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ohnoudidnt14

2016 Limitations on Subcontracting updates

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Fed Reg Vol 81 No 104, May 31, 2016 finally implemented the “Similarly Situated Entity“ rule of the 2013 NDAA.  Specific updates to 13CFR125 change the overall tenor of the Limitations on Subcontracting to a true limit on the amount that can be subcontracted rather than a prime performance requirement. 

Based on much of the reasoning included in that Fed Reg, the intent was to bring parity to the various programs, including the Limitations on Subcontracting.  The Reg however did not change 48 CFR 52.219 and the various FAR clauses -3, -14, -27, -29, and -30 that implement the limitations on subcontracting requirements.  Vern will be disappointed to see that in the 13CFR125 revision they REMOVED the definition of “Cost of contract performance incurred for personnel”, yet that term is still used in the aforementioned FAR clauses. 

Of particular concern, the new 13CFR125.6(a)(3) requirement identifies the limitations on subcontracting for general construction as “not pay more than 85% of the amount paid by the government to it to firms that are not similarly situated”.  Similarly (a)(4) requires not more than 75% for special trade contractors.  Yet the current FAR 52.219-3 (Notice of HUBZone set-aside) requires that for both types, 50% of “the cost of personnel for contract performance be spent for employees of the concern or employees of other HUBZone small business concerns” (e.g. similarly situated entities) AND requires at least 15% (general) or 25% (trade) performance by employees of the prime.  So there is an inherent contradiction between the two.

The 50% requirement is very difficult for HUBZone construction and trade contractors and I personally know of at least two former HUBZone contractors that have given up maintaining their HUBZone certification on that basis.  It was thought that the new revised rule would bring the requirement back to 15% (general) or (25%) trade consistent with the other programs.

So, 1) is there any reason why one would have precedence over the other (13CFR125 vs 48CFR52) as they are contradictory, and 2) is anyone aware of any pending changes to the FAR clauses to reconcile the discrepancies (not just this one) and bring it in-line with the new regulation?  

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The changes in limitations on subcontracting are the result of amendments to the Small Business Act which required implementation by the SBA.  The SBA finally implemented the statutory change in May 2016.  Unfortunately, the current FAR provisions are based upon the old statute and SBA rules.  However, the FAR Councils have opened a case to update the FAR to be consistent with the SBA rules.

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