Small Business Subcontractor Performance - Getting Credit Where Credit is Due

Thanks for stopping in to read my inaugural newsletter, Small Biz News You Can Use! I plan to use this platform to push information to small businesses currently doing business or seeking business with the federal government, focusing on hot topics that I receive the most questions about during my frequent interactions with industry as a Small Business Professional working for the Department of Navy.

Today's topic is related to an SBA final rule that went into effect back in August 2022. This rule paved the way for a small business to more easily utilize its own past performance as a subcontractor when bidding as a prime on federal contracts. While the final rule also covered past performance of small businesses as members of joint ventures, to keep it simple(ish), I will save that angle for another day.

The rule, implemented in 13 CFR 125.11, caught the attention of many small businesses due to its mandate for federal agencies to consider certain small business concerns' experience and past performance as a first-tier subcontractor in the evaluation of its bid as a prime. The rule also states that "agencies shall consider the small business' past performance for the evaluated contract or order similarly to a prime-contract past performance". So which small businesses qualify for this much sought-after ability to claim credit for such performance? How and when does a small business get these performance ratings to use in such evaluations? The devil is in the details…

First, the small business offeror must have performed as a first-tier subcontractor under a contract which included a subcontracting plan. Remember that federal acquisition regulations generally only require subcontracting plans for contracts over certain dollar thresholds (typically $750k) and only from large businesses. So just because your small firm was a first-tier subcontractor doesn’t mean it qualifies. Deflating news for those that have subcontracted with a prime that is also a small business.

If your business is a first-tier sub on a contract with a subcontracting plan, you may be thinking you're in luck. But it's important to remember that this regulation is not retroactively applied to subcontracts entered into prior to Aug 22, 2022. Received a subcontract on or after that date? Excellent. Now how do you go about getting that rating on your subcontract performance so you can use it when submitting a prime proposal for a federal contract? To do that, the small business must request its prime contractor to provide a rating of its past performance. The prime then has 15 calendar days to provide said rating utilizing the five-scale rating system identified in FAR 42.1503 which spans from exceptional to unsatisfactory against the following evaluation factors at a minimum:

• Technical (quality of product or service);
• Cost control (not applicable for fixed-price arrangements);
• Schedule/timeliness;
• Management or business relations; and
• Other (as applicable).

Note that only ratings are required to be provided, not a narrative to support the ratings. If you are still excited, read on and hopefully no dreams will be crushed.

The first-tier small business subcontractor must make its request for a performance rating from the prime within 30 days after the completion of the period of performance for the prime contractor's contract with the Government. In many cases, that opportunity could be YEARS down the road! While the regulation does state that the prime contractor and the first-tier small business sub may negotiate a later deadline for requesting a performance rating, it is silent on the matter of negotiating an earlier or interim rating, or even receiving a narrative to support the rating. Narratives can be very important to federal contracting officers seeking to differentiate between offerors with the same rating during a source selection.

Negotiation of more favorable terms with your prime may open the aperture to include earlier or more frequent ratings and/or narratives to support the ratings. But be sure to address these terms for your future subcontracts early – during the establishment of teaming agreements is ideal.

While this regulation took steps in the right direction, it did not make the whole journey necessary to give all small businesses the ability to claim valuable past performance earned as a subcontractor. But with keen attention to detail early in the teaming process and savvy negotiation, small businesses have the opportunity to shape better terms to maximize benefit under the existing regs.

Until next time, happy contracting!