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Applying Limitations on Subcontracting Only to Prime Contractor's Management Efforts


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20 minutes ago, joel hoffman said:

How do You verify that a subcontractor is small or that a prime is small? You likely take their word for it. If the prime wants to claim credit for a similarly situated sub, they need to show it. Otherwise it doesn’t matter whether a sub is small 

Again, you don't know. 

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19 minutes ago, Don Mansfield said:

Again, you don't know. 

Again, it doesn’t matter, unless they want to take credit for similarly situated subs.

Actually, the new -14 clause is simpler than the old one. And, unless the SBA’s CFR has changed, if it’s subs don’t identify the amount of their materials in their subcontract price, it doesn’t get excluded from their payment for calculating the amount paid to subs. 

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17 minutes ago, Don Mansfield said:

I take that as you don't know.

Don, the question you are asking would be applicable to any contract or order that is subject to the limitations on subcontracting clause where the prime or 8(a) “subcontractor” wishes to claim credit for similarly situated subcontractors share of the contract.

Therefore all current PCO’s should be able to verify or obtain verification that the subs qualify as small businesses, right?

I am retired and don’t need to know. But I’m guessing that to claim status as a small business, a firm would certify under the SBA procedures and be listed in their database. There are penalties for false certifications, too. At any rate the firms would have to show that they are small businesses or similarly situated firm. 

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1 minute ago, joel hoffman said:

Don, the question you are asking would be applicable to any contract or order that is subject to the limitations on subcontracting clause where the prime or 8(a) “subcontractor” wishes to claim credit for similarly situated subcontractors share of the contract.

Therefore all current PCO’s should be able to verify or obtain verification that the subs qualify as small businesses, right? 

How? Are small business primes required to get small business representations from subs? There's a requirement for that in FAR 52.219-9, but that clause doesn't apply to small business concerns. I don't see anything in the Limitation on Subcontracting clause requiring primes to get representations from subcontractors regarding size or socioeconomic status. The approved information collection regarding subcontractor representations covers the primes' burden in complying with FAR 52.219-9 only.

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22 minutes ago, Don Mansfield said:

How? Are small business primes required to get small business representations from subs? There's a requirement for that in FAR 52.219-9, but that clause doesn't apply to small business concerns. I don't see anything in the Limitation on Subcontracting clause requiring primes to get representations from subcontractors regarding size or socioeconomic status. The approved information collection regarding subcontractor representations covers the primes' burden in complying with FAR 52.219-9 only.

Therefore, you wouldn’t bother to verify that the similarly situated sub(s) is/are, in fact similarly situated sub(s)? The other subs don’t matter.

That would then make perfect sense under service contracting 101…

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2 hours ago, joel hoffman said:

Under Service Contracting 101... 

What do you mean by that? What do you mean by "Service Contracting 101"? You have used that phrase several times now.

I can say with confidence that I have read and written more about service contracting than you have ever read or thought about, and I don't know what you mean by that.

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It means, in the context of enforcement of this particular contract requirement, to be oblivious to it. According to Don, the government isn’t allowed to ask for any evidence of compliance or to require the contractor to substantiate that a similarly situated subcontractor is, in fact a similarly situated small business.

So several here have indicated that it is “prudent” to essentially ignore it unless you learn of a problem. If you don’t know how to tell if they are complying, then look the other way.

if you feel that the requirement is a performance requirement, to be left to the contractor’s discretion on how to comply, a proper performance requirement includes substantiation. Substantiation is an Inherent aspect of performance specifying.

Simply ignoring the requirement, is obliviousness and not performance specifying, enforcing it by exception. Then it is rendered useless. 

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4 minutes ago, joel hoffman said:

According to Don, the government isn’t allowed to ask for any evidence of compliance or to require the contractor to substantiate that a similarly situated subcontractor is, in fact a similarly situated small business.

I didn't say that. I asked you how you would verify that a subcontractor is a small business. All invoices are going to tell you is that an amount was paid to a subcontractor.

So what's your plan for verifying compliance?

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14 minutes ago, Don Mansfield said:

So what's your plan for verifying compliance?

Don- Verifying compliance with what specific requirement? And are you referring to construction, services or what?  I was describing tools for how to verify compliance for construction.

The contractor would have to substantiate that a sub is a similarly situated sub if it wants to take credit for that as self performed work.

In looking at the numerous categories of set aside programs, I’m sure that the SBA would know whether a firm is in the program. If you are saying that it isn’t possible to verify that a firm is a similarly situated small business firm, That makes no sense.

And, for a sole source negotiation, the proposed prime or 8(a) would have to provide substantiation during the negotiated formation process. 

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1 hour ago, joel hoffman said:

The contractor would have to substantiate that a sub is a similarly situated sub if it wants to take credit for that as self performed work.

 

Vern mentioned separate line items or sub-line items for self-performed work including similarly situated subs and/or JV members and separately for other subs.

If you are saying that, one can’t determine or otherwise require substantiation of the amount of similarly situated or non similarly situated subcontracting for service contracts, well then I guess you revert to service contracting 101. See above illustration.

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7 hours ago, Don Mansfield said:

Are small business primes required to get small business representations from subs?

A prime that promises to comply with the limitations on subcontracting would be foolish not to require prospective subs to (1) certify their size status and (2) require their own subs to so certify. The prime should do that not because they're required to do so, but because it would be a prudent act of self-preservation.

As for how the prime would know that the sub is being truthful about its status, as Carl has pointed out, the prime is entitled to rely on the sub's self-certification. That's old policy. (Stalking you with praise, Carl. This time.)

Now back to CO enforcement:

FAR 52.219-14 takes the wind out of a would-be proactive CO's sails, first, because it does not require a contractor to provide regular "progress" reports to the CO. SBA expressly rejected that idea when it implemented the new law and policy. See 84 FR 65647, Nov. 19, 2019, at 65652-53. (Does anything else in FAR or elsewhere require progress reports? I don't know. If there is some such requirement, I'm sure Carl will find it. (Praise again, C.)

But even if a contractor must report progressive subcontracting limitation status, FAR 52.219-14 and 13 CFR 125.6 may prevent the CO from taking any kind of action prior to contract completion, because both expressly state the point in time at which the contractor must demonstrate compliance. I'll quote the clause:  

Quote

 

(f) The Contractor shall comply with the limitations on subcontracting as follows:

           (1) For contracts, in accordance with paragraphs (c)(1), (2), (3) and (6) of this clause—

          [Contracting Officer check as appropriate.] 

           □ By the end of the base term of the contract and then by the end of each subsequent option period; or

           □ By the end of the performance period for each order issued under the contract.

           (2) For orders, in accordance with paragraphs (c)(4) and (5) of this clause, by the end of the performance period for the order.

 

Thus, the contractor need not be within the limitation at all times during the course of performance. What should a CO do if, say, at the 25 percent completion point, the amount paid to other than similarly situated subs is more than the limit? In light of the clause language, what can the CO do? I think nothing, as long as there is still a chance that they can be within the limit by the end.

The basis for determining compliance is the percentage of the "amount paid" to subs not similarly situated by the end of performance, less the stipulated deductions of other direct costs and materials costs. That amount might not be knowable until all matters at issue between and among the parties are resolved after the work is physically complete and everyone has signed off on final payment. A CO would need both first and second-tier subcontract information to determine compliance, and would to need to know the amounts of other direct costs and materials costs to be deducted from the amounts paid. (Think about verifying compliance under each order under an IDIQ contract.) Would COs need audit assistance, or should they just accept the amounts reported?

How long will all this take, especially on large contracts with lots of subcontracting.

Who bears the burden of proof? Does the contractor have to prove compliance or does the government have to prove noncompliance?

How much time should COs and agency lawyers be prepared to devote to all this after contracts are physically complete?

How much might all this cost a small business if a CO decides to go full compliance-monkey?

In my opinion, small business policy is a political policy that was easy for our reliably dunderheaded Congress to enact and for the bureaucrats to implement in regulations. I can tell it was easy because it took only a little more than 100 pages in the Federal Register and three years and a few months.

See Big Is Beautiful: Debunking the Myth of Small Business, by Atkinson and Lind (MIT Press, 2018).

After reading what everyone has said, here is where I stand:

If I were a CO administering a contract with subcontracting limitations I would do the following:

  1. I would include a clause in the contract requiring that (1) before final payment the contractor state in writing whether they complied with the limitations and (2) provide a summary statement of the amount paid to each non-similarly-situated subcontractor. I think I could ask for that information pursuant to 13 CFR 125.6(e)(4), but I'm pretty sure I'll hear from Don about such an information request.
  2. I would send a letter to the contractor at the performance midway point reminding them of the limitation and asking for written confirmation of receipt.
  3. Upon receipt of the contractor's final confirmation, and assuming that there were no issues, I would sign a memo to file stating that I knew of no reason to think that the contractor had not complied.

That's as far as I would go absent reliable information about noncompliance or direction from above.

@joel hoffmanJoel, about the photo you posted—How did you manage the selfie while in that position?

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@Vern Edwards

Thank you for the praise.   I might add that forgotten in the back and forth on this subject is FAR 52.219-8.    

Does -8 not give the instructions on how a prime would determine small business size?  

Does -8  not give the the CO the authority to determine a contractors compliance with 52.219-14?

I might add that, as noted before, that I encourage a read of 13 CFR 121.4.   As it goes with FAR part 19, and acknowledged before in the whole of Forum, a combined read of the SBA regulations with the FAR is sometimes necessary to provide context with regard to small business matters.  Here the question is - Is it wrong thinking to encourage a read of 13 CFR where at FAR 19.000 establishes the Scope with reference to the Small Business Act.

And then there is of course FAR 19.501 and its reference to FAR 19.505.

My conclusion - We have danced around the limitation matter without giving concise and clear reference to the FAR and its guiding principles.  

@Don Mansfield That is what I know.

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36 minutes ago, C Culham said:

We have danced around the limitation matter without giving concise and clear reference to the FAR and its guiding principles.

I think everyone agrees with this.  

I think the question is whether a contracting officer, before award, should impose absolute criteria to judge the contractor's future compliance with LOS.  To me, trying to do this would be problematic for several reasons already discussed above.  If there is a basis for questioning the contractor's compliance with LOS during contract administration at the end of a contract or task order period, I prefer allowing the contractor to show its compliance using any method it decides upon at that time.

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1 hour ago, C Culham said:

Thank you for the praise.   I might add that forgotten in the back and forth on this subject is FAR 52.219-8.    

Does -8 not give the instructions on how a prime would determine small business size?  

Does -8  not give the the CO the authority to determine a contractors compliance with 52.219-14?

I might add that, as noted before, that I encourage a read of 13 CFR 121.4.   As it goes with FAR part 19, and acknowledged before in the whole of Forum, a combined read of the SBA regulations with the FAR is sometimes necessary to provide context with regard to small business matters.  Here the question is - Is it wrong thinking to encourage a read of 13 CFR where at FAR 19.000 establishes the Scope with reference to the Small Business Act.

And then there is of course FAR 19.501 and its reference to FAR 19.505.

My conclusion - We have danced around the limitation matter without giving concise and clear reference to the FAR and its guiding principles.  

@C CulhamI don't get what point you are trying to make. I don't question a CO's authority to determine a contractor's compliance with 52.219-14. I question when and how it is to be done and how much work it will entail.

Although your comments were addressed to me, I think your issues are with Don.

1 hour ago, C Culham said:

My conclusion - We have danced around the limitation matter without giving concise and clear reference to the FAR and its guiding principles.  

I don't think we've danced around it, but I do think that some have not discussed it as intelligently as they might.

I think the policy is overboard; I think the clause is poorly written; I think it's more difficult to enforce than some in this thread are giving it credit for; and I don't think that busy COs should devote any time to enforcement during performance unless they have good information about failure to comply. I have said what I would do.

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44 minutes ago, ji20874 said:

I think everyone agrees with this.  

I think the question is whether a contracting officer, before award, should impose absolute criteria to judge the contractor's future compliance with LOS.  To me, trying to do this would be problematic for several reasons already discussed above.  If there is a basis for questioning the contractor's compliance with LOS during contract administration at the end of a contract or task order period, I prefer allowing the contractor to show its compliance using any method it decides upon at that time.

@ji20874I don't agree with Carl's "danced around" statement. I haven't danced around anything. I certainly didn't dance around in my post this morning. I said exactly what I would do and why.

As for absolute criteria for judging compliance, ideal practice would be for the contracting parties to discuss interpretation and compliance before contract award to find out how each party interprets the clause, how they would apply it, and whether they can reach a meeting of the minds. Why ignore an elephant in the room?

Ideally, the parties should be able to develop a formula for determining compliance based on the language of the clause and 13 CFR 125.6, and ideally they would document their understanding. The words in the clause should be the basis for a story problem solution. But given the press of time and work and the shortage of skills in the contracting community, I doubt that ideal practice can be achieved in most cases. So, as a practical matter, it's probably best to set the matter aside for resolution at a later time, if necessary.

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2 hours ago, Vern Edwards said:

A prime that promises to comply with the limitations on subcontracting would be foolish not to require prospective subs to (1) certify their size status and (2) require their own subs to so certify. The prime should do that not because they're required to do so, but because it would be a prudent act of self-preservation.

As for how the prime would know that the sub is being truthful about its status, as Carl has pointed out, the prime is entitled to rely on the sub's self-certification. That's old policy. (Stalking you with praise, Carl. This time.)

My question was whether a small business prime is required to get small business representations from its subcontractors--not whether you thought it would be foolish not to.

I think @C Culham's reference to FAR 52.219-8 answers my question.

 

 

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15 hours ago, Don Mansfield said:

@WifWaf, thanks for the research. What I find interesting in the section on the Paperwork Reduction Act is that they don't account for obtaining small business representations from subcontractors. On what basis would a small business prime classify a subcontractor as small?

Used to be SAM.gov's Entity Search function was open for public viewing, including their reps and certs.  With the website's most recent version update, you must be signed in as a registered user to get access to an entity's FAR 52.219-1 size attestation.  This may have unintentionally impeded compliance with FAR 52.219-14 for those primes using the new similarly situated entity authority.  I'd be interested to hear if that's the case from a prime in this Subcontract Management Forum.

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25 minutes ago, Don Mansfield said:

My question was whether a small business prime is required to get small business representations from its subcontractors--not whether you thought it would be foolish not to.

@Don MansfieldWhen I post, I do not do so to please you. I don't really care what your question was. I posted what I wanted to say.

But now I will answer your question.

I do not know of any statute or regulation that expressly requires a small business prime to get small business representations from its subcontractors. However, not every contractual obligation is express, and I think I could make a persuasive argument in court that such a requirement could be inferred from other clauses in the contract, including FAR 52.219-8 and FAR 52.219-14. Among other things, I think failure to require subs to make representations could be an indication of bad faith.

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