The June 26, 2019 Federal Register, at 84 F.R. 30071, contains a joint-proposed rule by the Department of Defense (DoD), the General Services Administration (GSA) and the National Aeronautics and Space Administration (NASA). The proposed rule allows government prime contractors to receive credit towards their subcontracting plans when their subcontractors contract with other small businesses. This change to the Federal Acquisition Regulation (FAR) is required by section 1614 of the FY2014 National Defense Authorization Act (NDAA) and mirrors a final rule (13 CFR § 125.3) already put in place by the Small Business Administration.

The proposed rule allows for the following changes regarding individual subcontracting plans (but not commercial subcontracting plans):

1. Modifies FAR 19.701 and 52.219-9 to define first-tier and lower-tier subcontracting. Lower-tier subcontracts are those below the first-tier subcontractor, i.e., the subcontractor’s subcontractors.
2. Gives prime contractors credit toward their subcontracting plan goals for lower-tier small business subcontract awards, so long as the first-tier subcontractor is not a small business.
3. Adds a requirement that prime contractors monitor their first-tier subcontractor’s individual subcontracting plans, when applicable, to ensure compliance with the subcontracting goals. The prime contractor must certify that it will ensure the first-tier subcontractors submit the Summary Subcontract Report (SSR) in the Electronic Subcontracting Reporting System (eSRS).

These changes apply to contracts over $700,000 (or $1.5 million for construction contracts). They must be flowed down to subcontracts over these thresholds and individual subcontracting plans are required from those first-tier subcontractors as well.

The joint DoD, GSA and NASA proposed rule modifies FAR §§ 19.704, 42.1503, and 52.219-9, as well as various other provisions in FAR Subparts 19.7, 42.15, and 52.2 to conform with these main changes.

In the past, a prime contractor received credit only for its first-tier small business subcontractors. Now, a prime contractor will receive credit for awards made to small business contractors at any tier by subcontractors with individual subcontracting plans. The FY2014 NDAA required this change because Congress wanted to ensure that subcontracting opportunities were available at all tiers through a process that gives prime contractors a benefit and an obligation. The benefit being that lower-tier subcontracts count toward small business plan goals for the prime contractor. Conversely, prime contractors now have the obligation to ensure that their first-tier subcontractors are complying with plan goals.

The proposed rule will go into effect once a final rule is issued; hopefully later this year. Interested parties may comment on the proposed rule until Aug. 26, 2019 by submitting a response to FAR Case 2018-003 at Regulations.gov.