Small FAR Phrasing Results in Major Impact on Small-Business Contracting Spending

The Federal Acquisition Regulation established by the heads of several agencies, requires that all large companies bidding on prime contracts specify the percentage of awarded dollars that flow through to small-business subcontractors. Section 52219-9 of the FAR Small Business Subcontracting Plan rules were drafted in order to guarantee that small businesses have the maximum practicable opportunity to participate in performing contracts, and to help the government meet its goal of awarding 35.9 percent of all subcontracting dollars to smaller companies. Collectively, agencies have failed to make this mark for the past five years.

Particular phrasing in the FAR complicates the issue. Of planned subcontracting dollars, large companies are required to set aside a percentage of that for small businesses, however, it’s required to be stated as a percentage of total subcontract dollars not a percentage of total contract dollars. This subtle, but crucial distinction means a large prime contractor can pledge to commit 40 percent of its subcontracting dollars to small business, but if the company provides services without the use of subcontractors, it still technically meets its small-business obligation. This lack of commitment proves threatening to smaller firms often seen as crucial engines of job creation in the United States that rely upon subcontractor dollars to continue operating.

Several federal departments have begun altering their procurement policies to require prime contractors to clearly state their small business plans as a percentage of total contract dollars. Along with this, the federal contracting community has begun to urge officials to revise the regulations, which would require action by the Defense Department, the General Services Administration and NASA, which oversee and are responsible for updating the rules.

The push to rework the language has arrived as agencies and policymakers are seeking means to reserve more government work for small companies. The House passed legislation, FY 2015 Department of Defense Appropriations Bill that included measurable changes to long standing small-business contracting rules. The most notable of which makes plans to streamline some of the bidding requirements for small firms, saving them time and money, and would lift the government’s annual small-business contracting target from 23 percent to 25 percent and its total subcontracting goal from 35.9 to 40 percent.