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ktr1999

Small Business Subcontract with Large 2nd-Tier Subs

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This seems like it should be a frequently asked question, but in searching the contract clauses below, along with FAR Part 19 and esrs.gov, I haven't been able to find a clear answer.

Suppose you're a large-business prime with a cost-plus contract which includes the following clauses:

52.219-8 UTILIZATION OF SMALL BUSINESS CONCERNS

52.219-9 SMALL BUSINESS SUBCONTRACTING PLAN

52.219-14 LIMITATIONS ON SUBCONTRACTING

The contract is for services (non-construction). You would like to sub out a portion of the work (say, $1-$2 million over five years) to a small business, but in order to complete this work, they will need to hire one or more 2nd-tier subs, which will likely be large businesses. More than 50% of the cost of contract performance incurred for personnel will go to the 2nd-tier subs. The role of the small business will be to conduct procurement actions, select these 2nd-tier subs and oversee their work on your behalf.

Here's the question: If most of the subcontract cost incurred for personnel goes to large-business 2nd tier subs, can you (as prime contractor) still count the full value of the small-business 1st-tier subcontract toward your small business subcontracting goals? If so, what is the relevance of FAR 52.219-14 Limitations on Subcontracting, and why is it included in the prime contract?

Thanks in advance for any thoughts on this topic.

ktr1999

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Suppose you're a large-business prime with a cost-plus contract which includes the following clauses:

...

52.219-14 LIMITATIONS ON SUBCONTRACTING

...

Here's the question: If most of the subcontract cost incurred for personnel goes to large-business 2nd tier subs, can you (as prime contractor) still count the full value of the small-business 1st-tier subcontract toward your small business subcontracting goals? If so, what is the relevance of FAR 52.219-14 Limitations on Subcontracting, and why is it included in the prime contract?

Why is the clause at 52.219-14 included in the prime contract? Look at the various prescriptions for the clause in Part 19 and explain. Is it a multiple award ID/IQ contract where some orders may be set aside for small business? (Let's ignore Delex for a moment.) The answer may be as simple as the clause was included in error. In any case, read the clause--it's very short and probably worth your time.

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Hi Jacques,

Thanks for your response. You're right, this is a multiple award ID/IQ contract where some orders were set aside for small business. It looks like the clause at 52.219-14 was included in the prime contract because of the prescription at 19.508(e):

19.508 Solicitation provisions and contract clauses.

(e) The contracting officer shall insert the clause at 52.219-14, Limitations on Subcontracting, in solicitations and contracts for supplies, services, and construction, if any portion of the requirement is to be set aside or reserved for small business and the contract amount is expected to exceed $150,000. This includes multiple-award contracts when orders may be set aside for small business concerns, as described in 8.405-5 and 16.505(
B)
(2)(i)(F).

So perhaps the clause at 52.219-14 is meant only to apply to the small-business awardees, and paragraph (a) of that clause (which states "This clause does not apply to the unrestricted portion of a partial set-aside") means it doesn't apply to large-business awardees even if it's included in their contracts. Would you say that's a valid interpretation?

ktr1999

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...So perhaps the clause at 52.219-14 is meant only to apply to the small-business awardees, and paragraph (a) of that clause (which states "This clause does not apply to the unrestricted portion of a partial set-aside") means it doesn't apply to large-business awardees even if it's included in their contracts. Would you say that's a valid interpretation?

ktr1999

Yes, I would say that. For the privilege of prime contract set-asides for a class of small business, those privileged small business contractors must comply with the Limitations on Subcontracting clause, 52.219-14.

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Why the limitations on Subcontracting clause applies to small business set-asides, I am also curious as to the answer to the question above If most of the subcontract cost incurred for personnel goes to large-business for its 2nd tier subs, can you (as prime contractor) still count the full value of the small-business 1st-tier subcontract toward your small business subcontracting goals?

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