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Limitations on Subcontracting - Update

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Hello,

Looks like there was an update on the "limitations on subcontracting" clause on the open far cases update on Friday. Can someone please help me interpret this? Does this mean they are issuing another proposed rule and will collect comments again (frustrating!). Should we look for this now on the federal register or  will there be any more steps before it gets there? Thank you for the feedback.

EDIT - I found this on the federal register posted yesterday with a reference to the FAR clause ("Introduction to the Unified Agenda of Federal Regulatory and Deregulatory Actions-Fall 2018" - https://www.federalregister.gov/documents/2018/11/16/2018-24084/introduction-to-the-unified-agenda-of-federal-regulatory-and-deregulatory-actions-fall-2018

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Suggest you contact GSA Regulatory Secretariat Division to obtain a referral contact that may be able to answer your questions regarding open action items related to this Open FAR Case Report item 2016-011: Regulatory Secretariat Division 1800 F Street, N.W. Washington 20405 Phone: 202-501-4755 E-mail: GSARegSec@gsa.gov

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59 minutes ago, PepeTheFrog said:

DOD finally caved and issued a DOD Class Deviation, also:

https://www.acq.osd.mil/dpap/policy/policyvault/USA003103-18-DPC.pdf

Thank you. Can you please be kind enough to translate this for me. What does this mean - "DOD Class Deviation"? I am assuming this applies to all federal contracts effective immediately or am I interpreting it wrong? But how is this different making the change the "final rule" instead of "proposed rule" ?

Thanks again.

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31 minutes ago, xanadu said:

Thank you. Can you please be kind enough to translate this for me. What does this mean - "DOD Class Deviation"? I am assuming this applies to all federal contracts effective immediately or am I interpreting it wrong? But how is this different making the change the "final rule" instead of "proposed rule" ?

Thanks again.

Not all federal contracts--all DoD contracts. DoD issues memos that direct contracting officers to comply with the law while the regulations catch up. This is one such memo.

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Thank you. This means that the new "proposed rule" published will go through its own publication life cycle (may be 6 more months?!) and departments/agencies can create such deviations in parallel. They already published this proposed rule earlier and received feedback - I wonder why they had to do it again!! Sigh!!!

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15 hours ago, xanadu said:

Thank you. This means that the new "proposed rule" published will go through its own publication life cycle (may be 6 more months?!) and departments/agencies can create such deviations in parallel. They already published this proposed rule earlier and received feedback - I wonder why they had to do it again!! Sigh!!! 

Xanadu, I must have missed a prior propose rule by the FAR Council. Do you have a reference to where a prior proposed rule by the FAR Council on this subject appeared in the Federal Register?  The SBA is not part of the FAR Council.

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No problem Neil and it is probably my mistake. Other than following this particular thread for purely selfish interests, my interest and knowledge in FAR updates is minimal and I probably used the wrong words. But this is what I was referring to - https://www.federalregister.gov/documents/2014/12/29/2014-29753/small-business-government-contracting-and-national-defense-authorization-act-of-2013-amendments

"

 Specifically, the NDAA provides that a small business awarded a small business set-aside, 8(a), SDVO small business, HUBZone, or WOSB/EDOSB award “may not expend on subcontractors” more than a specified amount. However, as noted below, work done by “similarly situated entities” does not count as subcontracted work for purposes of determining compliance with the limitation on subcontracting requirements. Proposed §§ 125.6(a)(1) and (a)(3) would address the limitations on subcontracting applicable to small business set-aside contracts requiring services or supplies. The limitation on subcontracting for both services and supplies is statutorily set at 50% of the award amount received by the prime contractor. See 15 U.S.C. 657s(a).

Proposed § 125.6(a)(3) addresses how the limitation on subcontracting requirement would be applied to a procurement that combines both services and supplies. This provision would clarify that the CO's selection of the applicable NAICS code will determine which limitation of subcontracting requirement applies.

Proposed §§ 125.6(a)(4) and (5) would address the limitations on subcontracting for general and specialty trade construction contracts. SBA proposes to keep the same percentages that currently apply: 15% for general construction and 25% for specialty trade construction.

As noted above, the NDAA prohibits subcontracting beyond a certain specified amount for any small business set-aside, 8(a), SDVO small business, HUBZone, or WOSB/EDOSB contract. Section 1651(b) of the NDAA creates an exclusion from the limitations on subcontracting for “similarly situated entities.” In effect, the NDAA deems any work done by a similarly situated entity not to constitute “subcontracting” for purposes of determining compliance with the applicable limitation on subcontracting. A similarly situated entity is a small business subcontractor that is a participant of the same small business program that the prime contractor is a certified participant of and which qualified the prime contractor to receive the award. Subcontracts between a small business prime contractor and a similarly situated entity subcontractor are excluded from the limitations on subcontracting calculation because it does not further the goals of SBA's government contracting and business development programs to penalize small business prime contract recipients that benefit the same small business program participants through subcontract awards.

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SBA final rules and FAR Part 52 clauses and provisions have been a long standing point of confusion and frustration in timing to sync them. The most recent version of FAR 52.219-xx includes the following language: Class Deviation 2019-O0003—Limitations on Subcontracting for Small Business. Effective immediately this deviation remains in effect until it is incorporated into the FAR and DFARS, or otherwise rescinded.

As a result, many such clauses and provisions have been changed. You may find that final SBA rules you are concerned with have now been incorporated in FAR. You should confirm that with a review that compares the two if you are interested. The FAR Council process still considers the Class Deviation changes only an interim fix...hence the proposed rules process which may confirm the Class Deviation changes, revise or add to them when it is final.

Hope this helps. 

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1 hour ago, Neil Roberts said:

SBA final rules and FAR Part 52 clauses and provisions have been a long standing point of confusion and frustration in timing to sync them. The most recent version of FAR 52.219-xx includes the following language: Class Deviation 2019-O0003—Limitations on Subcontracting for Small Business. Effective immediately this deviation remains in effect until it is incorporated into the FAR and DFARS, or otherwise rescinded.

 

You said the "most recent version" of the FAR but this class deviation was only incorporated effective 12/4/2018 (and thank you for pointing that out!). This particular sentence is what I am looking at - " Services (except construction), it will not pay more than 50 percent of the amount paid by the Government for contract performance to subcontractors that are not similarly situated entities. Any work that a similarly situated entity further subcontracts will count toward the 50 percent subcontract amount that cannot be exceeded;"  

What is the legal standing of a "Class deviation". Does this mean the FAR has been updated? or is there any ambiguity to apply this to all federal contracts? Thank you for the confirmation. 

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On 12/4/2018 at 6:43 PM, Don Mansfield said:

Not all federal contracts--all DoD contracts. DoD issues memos that direct contracting officers to comply with the law while the regulations catch up. This is one such memo.

Don, based on the fact that the FARsite has been updated with the class deviation, does this mean this language will apply to all federal contracts? Thank you

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6 hours ago, xanadu said:

Don, based on the fact that the FARsite has been updated with the class deviation, does this mean this language will apply to all federal contracts? Thank you

I’ll answer for Don. The Class Deviation only applies to DoD, not to all federal contracts.   

https://www.acq.osd.mil/dpap/policy/policyvault/USA003103-18-DPC.pdf

I can’t access the DoD FARSITE from my non-gov computer anymore.  That site has traditionally updated the FAR to annotate deviations to FAR that only apply to DoD.  It’s probably highlighted in blue type, also - correct? 

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4 hours ago, joel hoffman said:

I can’t access the DoD FARSITE from my non-gov computer anymore.  That site has traditionally updated the FAR to annotate deviations to FAR that only apply to DoD.  It’s probably highlighted in blue type, also - correct?

Correct. The FARSite is maintained by Hill Air Force Base, so DOD deviations apply to its most important users-- the Air Force. The FARSite includes the DOD deviations (which apply only to DOD) within the FAR (which applies generally) strictly as a matter of convenience for Air Force and DOD users.

http://farsite.hill.af.mil/

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54 minutes ago, PepeTheFrog said:

Correct. The FARSite is maintained by Hill Air Force Base, so DOD deviations apply to its most important users-- the Air Force. The FARSite includes the DOD deviations (which apply only to DOD) within the FAR (which applies generally) strictly as a matter of convenience for Air Force and DOD users.

http://farsite.hill.af.mil/

Thank you Joel and Pepe - appreciate the response. The fact that it was published on the "FARsite" made be think if it applies to all contracts where FAR clause is included. I didn't know FARsite language applies only to DOD contracts. If the FARsite is not right place, where is the "system of record" for FAR? Also, does "class deviation" only apply if someone within the department sends a letter like the DoD one? I am trying to figure out who to hound next 🙂

EDIT - May be this is the place? https://acquisition.gov/content/52219-14-limitations-subcontracting

 

Edited by xanadu

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Xanadu, you need to read FAR Subpart 1.4 for a discussion of deviations.  Any agency can issue a deviation to the FAR in order to accomplish what DoD has done in regard to the limitation on subcontracting.

The official FAR is found at https://www.acquisition.gov/.  Also, look at title 48 of the Code of Federal Regulations for the codified version of the FAR as well as agency supplements.

The FARsite contains the FAR, which is applicable to procurement contracts awarded by covered Federal agencies.  As a convenience to its primary users, i.e., DoD contracting personnel, the FARsite webmaster annotates the FAR with DoD deviations.  As Joel stated, deviation material is printed in blue. 

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I’m glad to see that the DoD puts some limitations on amounts that similarly situated subs may subcontract, at least at the first tier level. 

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1 hour ago, joel hoffman said:

I’m glad to see that the DoD puts some limitations on amounts that similarly situated subs may subcontract, at least at the first tier level. 

Those same limitations are included in the SBA's rules.

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Yes I saw that in the proposed rules. 

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