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Small Business Set-Aside:  Limitation on Subcontracting Issue
By Anonymous on Wednesday, May 08, 2002 - 11:45 am:

I have received a proposal on a buildings services contract. It is a small business set aside. I will try to simplom The offeror has certified himself as a small business. He plans to subcontract out all of the work - a little more than half of it to a large business (who is the incumbent contractor, I might add - the last time we went out for these services, it was an unrestricted procurement.) As far as I can tell, this offeror has no employees other than himself. Is this offer non-responsive?

I would be interested to hear what you experts think about this.

By joel hoffman on Wednesday, May 08, 2002 - 12:28 pm:

Is the "Limitations on Subcontracting" Clause in your solicitation? FAR 52.219-14. I believe the clause is mandatory for such a contract over $100k, but you can check the prescription at 19.508 (e).

If this is an RFP, the term "non-responsive" is inapplicable. However, if the above clause is in your solicitiation, the offer would appear to be non-conforming and requires discussions and revision to be conforming. happy sails! joel

By Vern Edwards on Wednesday, May 08, 2002 - 12:33 pm:

The proposal is probably unacceptable (rather than nonresponsive).

Since the procurement is a small business set-aside, if the expected amount of the contract exceeds $100,000 the solicitation should include the clause at FAR 52.219-14, Limitations on Subcontracting (DEC 1996). That clause says that in a procurement of services (except construction): "At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern." That clause effectively prohibits the contractor from subbing out all of the work.

If the procurement is being conducted in accordance with FAR Part 15, then a proposal to subcontract all of the work under a small business set-aside would be unacceptable (not "nonresponsive"). See the GAO's decision in the matter of: Orincon Corporation, B-267704, July 18, 1997, in which the GAO said:

"As a general matter, an agency's judgment as to whether a small business offeror will comply with the subcontracting limitation is a matter of responsibility, and the contractor's actual compliance with the provision is a matter of contract administration. Ann Riley & Assocs., Ltd., B-271741.2, Aug. 7, 1996, 97-1 CPD 120 at 3; Global Assocs. Ltd., B-271693; B-271693.2, Aug. 2, 1996, 96-2 CPD 100 at 5. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, we have considered this to be a matter of the proposal's technical acceptability; a proposal that fails to conform to a material term and condition of the solicitation such as the subcontracting limitation is unacceptable and may not form the basis for an award. National Medical Staffing, Inc.; PRS Consultants, Inc., 69 Comp. Gen. 500, 502 (1990), 90-1 CPD 530 at 3-4; Ann Riley & Assocs., Ltd., supra."

If the procurement is conducted in accordance with FAR Part 14, then a bid that is based upon subbing all of the work might be nonresponsive. But if the procurement is conducted by sealed bidding how do you know that the bidder is planning to sub all of the work?

By Anonymous on Wednesday, May 08, 2002 - 12:49 pm:

Yes, the clause 52.219-14 should be in the solicitation - unfortunately it was inadvertently left out. The clause "notice of a total small business set aside" (number escapes me right now) WAS included.

The procurement is being conducted under FAR part 15. We received proposals, so I know for sure that this offeror is planning to sub all of the work out - and over 50% of it will be to a large business.

By Linda Koone on Wednesday, May 08, 2002 - 01:17 pm:

You're thinking of FAR 52.219-6, Notice of Total Small Business Set-Aside, but that won't cover you because the agreement in the clause for a company to furnish items manufactured by US small business concerns does not apply to service or construction contracts.

Looks like you may need to amend your solicitation to include the inadvertently omitted clause.

By Vern Edwards on Wednesday, May 08, 2002 - 02:03 pm:

If the clause is required, but was omitted, then the right thing to do is to insert the clause by amendment of the solicitation. That will give the offeror in question a lot of heartburn, but it will not have any valid legal objection--i.e., he could not win a protest.

By joel hoffman on Wednesday, May 08, 2002 - 02:28 pm:

Since the clause is mandatory, you should amend the solicitation during discussions. I have previously issued admin mods to insert the clause in some construction contracts, where it had been inadvertantly left out or where the wrong clause was used.

In addition to the FAR prescription, it is a requirement of the "Small Business Act" Statutes which authorize small business set-asides. About 10 years ago, I researched the statutes concerning 8(a) authorization and self-performance, in an effort to define "self performed work" and found the legal origin for the clause. Section 921 of the National defense Authorization Act for FY 1987 (Pub. L. 99-661, entitled Small Business Set-Asides, amended sections 8 and 15 of the Small Business Act (15 USC 637; 15 USC 644)to include requirements for self performance of work by small or small disadvantaged businesses. Identical Amendements were included in the DOD Appropriations Act of 1987 (Pub. L 99-591) Later, technical corrections to the amendments were made by the Defense Technical Corrections Act of 1987 (Pub. L. 99-591) The FAR was initially revised through interim rule by notice in the Fed Register on Oct 14, 1987 (FAC 84-31) and it was finalized by FAC 84-40, Item X. on Oct 26, 1988.

In coordination with the Small Business Administration, Atlanta Regional Office, at that time, I developed a provision which clearly explains, for small business set-aside, 8(a), or SDB set-aside construction contracts, what is "self performed work". It could be modified for service contracts. happy sails! joel

By Anonymous on Wednesday, May 08, 2002 - 02:38 pm:

Thanks, everyone for your help. I will amend the solicitation to incorporate the clause (and try not to be a knucklehead next time!)