Small Business Subcontractors Are Feeling Used

As we discussed in the last post, the U.S. Small Business Administration (SBA) issued a series of final rules on July 16, 2013 that could have several important repercussions for small business subcontractors and the primes who hire them.

No longer are small business contracting set-aside requirements just some number to reach for. There are now more accountability practices available to keep large business prime contractors in line.

In the last post, we talked about how primes must now provide “maximum practicable opportunity” to small businesses to do the actual work awarded to the prime contractor. But how much of that work needs to be farmed out to the subcontractor?

According to the new SBA final rule, the work must be in the same scope, amount and quality that was used to submit the quote or bid.

One of the biggest complaints that I’ve heard over and over again, is that in order to get an award and show their compliance with set-aside requirements, the large business will use the small business as an appliance, taking advantage of your small business qualification or special certification (as a woman-owned, HUBZone, veteran-owned, service-disabled veteran-owned or 8(a) business). They may also use your relationship with or knowledge of a particular customer to further their cause.

Unfortunately, when it comes time to actually dole out the work, two really problematic things might happen. First, even though you invested time, money and energy into the bidding process, now you’re thrown back into the fray with everyone else and you have to compete for providing people (FTEs), products or services for the project.

The second thing that might happen is that even though your people are just as qualified, or you’re just as experienced with the special needs of the project, you don’t get the work because someone else provided it cheaper or had some other advantage over you. Yet you’re the one who contributed to – and was named in – the bid.

What the new rule states is that if the prime contractor does not give you the specific work promised in the bid, at the same scope, amount and quality, they must notify the contracting officer in writing as to why they did not buy from you.

Someone in one of my LinkedIn groups has his doubts about the effect any of the new SBA rules will have, writing, “It will NOT make a difference. As with all previous, similar attempts, there is always a way to skirt the requirement. The big guys rule the roost.”

Unfortunately, it’s true that it will be easy for primes to skirt the requirement. The downside of any of these stipulations is that it’s up to the contracting officer to enforce. These are busy people, working to get their next contract out the door. So first, are they willing to enforce these rules, and second, are they willing to downgrade the prime’s CPARS rating (Contractor Performance Assessment Reporting System) for not giving you the work?

We’ll talk more in an upcoming post about the issue of privity of contract. Essentially what this relates to is that as the subcontractor, your contract is with the prime, not the customers (the government). And that means that the contracting officer cannot deal with you directly. That makes it very difficult to stand up for yourself and speak against unfair practices by prime contractors.

Again, it’s up to the contracting officer to evaluate the prime contractor for compliance with the small business subcontracting regulations and rate them accordingly. If they see their CPARS being affected, primes will do what they’re supposed to do.


2 Comments on “Small Business Subcontractors Are Feeling Used”

  1. Mike ONeal says:

    Interesting discussion and in many cases true but in other cases the LB has all intentions to fulfill its commitment in the proposal to use the SB but these entities can’t come to terms for various reasons post award. Given the “full and open” procurement’s large subcontracting requirements (25-30% in most cases) and the proposal preparation period of between 30-45 days it is often extremely difficult to negotiate a firm fixed price agreement between the LB and SB’s prior to the bid submission. Most LB’s wish to utilize/develop a negotiated subcontract agreement with their proposed SB’s but are not able to because the SB can not get their pricing within the parameters of the LB’s price proposal. Proper due diligence and relationship development prior to the acquisition period can preclude some of these problems along with a focused effort between the LB prime and the SB subs during the proposal preparation period. Even in SB set asides SB primes have the same challenges obtaining competitive pricing from specialty SB and LB subcontractors and then potentially not being able to negotiate a contract post award. In 31 years in government services contracting/B&P I’ve never seen a perfect procurement. LB and SB primes all have the same challenges. Proper capture planning to include due diligence is a key to success in development of teaming relationships and optimizing the team’s ability to sharpen their pencils during the bid preparation period.

    Have a wonderful day wherever you are.

    • Bill Jaffe says:

      Hi Mike, thanks for your comment. Yes, you’re right, and these are good points, but the new rules make this more required that they negotiate in good faith and come to terms.

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