Jump to content
The Wifcon Forums and Blogs

Knwebs

52.219-14 Limitations on Subcontracting (8a set aside)

Recommended Posts

I've been a reader of these forums for a long time and have gotten great information (and benefit) from this group. I know there's been many questions posted on here about this clause but wanted to explain my situation in hopes of getting some good feedback from the group.

My question is if a sole source is issued to an 8a and they sub to another 8a does the prime have to do 50% of the work under this lawfully? This is a services contract.

Here's the part the SBA is citing: 1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.

My issue is "concern" is undefined here. When two small companies respond to the RFP it's stated in the response that two 8a's are teamed together here. Would this make the concern meaning the team or is concern defined as ONLY the prime contractor? I've looked high and low across the net for a detimination of this and haven't found it yet.. If anyone knows the answer here please let me know.

Our lawyer says we don't have any issues as this FAR is protecting the social-economic group of the set aside the SBA has sent this up to their headquarters for "determination". The district office of the SBA sent up to hdqrs for action/determination.

Share this post


Link to post
Share on other sites

the entity named on the SF-1449 or other bid document would be the prime ktr.

the identity of the prime is tied to a specific DUNS number.

if that entity is a JV of 2 8(a) firms, then the prime - the JV - must perform 50%.

look at the JV agreement.

I expect it would say that the JV is a joining of the 2 firms for this limited purpose.

if so, then either 8(a) can contribute toward the 50%.

if the prime ktr is a single 8(a,) and the second 8(a) is a sub, then the prime must perform the 50% themselves.

I don't have a cite for this specific interpretation; it's just applying the regs and definitions as written.

*******************

I don't think a JV can enroll in the 8(a) program.

8(a) is a 9-year training program.

JV's are for sort duration projects.

If the Kt is awarded to one of these 2 firms in the program, then I don't think the JV exception will apply.

*****************

this might be a case where SBA allows the rules to be broken, as your attorney suggests.

Who's hurt ?

Who could protest ?

I think some other 8(a) that CAN satsfy the 52.219-14 requirement is the one who is hurt.

but if the Agency doesn't like them, they'll never know what they missed out on.

Share this post


Link to post
Share on other sites

Thanks Brian, this workload had been sole sourced three times to my company. The prime now and us have turned in a mentor-protege package back in early 2012 before this was awarded. We still to this date have gotten zero response back from the sba on the status of it. I know this doesn't help in the argument but the truth is this workload would still be mine as the prime but I saw it as an opportunity to get our protege involved in all contracting biz processes (contract mgmt, wawf, acct, clearance, HR, line of credit, benefits, etc)

Guess trying to assist others comes w/ loosing half the workload to them.

Share this post


Link to post
Share on other sites

My thoughts –

References - 13 CFR 121.105, 13 CFR 124.510 and 13 CFR 125.6

Unless the two firms are one under the ideal of a “legal form” then it would seem they have a prime –subcontractor relationship. If it is a prime-sub relationship then the prime must perform the required percentage of work.

If questioned the matter is handled as one of responsibility (13 CFR 125.6(f)) which would imply that a determination by SBA headquarters should be in form and process of FAR 19.6.

It would seem it could be argued that the 8(a) sole source set-aside is in fact not one if the Limitations on Subcontracting are not adhered to and the ‘prime” could be found to be not meeting its competitive mix and possibly in violation of other regulations regarding eligibility for the 8(a) program. There is the "right" right way to make such a relationship happen to avoid these pitfalls.

PS to Knwebs - Interesting that even in your posts you use the word "prime" significantly. It would seem you even think it is a prime-sub relationship!

Share this post


Link to post
Share on other sites

KNWEBS -

not my place to make strategic decisions for you, but ...

you could be the PRime, the Mentor could be the Sub, and you could ease them into taking more responsibility over the course of the contract.

Then, at renewal, you could switch roles.

Or,

I think a knowledgeable counselor at laws could structure an apropriate JV instrument for $1K.

Depends how far along this is.

Share this post


Link to post
Share on other sites

Thanks so much for the info we're a couple months away from steering the customer one way or another as we have vehicles out there accessible. Just wanted to check the opinions. I also read (sigh) the 2013 National Defense Authorization Act and I KNOW it's not in the FAR and how long it "could" take to become part of it BUT here's something interesting signed into law (Jan 2013) around this discussion. Would this affect the SBA black/white issue or no?

Important on this question is in bold/underlined as it took the highlighted sections out when I pasted. Had to change ("capital B" to smaller (b in order to not get the emodicon removed..

PART IV--TRANSPARENCY IN SUBCONTRACTING

SEC. 1651. LIMITATIONS ON SUBCONTRACTING.

The Small Business Act (15 U.S.C. 631 et seq.) is amended by inserting before section 47 (as redesignated by section 1641 of this subtitle) the following:

‘SEC. 46. LIMITATIONS ON SUBCONTRACTING.

‘(a) In General- If awarded a contract under section 8(a), 8(m), 15(a), 31, or 36, a covered small business concern--

‘(1) in the case of a contract for services, may not expend on subcontractors more than 50 percent of the amount paid to the concern under the contract;

‘(2) in the case of a contract for supplies (other than from a regular dealer in such supplies), may not expend on subcontractors more than 50 percent of the amount, less the cost of materials, paid to the concern under the contract;

‘(3) in the case of a contract described in paragraphs (1) and (2)--

1]‘(A) shall determine for which category, services (as described in paragraph (1)) or supplies (as described in paragraph (2)), the greatest percentage of the contract is awarded;

1]‘(b)shall determine the amount awarded under the contract for that category of services or supplies; and

1]‘© may not expend on subcontractors, with respect to the amount determined under subparagraph (b, more than 50 percent of that amount; and

‘(4) in the case of a contract for supplies from a regular dealer in such supplies, shall supply the product of a domestic small business manufacturer or processor, unless a waiver of such requirement is granted--

1]‘(A) by the Administrator, after reviewing a determination by the applicable contracting officer that no small business manufacturer or processor can reasonably be expected to offer a product meeting the specifications (including period for performance) required by the contract; or

1]‘(b by the Administrator for a product (or class of products), after determining that no small business manufacturer or processor is available to participate in the Federal procurement market.

‘(b Similarly Situated Entities- Contract amounts expended by a covered small business concern on a subcontractor that is a similarly situated entity shall not be considered subcontracted for purposes of determining whether the covered small business concern has violated a requirement established under subsection (a) or (d).

‘© Modifications of Percentages- The Administrator may change, by rule (after providing notice and an opportunity for public comment), a percentage specified in paragraphs (1) through (4) of subsection (a) if the Administrator determines that such change is necessary to reflect conventional industry practices among business concerns that are below the numerical size standard for businesses in that industry category.

‘(d) Other Contracts-

‘(1) IN GENERAL- With respect to a category of contracts to which a requirement under subsection (a) does not apply, the Administrator is authorized to establish, by rule (after providing notice and an opportunity for public comment), a requirement that a covered small business concern may not expend on subcontractors more than a specified percentage of the amount paid to the concern under a contract in that category.

‘(2) UNIFORMITY- A requirement established under paragraph (1) shall apply to all covered small business concerns.

‘(3) CONSTRUCTION PROJECTS- The Administrator shall establish, through public rulemaking, requirements similar to those specified in paragraph (1) to be applicable to contracts for general and specialty construction and to contracts for any other industry category not otherwise subject to the requirements of such paragraph. The percentage applicable to any such requirement shall be determined in accordance with paragraph (1).

‘(e) Definitions- In this section, the following definitions apply:

‘(1) COVERED SMALL BUSINESS CONCERN- The term ‘covered small business concern’ means a business concern that--

1]‘(A) with respect to a contract awarded under section 8(a), is a small business concern eligible to receive contracts under that section;

1]‘(b with respect to a contract awarded under section 8(m)--

4]‘(i) is a small business concern owned and controlled by women (as defined in that section); or

4]‘(ii) is a small business concern owned and controlled by women (as defined in that section) that is not less than 51 percent owned by 1 or more women who are economically disadvantaged (and such ownership is determined without regard to any community property law);

1]‘© with respect to a contract awarded under section 15(a), is a small business concern;

1]‘(D) with respect to a contract awarded under section 31, is a qualified HUBZone small business concern; or

1]‘(E) with respect to a contract awarded under section 36, is a small business concern owned and controlled by service-disabled veterans.

‘(2) SIMILARLY SITUATED ENTITY- The term ‘similarly situated entity’ means a subcontractor that--

1]‘(A) if a subcontractor for a small business concern, is a small business concern;

1]
‘(b if a subcontractor for a small business concern eligible to receive contracts under section 8(a), is such a concern;

1]‘© if a subcontractor for a small business concern owned and controlled by women (as defined in section 8(m)), is such a concern;

1]‘(D) if a subcontractor for a small business concern owned and controlled by women (as defined in section 8(m)) that is not less than 51 percent owned by 1 or more women who are economically disadvantaged (and such ownership is determined without regard to any community property law), is such a concern;

1]‘(E) if a subcontractor for a qualified HUBZone small business concern, is such a concern; or

1]‘(F) if a subcontractor for a small business concern owned and controlled by service-disabled veterans, is such a concern.’.

Share this post


Link to post
Share on other sites

Yes, once implemented, this would change things. I don't think you'll see this change in the FAR in the next couple of months, though. I didn't see an open FAR case specifically implementing this section of the NDAA.

If you want to allow other 8(a) concerns to count toward the 50% requirement, you could request a deviation from FAR 52.219-14. It shouldn't be that hard to get given the language of the NDAA.

Share this post


Link to post
Share on other sites

Don, any specifics you can give me or references on how to go about that? I've been google'ing it but can't find anything about the procedures of how to do that.

Share this post


Link to post
Share on other sites

Don, do you think a deviation is possible since the Small Business Adminstration is the agency with primary jurisdiction over the Small Business Act and its regulations impose the limitation on subcontracting currently in place. In other words, wouldn't you be attempting a deviation to the SBA's rules?

Share this post


Link to post
Share on other sites

I'm interested in the dialog on this. I've always found it weird that we pass laws that would in turn change various clauses in the FAR, yet we don't follow the law at the time until the FAR Council finally gets around to implementing it.

Retread - The deviation is always possible, but I would assume that the approving authority for the deviation would probably want to see some concurrence from the SBA on the deviation before approving it. I don't see why the SBA would disapprove, you're still directing business to small business in this case, two for that matter.

Share this post


Link to post
Share on other sites

Yes, once implemented, this would change things. I don't think you'll see this change in the FAR in the next couple of months, though. I didn't see an open FAR case specifically implementing this section of the NDAA.

If you want to allow other 8(a) concerns to count toward the 50% requirement, you could request a deviation from FAR 52.219-14. It shouldn't be that hard to get given the language of the NDAA.

I don't believe that, prior to the change in the underlying law, one could obtain a waiver to the limitations on subcontracting, because the law prescribed the requirements that were repeated in the clause. I may be wrong. I can't find my old paper file folder on the original statutory requirements for limitations on subcontracting.

I seem to remember that the original legislation included the language of the 52.219-14 clause and maybe mentioned implementing instructions. I was interested in that topic as it applied to construction. In contrast, the clause 52.236-1 "Performance of Work by the Contractor" that is used in unrestricted construction contracts proivides some leeway to the KO to adjust the minimum required percentage of self performed work, both in the clause and after award. I did not see any leeway afforded a KO in the 52.219-14 clause.

Don is apparently saying that the underlying statutory basis for the requirement has changed, therefore until the implementing regulations catch up, there is some type of waiver process available. Am I correct? Does the underlying law provide for a process to implement into the CFR's? What is that process, Don?

Share this post


Link to post
Share on other sites

Don, do you think a deviation is possible since the Small Business Adminstration is the agency with primary jurisdiction over the Small Business Act and its regulations impose the limitation on subcontracting currently in place. In other words, wouldn't you be attempting a deviation to the SBA's rules?

Yes, I think that you would be deviating from the SBA's rules. I'm assuming that the SBA can authorize deviations from its regulations. Having said that, I couldn't find any statement to that effect in Title 13 of the CFR.

Share this post


Link to post
Share on other sites

I'm interested in the dialog on this. I've always found it weird that we pass laws that would in turn change various clauses in the FAR, yet we don't follow the law at the time until the FAR Council finally gets around to implementing it.

Yes, it is a strange phenomena. Sometimes laws are passed and the executive branch is quick to implement it. If I recall correctly, the authority to do SDVOSB set-asides and sole source actions was implemented within months of the authorizing legislation. On the other hand, it was over ten years before we saw a rule implementing WOSB set-asides in the SBA regulations from the time the authorizing legislation was passed. I assume politics has something to do with it.

Share this post


Link to post
Share on other sites

Don is apparently saying that the underlying statutory basis for the requirement has changed, therefore until the implementing regulations catch up, there is some type of waiver process available. Am I correct? Does the underlying law provide for a process to implement into the CFR's? What is that process, Don?

The underlying statute authorizes the administrator to amend the limitation on subcontracting rules as they apply to small business set-asides and 8(a) acquisitions (see Knewbs post above). As far as asking for permission to deviate from the existing SBA rules, I don't know what the standard process is. As I wrote to Retreadfed, I assumed it was something that could be done.

Share this post


Link to post
Share on other sites

Yes, I think that you would be deviating from the SBA's rules. I'm assuming that the SBA can authorize deviations from its regulations. Having said that, I couldn't find any statement to that effect in Title 13 of the CFR.

Don, prior to this change, I don't think there was any procedure to deviate because, as I recall (but cannot find my paper files), the law was specific with little or no wiggle room. I said that, then realized that my files related to the origin of the clause 52.219-14 for Small Business Set-Asides; I don't remember if it discussed 8(a) or other SDB type set-asides.

Share this post


Link to post
Share on other sites

Remembering that limitation on subcontracting is covered in two areas of SBA regs a deviation with specific regard to 8(a) causes a ripple effect because limitation on subcontracting is a matter of compliance with the 8(a) program eligibility. A deviation with regard to a small business setaside does not have such a ripple effect. Conclusion is that the latter deviation is probably easier, if easy at all. Likewise I am sure the new change in wording for the limitation matter is causing SBA some churn as they figure out its application to all the setaside programs. Also I have not studied the legislation but do wonder if SBA was in support of it or not, or said another way, I wonder if some legislative staffer decided the change was a good idea without considering all the ramifications?

Share this post


Link to post
Share on other sites

Likewise I am sure the new change in wording for the limitation matter is causing SBA some churn as they figure out its application to all the setaside programs.

The change in wording will not affect the HUBZone and SDVOSB programs. For these programs, "similarly situated entities" already count toward the prime's performance. See FAR 52.219-3( d ), FAR 52.219-4( d ), and FAR 52.219-27( d ).

Share this post


Link to post
Share on other sites

Couple of interesting things and glad I brought up this topic. First, to me, the SBA allows some to count towards the 50% but not woman/8a/small biz in the current FAR. Seems like this would fall under prejudice.

Secondly, Subpart 19.803 Selecting Acquisition, there's three types the CO/SBA can use to select an 8(a) firm. Without going into the three, one of them is the SBA choosing one OR MORE firms to do the work. See (B The SBA identifies a specific requirement for a particular 8(a) firm or firms and asks the agency contracting activity to offer the acquisition to the 8(a) Program for the firm(s).

I made a couple phone calls to COs that I have really good relationships with (not for this customer) that is very knowledgable and knows contracting well. He stated that the SBA is the prime under the 8(a) program and the company identified on the contract is actually a sub (an 8(a) participant). Under these guidelines the SBA can choose to "sub" to more than one firm 8(a) participant which is covered in 19.803 above.

So back to my orginial question does the limitations in subcontracting preclude two 8(a) firms doing an 8(a) sole source no matter what the percentages are of prime/sub under the current law(s)??

Local district SBA has said "no" pointing to 52.219-14.

Share this post


Link to post
Share on other sites

Knwebs, you have confused two things in your latest post: (1) current law and (2) current SBA and FAR regulatory coverage. On the face of it, current law would permit an 8(a) prime to subcontract to an 8(a) sub so long as the combined effort of the two complied with the so called 50% rule as expressed in 52.219-14. However, under current regulations, which are based on the law prior to January 3, 2013, an 8(a) prime will have to comply with the 50% rule and cannot count effort exerted by a sub when determining compliance with that rule.

Share this post


Link to post
Share on other sites

Knewbs,

See 13 CFR 124.510( a ) and 13 CFR 125.6( a ):

§ 124.510 What percentage of work must a Participant perform on an 8(a) contract?

(a) To assist the business development of Participants in the 8(a) BD program, an 8(a) contractor must perform certain percentages of work with its own employees. These percentages and the requirements relating to them are the same as those established for small business set-aside prime contractors, and are set forth in § 125.6 of this title.

§ 125.6 Prime contractor performance requirements (limitations on subcontracting).

(a) In order to be awarded a full or partial small business set-aside contract, an 8(a) contract, a WOSB or EDWOSB contract pursuant to part 127 of this chapter, or an unrestricted procurement where a concern has claimed a 10 percent small disadvantaged business (SDB) price evaluation preference, a small business concern must agree that:

(1) In the case of a contract for services (except construction), the concern will perform at least 50 percent of the cost of the contract incurred for personnel with its own employees.

(2) In the case of a contract for supplies or products (other than procurement from a non-manufacturer in such supplies or products), the concern will perform at least 50 percent of the cost of manufacturing the supplies or products (not including the costs of materials).

(3) In the case of a contract for general construction, the concern will perform at least 15 percent of the cost of the contract with its own employees (not including the costs of materials).

(4) In the case of a contract for construction by special trade contractors, the concern will perform at least 25 percent of the cost of the contract with its own employees (not including the cost of materials).

Share this post


Link to post
Share on other sites

Knwebs –

Look to be very blunt it is clear you do not understand the 8(a) Program in a way that you should and my suggestion is that you do a few things. First visit with your SBA Business Development Specialist with regard to your questions. Second, sit down and read, and re-read the Code of Federal Regulations that apply to the Program, especially 13 CFR 124. The FAR is good but quite honestly you are playing with your eligibility in the program and 13 CFR 124 should be your very first reference. Lastly you might want to seek legal counsel that is experienced in the matters of 8(a).

And to support that you need to seek counsel outside this forum as suggested above have you even considered some of these excerpts from 13 CFR 124 that might apply to the questions you keep posting….

13 CFR 124.515 - (a) An 8(a) contract must be performed by the Participant that initially received it unless a waiver is granted under paragraph (B) of this section.

13 CFR 124.513 (a) General. (1) If approved by SBA, a Participant may enter into a joint venture agreement with one or more other small business concerns, whether or not 8(a) Participants, for the purpose of performing one or more specific 8(a) contracts.

13 CFR 124.513(d) (d) Performance of work. (1) For any 8(a) contract, including those between mentors and protégés authorized by § 124.520, the joint venture must perform the applicable percentage of work required by § 124.510. For an unpopulated joint venture or a joint venture populated only with one or more administrative personnel, the 8(a) partner(s) to the joint venture must perform at least 40% of the work performed by the joint venture. The work performed by 8(a) partners to a joint venture must be more than administrative or ministerial functions so that they gain substantive experience. For a joint venture populated with individuals intended to perform contracts awarded to the joint venture, each 8(a) Participant to the joint venture must demonstrate what it will gain from performance of the contract and how such performance will assist in its business development.

(2)(i) In an unpopulated joint venture, where both the 8(a) and non-8(a) partners are technically subcontractors, the amount of work done by the partners will be aggregated and the work done by the 8(a) partner(s) must be at least 40% of the total done by all partners. In determining the amount of work done by a non-8(a) partner, all work done by the non-8(a) partner and any of its affiliates at any subcontracting tier will be counted.

(ii) In a populated joint venture, a non-8(a) joint venture partner, or any of its affiliates, may not act as a subcontractor to the joint venture awardee, or to any other subcontractor of the joint venture, unless the AA/BD determines that other potential subcontractors are not available, or the joint venture is populated only with administrative personnel.

(A) If a non-8(a) joint venture partner seeks to do more work, the additional work must generally be done through the joint venture, which would require the 8(a) partner(s) to the joint venture to also do additional work to meet the 40% requirement set forth in paragraph (d)(1) of this section.

(B) If a joint venture is populated only with administrative personnel, the joint venture may subcontract performance to a non-8(a) joint venture partner provided it also subcontracts work to the 8(a) partner(s) in an amount sufficient to meet the 40% requirement. The amount of work done by the partners will be aggregated and the work done by the 8(a) partner(s) must be at least 40% of the total done by all partners. In determining the amount of work done by a non-8(a) partner, all work done by the non-8(a) partner and any of its affiliates at any subcontracting tier will be counted.

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×