Fostering Small Business Participation through Subcontracting Compliance

August 17, 2020

Regardless of the anticipated dollar value, the Federal Government is dedicated to encouraging small business participation in its contracts to the maximum extent practicable. In fact, Part 19 of the Federal Acquisition Regulation (FAR) is dedicated to the participation of small businesses in Federal contracting by “implement[ing] the acquisition-related sections of the Small Business Act, applicable sections of the Armed Services Procurement Act, 41 U.S.C. 3104, and Executive Order 12138.” Larger and more complex acquisitions may require the inclusion of Small Business Subcontracting Plans for contract efforts that offer subcontracting possibilities. Despite these efforts to maximize small business participation, Federal Agencies still struggle to safeguard small business participation through subcontracting plans as evidenced by a recent Government Accountability Office (GAO) report on small business subcontracting.

On June 29, 2020, the GAO released its report detailing contractors’ compliance with subcontracting plans. The purpose of this study was to examine the oversight of subcontracting plans after recent Department of Defense (DoD) Inspector General reports raised concerns about the oversight of subcontracting requirements. Based on its review of 26 contracts with subcontracting plans, some of the issues GAO included: inconsistently followed procedures, insufficiently trained contracting personnel, and inadequately documented compliance reviews. The shortcomings identified in this GAO report is particularly concerning since many small businesses rely on subcontracts to grow and become key contributors in the Federal workspace.

Benefits of Subcontracting

According to the General Services Administration (GSA), subcontracting offers many benefits to small businesses within the Federal workspace. These opportunities grant small businesses the opportunity to simultaneously gain experience on multiple work projects without enduring the rigors of submitting a proposal on a long-term Federal contract. A partnership with a prime contractor also enables the small business to focus on technical work, rather than administrative tasks associated with contracts (e.g., reports to the client agency). Subcontracting also allows for small businesses to gain exposure to agencies where it may not have an established relationship with Government clients—this can especially be mutually beneficial to agencies struggling to meet their own small business goals for contract awards. It is under these and similar circumstances why ensuring the integrity of small business subcontracting plans is vital.

Tips to Protect the Integrity of Small Business Subcontracting

Washington Business Dynamics, LLC (WBD) understands the importance of Federal agencies to maintain compliance with small business subcontracting plans to improve subcontracting efforts. WBD similarly echoes GAO’s recommendations to Federal agencies and encourages Federal contractors to grasp these same recommendations to enhance their small business subcontracting plans and relationships with their small business partners. Some ways in which Federal contractors can work with Federal agencies to safeguard the integrity of small business subcontracting include the following:

Maintain and Document Subcontracting Efforts – GAO’s report found that several awarded contracts failed to document whether subcontracting plans were sufficiently reviewed or approved. As a result, the validity of the associated prime contract subcontracting plans is called into question and jeopardizes the integrity of the small business procedures as specified in FAR Part 19. Prime contractors can aid their client agencies in their compliance efforts by thoroughly documenting that subcontracting efforts are followed.
Inform Procurement Center Representatives (PCRs) –Small Business Administration (SBA) PCRs aid small business in their development, and one way they can aid is through the review of small business subcontracting plans. For the contracts reviewed in its report, GAO could not determine if PCRs were given the opportunity to evaluate subcontracting plans. Prime contractors can aid their Federal clients and protect the integrity of their own subcontracting plans by ensuring their Federal clients are giving PCRs the opportunity to review.
Submit Subcontract Reports – Subcontract reports, which are submitted in the Electronic Subcontracting Reporting System (eSRS), play a vital role for the Federal Government in determining how Federal dollars are distributed among small businesses, and the information contained within these reports help to establish small business contracting goals. Although these reports are required for submission according to FAR Part 19, GAO’s report found that many of the reviewed contracts failed to contain these subcontract reports. Failure to submit these reports can impact agencies negatively by potentially skewing small business contracting goals. Prime contractors can aid the accuracy of Federal Government’s small business efforts by regularly submitting subcontract reports.

Fostering Small Business Growth and Collaboration

Time and again, small businesses have demonstrated their capability to bring on innovation and insights that enable Federal agencies to achieve their missions. In Fiscal Year 2018, the Federal Government exceeded its small business contracting goals for the sixth consecutive year by awarding 25% in Federal contract dollars to small businesses. A key part of this figure is small business subcontracting, which enables small businesses to obtain the necessary technical experience, knowledge, and capital to serve as a valued partner to Federal agencies and prime contractors. WBD encourages both prime contractors and Federal agencies to continue to strive and encourage the growth of small businesses through open communication, collaboration, and maintenance of established rules and processes.

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