Limitations On Subcontracting: Important New SBA Rule Takes Effect June 30, 2016
Shout-out: Many thanks to the PEO-BES Small Business Director, Ms. Denise Baylor, for tracking and updating industry on these updates.
The SBA has issued a final rule implementing the changes to the limitations on subcontracting enacted by Congress in the 2013 National Defense Authorization Act. The SBA’s final rule takes effect June 30, 2016–and will significantly change the way the limitations on subcontracting are calculated and enforced moving forward. The SBA’s final rule makes a number of important changes regarding the limitations on subcontracting.
First, as directed by Congress, the SBA’s regulations will allow prime contractors to take credit for the work performed by “similarly situated” subcontractors. The SBA explains that the regulation “creates a shift from the concept of a required percentage of work to be performed by a prime contractor to the concept of limiting a percentage of the award amount to be spent on subcontractors.” The SBA continues:
The NDAA prohibits subcontracting beyond a certain specified amount for any small business set-aside, 8(a), SDVO small business, HUBZone, or WOSB/EDWOSB 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 and which qualifies 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.
The SBA recognizes that simply looking at whether a subcontractor is “similarly situated” could lead to potential problems because “[i]f all that was looked at was the first tier subcontract, that first tier subcontractor could in turn pass all of its performance on to a large or otherwise not similarly situated entity through a second subcontract.” The SBA explains how it will address these concerns:
SBA will apply the limitations on subcontracting collectively to the prime and any similarly situated first tier subcontractor, and any work performed by a similarly situated first tier subcontractor will count toward compliance with the applicable limitation on subcontracting. Any work that a similarly situated first tier subcontractor subcontracts, to any entity, will count as subcontracted to a non-similarly situated entity for purposes of determining whether the prime/sub team performed the required amount of work. In other words, work that is not performed by the employees of the prime contractor or employees of first tier similarly situated subcontractors will count as subcontracts performed by non-similarly situated concerns.
Similarly Situated Entity
Similarly situated entity is a subcontractor that has the same small business program status as the prime contractor. This means that: For a HUBZone requirement, a subcontractor that is a qualified HUBZone small business concern; for a small business set-aside, partial set-aside, or reserve a subcontractor that is a small business concern; for a SDVO small business requirement, a subcontractor that is a self-certified SDVO SBC; for an 8(a) requirement, a subcontractor that is an 8(a) certified Program Participant; for a WOSB or EDWOSB contract, a subcontractor that has complied with the requirements of part 127. In addition to sharing the same small business program status as the prime contractor, a similarly situated entity must also be small for the NAICS code that the prime contractor assigned to the subcontract the subcontractor will perform.
For additional in-depth information, click here: http://smallgovcon.com/statutes-and-regulations/limitations-on-subcontracting-important-new-sba-rule-takes-effect-june-30-2016/
Link to Federal Register: https://www.federalregister.gov/articles/2016/05/31/2016-12494/small-business-government-contracting-and-national-defense-authorization-act-of-2013-amendments?utm_campaign=subscription+mailing+list&utm_medium=email&utm_source=federalregister.gov
Indus Corp Acquisition by Tetra Tech likely Affects NETCENTS-2 Role
This week's announcement of the acquisition of Vienna, Virginia-headquartered Indus Corp by Pasadena, California-based engineering services contractor Tetra Tech will affect their role as a NETCENTS-2 NETOPS Small Business contract holder. Tetra Tech's 16,000+ employee base far exceeds the 1500 employee standard for the NETCENTS-2 NETOPS SB contract. Timing is everything, the next question is when will Indus/Tetra Tech's size standard be recertified as is required under the NETCENTS-2 contract. A reading of FAR suggests a size standard review is required within thirty days of a merger, acquisition, or after execution of a novation agreement.
Tetra Tech's acquisition of Indus is reportedly part of a push to expand footprints in markets such as data analytics and geospatial analysis. “Integrating Tetra Tech’s top-ranked water management consulting experience with INDUS’s spatial and water information management capabilities expands our services for key clients such as the U.S. Environmental Protection Agency,” said Tetra Tech CEO Dan Batrack.
“It is an extraordinary opportunity for us to join a firm that broadens our IT technical capabilities focused on data analytics, cloud provisioning, and mobility services for projects across Tetra Tech’s end markets,” Indus CEO Shiv Krishnan said.
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