As you may have read here a while ago, the 2013 National Defense Authorization Act (NDAA) included language addressing the limitation of subcontracting for various set asides. Prior to the 2013 (NDAA), set asides included limitations on subcontracting clauses which stated that 50% of the cost of contract performance shall be expended for employees of the concern. There was always some confusion on whether that meant burdened labor or unburdened labor. Also, SDVOSB and HUBZones companies could include the cost of any SDVOSB or HUBZone subs towards the 50% threshold.
The 2013 NDAA included language that made two significant changes in this area. The first is the limitation on subcontracting will be, “evaluated based on the percentage of the overall award amount that a prime contractor spends on its subcontractors.” The second is it extends to all set asides the inclusion of similar entities when calculating the 50%. So for a small business set aside the language would state, “For small business set-aside contracts for services, no more than 50% of the amount paid by the government to the prime may be paid to firms, at any tier, that are similarly situated.”
Based on what we were hearing from the legal community, these changes could be considered effective with the passage of the 2013 NDAA; however, CRI’s advice to our customers was to proactively discuss this with Contracting Officers prior to any bid submissions or contract executions. The Contracting Officers may not be aware of the changes and they may not recognize the changes as the C.F.R and the FAR had not been updated. On December 29, 2014 we moved one step closer to the changes become standard operating procedure when the SBA proposed to amend its regulations to implement provisions of the National Defense Authorization Act of 2013, which pertain to performance requirements applicable to small business and socioeconomic program set aside contracts and small business subcontracting.
The SBA is accepting public comments on the proposed rule through February 27, 2015. The final version of the rule will be published after the SBA reviews all comments. We will keep you posted as these changes occur.