This analysis covers FAR Subpart 19.7, which governs the requirements, procedures, and oversight of the Small Business Subcontracting Program.
Overview
FAR Subpart 19.7 mandates that "other than small" business concerns provide the maximum practicable opportunity for small business entities to participate in federal contract performance. It requires prime contractors to submit and negotiate formal subcontracting plans for contracts exceeding specific dollar thresholds, ensuring socioeconomic categories like WOSB, SDVOSB, and HUBZone are integrated into the federal supply chain.
Key Rules
- Thresholds for Mandated Plans: A subcontracting plan is required if the contract is expected to exceed $900,000 (or $2 million for construction) and subcontracting possibilities exist.
- Types of Plans:
- Individual Subcontracting Plan: Covers the entire contract period and applies to a specific contract.
- Master Subcontracting Plan: A template containing all required elements except goals; effective for three years once approved.
- Commercial Plan: Preferred for contractors providing commercial products/services; covers the contractor's entire fiscal year across all government contracts.
- Good Faith Effort: Contractors must demonstrate a "good faith effort" to meet their goals. Failure to do so constitutes a material breach of contract and may result in the assessment of liquidated damages.
- Reporting Requirements: Contractors must use the Electronic Subcontracting Reporting System (eSRS) to submit Individual Subcontract Reports (ISR) semi-annually and Summary Subcontract Reports (SSR) annually.
- Flow-Down Requirement: Prime contractors must require their own "other than small" subcontractors to adopt similar subcontracting plans if those subcontracts meet the $900k/$2M thresholds.
- Payment Protections: Prime contractors are required to pay small business subcontractors on time and must notify the Contracting Officer (CO) of any reduced or untimely payments.
Responsibilities
- Contracting Officers (CO):
- Determine if subcontracting possibilities exist for a given acquisition.
- Negotiate and approve the subcontracting plan before contract award.
- Justify and document the file if a determination is made that no subcontracting possibilities exist (requires approval above the CO level).
- Monitor contractor compliance through eSRS and past performance evaluations.
- Prime Contractors:
- Submit acceptable subcontracting plans to remain eligible for award.
- Perform outreach and source identification to include small businesses.
- Provide written explanations to the CO if they fail to use a small business identified in their proposal during contract performance.
- Maintain records to demonstrate procedures adopted to comply with the plan.
- Subcontractors:
- Must represent their size and socioeconomic status (Small, SDB, WOSB, etc.) to the prime contractor, either via written representation or through the System for Award Management (SAM).
- Provide reports (ISR/SSR) if they are a large business with a tier-two subcontracting plan.
Practical Implications
- Eligibility for Award: In negotiated acquisitions, failure to negotiate an acceptable subcontracting plan within the time limit prescribed by the CO makes an offeror ineligible for award. This makes the subcontracting plan a critical "go/no-go" element of the proposal process.
- Proposal Strategy: Prime contractors "use" small businesses in their proposals (by citing their names or pricing) to gain a competitive edge. The FAR now strictly holds primes accountable for actually awarding work to those specific small businesses, preventing "bait and switch" tactics.
- Compliance Burden: The shift to eSRS and the requirement for "good faith effort" documentation means that contractors must maintain robust internal tracking systems. A "zero" percentage achievement on a goal is not necessarily a breach, but a lack of documentation showing the effort to reach that goal can lead to legal and financial penalties.
- Counting ANCs and Indian Tribes: Special rules allow subcontracts with Alaska Native Corporations (ANCs) and Indian Tribes to be counted toward small business and Small Disadvantaged Business (SDB) goals regardless of their actual size or SBA certification status, providing a strategic avenue for primes to meet aggressive goals.