a small business subcontractor is one that does not exceed the size standard applicable to the work that it will be performing. Perfectly logical – but the definition does not provide any guidance as to who determines the appropriate NAICS code classification for the work that the subcontractor will be performing. The proposed change specifies that the prime contractor must determine which NAICS code best describes the product or service to be provided by the subcontractor. Though the proposed rule has the advantage of assigning responsibility for the determination, one need only review a few SBA Office of Hearings and Appeals NAICS code challenge decisions to understand how subjective and potentially controversial these decisions can be, particularly when the prime and the subcontractor are motivated to ensure that the work performed by the subcontractor counts toward the satisfaction of a subcontracting plan category.

The proposed rules are open for public comment until August 10, 2015 and can be found at with the reference FAR Case 2014-003.

If you have questions or would like specific information about the proposed rules discussed in this issue of GovCon Now, please contact the author, Ron Fouse.

If you would like additional information about McGuireWoods’ government contracts group, please contact any of the attorneys listed.