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Someone asked a similar a similar question a few years ago, and it got one somewhat cautious response. I'd like to ask it again more directly and see what anyone thinks.

Over the years, I have seen numerous prime contractors' standard subcontract terms for commercial items, and many of them include 52.219-9, the requirement to have a small business subcontracting plan. I believe that a subcontracting plan is not required at all in subcontracts for commercial items. My opinion is based on the language in 52.219-9(j), which states: "Subcontracting plans are not required from subcontractors when the prime contract contains the clause at 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders-Commercial Items, or when the subcontractor provides a commercial item subject to the clause at 52.244-6, Subcontracts for Commercial Items, under a prime contract." Since all contracts should have one or the other of those clauses, a subcontractor providing a commercial item is not required to have a plan. Looking at it another way, the only subcontract required to have plan is under a non-commercial prime (which includes 52.244-6) and the subcontract is for non-commercial items.

There are obviously a lot of people who think differently, because several large primes (who shall remain nameless) include 52.219-9 in their commercial item subcontract terms. Their reason is that FAR 19-704(a)(9) states that a subcontract plan shall include "... assurances that the offeror ... will require all subcontractors (except small business concerns) that receive  subcontracts in excess of $750,000 ... to adopt a plan that complies with the requirements of the clause at 52.219-9, Small Business Subcontracting Plan." Also 52.219-9(d)(9), which states that an offeror's plan will include "Assurances that the Offeror ... will require all subcontractors (except small business concerns) that receive subcontracts in excess of the applicable threshold specified in FAR 19.702(a) on the date of subcontract award, with further subcontracting possibilities to adopt a subcontracting plan that complies with the requirements of this clause."

Sure looks like conflicting instructions, but here are my thoughts: first, ignore the FAR text at 19-704. It doesn't go in a prime contract; only 52.219-9 does. Next, read 52.219-9(d)(9) and (j) together: (d)(9) says to require a plan of all subcontractors, but (j) narrows it by saying 'but not from subcontracts for commercial items.'

So - is a subcontracting plan required from a commercial item subcontractor? 

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5 hours ago, Vern Edwards said:

No.

Not by the government. I believe that a prime can require a subcontracting plan for a commercial subcontract . Not sure that it would make sense to though.

Perhaps the prime is trying to show good faith efforts by it and/or it’s sub’s?

Fara Fasat, are these subcontracts generally for cost reimbursement type prime contracts?

If so, the prime might be evaluating the extent of diversity in the subcontracting process? 

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9 hours ago, Vern Edwards said:

No.

Agree.

Remember that complexity vs. complicated discussion?  Well, the word 'subcontract' appears in the title of 21 clauses, and a total of 1,771 times in FAR 52. 

I suspect prime contractors add 52.219-9 because they (reasonably) read the application in 19.708 and think 'well, that's us.' - rather than wading through that complexity.    

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@General.ZhukovGeorgy, I think you're spot-on.

(Have you heard about the new book by Dimbleby, Operation Barbarossa: The History of a Cataclysm (June 2021)? Also, I just watched part of a 1985 Russian film by Elem Klimov about Russian partisans during the Nazi invasion entitled, "Come and See." 97%/95% at Rotten Tomatoes: https://www.rottentomatoes.com/m/1036052-come_and_see . Not available for streaming yet. Realistic. Grim. Very grim.)

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Interesting. In my experience, some of the prominent, big Federal (Defense) contractors with extensive cost reimbursement contract share of their business would “OutFAR” us. We would try to back them off of their extreme interpretations, especially when they would apply their logic or mindset to certain aspects of FFP contracts.

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16 hours ago, Fara Fasat said:

So - is a subcontracting plan required from a commercial item subcontractor? 

Agree not required by 52.219-9. However, some primes have been able to receive credit towards its subcontracting plan goals from subcontract awards by its subcontractors. Therefore, flowing FAR 52.219-9 per 52.244-6 (c)(2).

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Good to know the experts think the answer is no. Too bad some of our largest and (allegedly) most experienced aerospace and defense contractors think the answer is yes.

Joel - I don't think it matters whether the prime is a FP or CR contract. The issue is simply whether the prime must require its CI subcontractor to have a plan. I see nothing in the text of the clause that breaks it down by type of contract (FP or CR).

Neil - interesting point, but I didn't think primes could take credit for subcontractors awarded by their subcontractors. Even if they can, can't the prime accomplish that by simply having the sub report its small business awards rather than by flowing down the requirement to have a plan, with all the administrative burdens and risks that go with it? Besides, the primes I have seen aren't doing it for the credit. They just think they are required to flow down the clause. They never even see see the report, so they don't know the value of any SB subcontracts awarded.

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1 hour ago, Vern Edwards said:

@General.ZhukovGeorgy, I think you're spot-on.

(Have you heard about the new book by Dimbleby, Operation Barbarossa: The History of a Cataclysm (June 2021)? Also, I just watched part of a 1985 Russian film by Elem Klimov about Russian partisans during the Nazi invasion entitled, "Come and See." 97%/95% at Rotten Tomatoes: https://www.rottentomatoes.com/m/1036052-come_and_see . Not available for streaming yet. Realistic. Grim. Very grim.)

I have read many books on the Eastern Front (no surprise) - but not that one.  I'll check it out.

Come and See.  As a combat veteran, its one of the few war movies I can tolerate, but I will probably never watch it again.   The sound design is incredible, like nothing else.  I've heard about a similar film 'The Ascent' - but haven't built up the fortitude to watch it.

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1 hour ago, Fara Fasat said:

interesting point, but I didn't think primes could take credit for subcontractors awarded by their subcontractors. Even if they can, can't the prime accomplish that by simply having the sub report its small business awards rather than by flowing down the requirement to have a plan, with all the administrative burdens and risks that go with it?

See SBA final rule discussion at 81 Fed. Reg. 94246 12/23/2016. Also, award decisions by primes that take lower tier subcontract credit may include the 1st tier subcontractor planned % in making competitive award decisions. 

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Yes, but in that same reg it states (at 13 CFR 125.(c)(1)(x)): "Except when subcontracting for commercial items, the prime contractor must require all subcontractors ... to adopt a subcontracting plan of their own...." A prime can only take credit for awards by lower-tier subcontractors with individual subcontracting plans, and a CI subcontractor isn't required to have a plan. Besides, as I said above, I've never had a prime use that as their reason. They always said a plan was required simply because the subcontract exceeded $750k.

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I agree with Vern.  You need to push back to your Client showing them that it is not required.  I'm the SBLO at one of those "large aerospace companies", and even we get it wrong sometimes.  Most of the time, it is due to the buyers not running the small business requirements by me.  Therefore, they are flowing down requirements that don't need to be and/or using proposal instructions from other projects where it may have been applicable.  If, after letting your Client know the subcontracting plan isn't applicable, and they still tell you it is, it is possible that they deemed the procurement non-commercial.  You may need to assist them in showing that the procurement is indeed commercial. 

No matter the case, if you feel something isn't applicable, let your Client know and even request to speak to the SBLO directly if needed.  Just be prepared with references as not all SBLOs fully understand the requirements themselves.      

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Oh we have and we do. Posting here was just a check to make sure I'm not missing anything. 

By the way, when checking Neil's reference to the SBA regs, I saw something interesting - the SBA's definition of a subcontract at 134 CFR 125.3. It has two things that are lacking in the FAR's various definitions - a time element and what I will call a "carve-out." It's only a subcontract if the awarding party is already under contract with its customer (the time element), and the subcontract is for a part of the work that the awarding party has undertaken with its customer (the carve-out). In my opinion, that's a big improvement over the FAR's "supplies and/or services required for performance of the contract," which has led some CO's to call utility contracts 'subcontracts' because utilities are required to run the factory that performs the contract.

Here's where it makes a difference: factories usually order materials, parts and components on a forecast, and make their products as the customer orders come in. Under the FAR definition the orders for materials, parts and components would be subcontracts; under the SBA definition they would not.

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1 hour ago, Fara Fasat said:

By the way, when checking Neil's reference to the SBA regs, I saw something interesting - the SBA's definition of a subcontract at 134 CFR 125.3. It has two things that are lacking in the FAR's various definitions - a time element and what I will call a "carve-out."

From Open FAR Cases as of 08/23/2021:

See FAR Case 2018-003—

Quote

(S) Credit for Lower-Tier Small Business Subcontracting

Implements section 1614 of the NDAA for FY 2014, as implemented in the SBA regulations on 12/23/2016 (81 FR 94246), which allows prime contractors to receive credit toward goals in their small business subcontracting plans for subcontracts awarded by their subcontractors.

01/08/2020 Case on hold pending publication of a proposed rule by SBA.

 

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On 8/25/2021 at 9:47 AM, Fara Fasat said:

Under the FAR definition the orders for materials, parts and components would be subcontracts; under the SBA definition they would not.

I'm currently working on Small Biz Subcontracting Plans for proposals that include both labor/services and hardware/items.  We are a large business, subcontractor to a large prime. Seems an exception or clarification in the FAR would make sense so purchases of raw materials, parts and components that get fabricated/manufactured into a larger item would not be considered subcontracts for this purpose. Unfortunately I haven't found anything that strongly supports that, so we continue to prepare the Plan. 

As an example, current effort lists 500+ items amounting to $1M+ (~39% of total proposed value) to purchase from more than a dozen different vendors. Many material vendors do not identify themselves under any SBA socio-economic category.

Following this thread in case of further participation. Thank you.

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15 hours ago, Kat said:

Seems an exception or clarification in the FAR would make sense so purchases of raw materials, parts and components that get fabricated/manufactured into a larger item would not be considered subcontracts for this purpose.

You must understand that the definition of subcontractor is caught up in socio-economic acquisition policy and is thus partly political.

The FAR definitions of subcontractor are dubious from an industrial point of view, in which it would seem to be better to distinguish between subcontractors and suppliers (or vendors), etc. The definition in FAR is overly broad, in part because it eliminates arguments about distinctions and in part because the socio-economic/political goal is to distribute as much business as possible to a particular economic sector. That goal is based in part on the myth of small business job creation. See Atkinson and Lind, Big Is Beautiful: Debunking the Myth of Small Business (MIT, 2018), pp. 81 - 93. It also reflects a general dislike and distrust of "big business." Ibid., pp. 221-239.

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18 hours ago, Kat said:

Seems an exception or clarification in the FAR would make sense so purchases of raw materials, parts and components that get fabricated/manufactured into a larger item would not be considered subcontracts for this purpose. Unfortunately I haven't found anything that strongly supports that...

FYI, There has been an open FAR case since 2018 to implement FAR regulation(s) for prescription and flowdown provisions and clauses based on 41 U.S.C.1906 (c)(1) which reads in part as follows:

(c) Subcontracts.-

(1) Definition.- In this subsection, the term "subcontract" …does not include agreements entered into by a contractor for the supply of commodities that are intended for use in the performance of multiple contracts with the Federal Government and other parties and are not identifiable to any particular contract.

Not clear to me what "commodities" was intended to mean. I am not aware of any draft regulations yet. There is a similar effort going on in DFARS.

 

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