The following is a very general summary of the major changes contemplated by Proposed Rule #1:
Limits on Subcontracting
- The rule changes the method of calculation for purposes of the 50% limit on subcontracting for service and supply contracts to 50% of the amount paid by the Government under the contract (rather than the cost of personnel or the cost of manufacturing under the current rule).
- Similarly Situated Rule - Subcontracting to similarly situated entities shall not be counted as subcontracted work for purposes of determining compliance with the 50% limitation. Thus, an 8(a) prime contractor and an 8(a) teaming partner together can satisfy the 50% limitation.
- If a prime contractor will be relying on the similarly situated entity rule, the prime must: (1) certify compliance in its offer; (2) identify any teaming partners in its proposal and provide the amount of the prime contract that is expected to be performed by each teaming partner; (3) enter into a written agreement with each similarly situated entity and attach those agreements to its offer.
- SBA will presume affiliation where firms (a) are owned and controlled by married couples, parties to a civil union, parents/children and siblings; and (b) do business with each other.
- SBA will presume affiliation where one firm derives 70% or more of its revenues from another firm during the prior fiscal year.
- The rule provides an exception to ostensible subcontractor affiliation for similarly situated entities.
- SBA is proposing to allow small businesses to joint venture without being deemed affiliates for any contract (and not just large or bundled contracts) provided each joint venture partner is small under the appropriate NAICS code.
Now, one thing that many contractors don't realize is that some of the major changes are actually mandated by the 2013 NDAA and SBA does not have discretion to deviate. For example, the Proposed Rule provides that the penalty for violating the limits on subcontracting is the greater of $500,000 or the dollar amount spent, in excess of permitted levels. The $500,000 minimum is mandated by the 2013 NDAA. We just note this so that readers who intend to submit comments don't waste their time on issues that have no shot at being changed in the Final Rule.
Holomua Consulting Group will be submitting comments for both Proposed Rules and we will post them on our website once they are submitted. If you have questions about either of the Proposed Rules, please feel free to contact us at firstname.lastname@example.org or (808) 369-9710.