Overview
This section implements Section 8(d) of the Small Business Act, requiring large prime contractors to provide small businesses with the "maximum practicable opportunity" to participate in federal contracts. It establishes the specific dollar thresholds and conditions under which a formal small business subcontracting plan becomes a mandatory prerequisite for receiving a contract award.
Key Rules
- General Policy: All contractors receiving awards above the simplified acquisition threshold must agree to provide various categories of small businesses (VOSB, SDVOSB, HUBZone, SDB, and WOSB) opportunities to participate and must ensure timely payment to these subcontractors.
- Subcontracting Plan Thresholds: Formal subcontracting plans are required for negotiated or sealed bid acquisitions expected to exceed $900,000 ($2 million for construction) where subcontracting possibilities exist.
- Eligibility for Award: If an offeror fails to negotiate an acceptable subcontracting plan within the time limit prescribed by the Contracting Officer, they are ineligible for the contract award.
- Contract Modifications: A plan may be required for modifications that push a contract's value over the threshold, provided the Contracting Officer determines subcontracting opportunities exist.
- Exemptions: Subcontracting plans are not required from small business concerns, for personal services contracts, or for contracts performed entirely outside the United States.
- Enforcement and Penalties: Failure to comply in "good faith" with a subcontracting plan constitutes a material breach of contract and can result in the assessment of liquidated damages.
- Mentor-Protégé Credits: Costs for developmental assistance (DoD program) or training (SBA program for Puerto Rico/covered territories) provided by mentors to protégés may be credited toward subcontracting goals.
Practical Implications
- Large businesses must treat the development of a subcontracting plan as a "pass/fail" compliance hurdle; failure to reach an agreement with the government results in immediate disqualification from the competition.
- Prime contractors must maintain robust documentation of their small business outreach and utilization efforts to demonstrate the "good faith effort" required to avoid liquidated damages and negative performance evaluations.