We recently released guidance regarding Past Performance evaluations and observations on the mechanics of Past Performance evaluations. As a result of the SBA’s long anticipated Final Rule for Ownership and Control of 8(a) Program Participants, federal contractors now need to consider the ramifications on their Past Performance assessments when contract performance yields a failure to abide by the applicable Limitations on Subcontracting in their contracts.
As a reminder, federal contracts awarded in excess of the simplified acquisition threshold or when the solicitation is released as a set-aside for 8(a), Hubzone, SDVOSB, or WOSB, includes the clause FAR 52.219-14, Limitations on Subcontracting. This clause limits the amount the government may pay under the contract to non-similarly situated entities for work on the contract. This clause has the effect of limiting the amount of subcontracting a small business may award for performance of a federal contract to non-similarly situated entities.
Within the Final Rule, the SBA has decided to address the issue of failure by a small business to perform in accordance with the limitations on subcontracting. Specifically, the SBA states, “SBA maintains that having negative consequences for not meeting the applicable limitation on subcontracting would help ensure the requirements are being met, and that set-aside contracts are being performed in a manner consistent with SBA’s regulations and the Small Business Act.” Thus, SBA proposed and now has finalized a new rule at § 125.6(e) to provide consequences to a small business where a contracting officer determines at the conclusion of contract performance that the business did not meet the applicable limitation on subcontracting on any set-aside contract (small business set-aside; 8(a); WOSB; HUBZone; or SDVOSB).
Specifically, the Final Rule states that whenever a contracting officer determines at the conclusion of contract performance that a small business did not meet the applicable limitation on subcontracting on any set-aside contract, the regulations first give the business concern the opportunity to explain contributing circumstances that negatively impacted its ability to do so. The Final Rule adds language authorizing a contracting officer to give a satisfactory or positive past performance evaluation for the appropriate evaluation factor or subfactor to a contractor that did not meet the applicable limitation on subcontracting requirement where the contracting officer determines that the reason for noncompliance was outside of the firm’s control and an individual at least one level above the contracting officer concurs with that determination.
In sum, where a contractor fails to abide by the applicable limitations on subcontracting, the contracting officer may not assign a “Satisfactory” or above CPARS rating absent mitigating circumstances, and even in such circumstances, without the approval of an official at a level above the contracting officer. This Final Rule represents a significant risk for contractors who excessively subcontract work to non-similarly situated entities. If you have questions about the Final Rule or its impact on your contracts with Federal agencies, please contact us.