I am working on a contract requirement which will be awarded to a small business on a sole-source basis. Will the limitation in subcontracting clause and other SB clauses apply if this procurement is awarded on a sole-source basis?This requirement has not been designated as a Set-aside.

By joel hoffman on Tuesday, August 07, 2001 - 09:24 am:

Assuming that this has somehow(?) been set-aside for only one small business firm, yes the clauses apply. The Congressional intent was to require a limitation on subcontracting to ensure prime contractor management of and active participation in the project.

If this were an 8(a) competitive or sole source set-aside, yes the clauses would apply. The Congressional intent was also as stated, above.
happy sails! Joel Hoffman

By Linda Koone on Tuesday, August 07, 2001 - 03:32 pm:

The Limitation on Subcontracting clause would not apply in your situation. The prescription for the clause is found at FAR 19.508(e). It's inserted in procurements exceeding $100K that are set-aside.

The Utilization of Small Business Clause would be applicable, but not the Small Business Subcontracting Plan clause.

I suggest you check the prescription for use of the clauses that you are questioning when developing your solicitation/contract.

By joel hoffman on Tuesday, August 07, 2001 - 04:33 pm:

Linda, unlike the 8(a) program, where sole source set-asides are common, the situation where a contract is to be awarded, sole source to a small business is an exception to normal process. Subpart of the FAR doesn't specifically refer to that situation in the definition of a "set-aside". However, the basic definition of a set-aside, in 19.501 (a) would not preclude an acquisition which has been set-aside for a sole source small business firm.

If this were a sole source 8(a) negotiated contract, the clause is specifically required. What is the difference in this case between a competitive set-aside and a non-competitive set-aside, ASSUMING that the acquisition was indeed set-aside from open competition?

I have read the Legislative History behind the Statutes which prescribed the rule making process to institute the Clause. It did not distinguish between competitive or sole source small business set-asides. I believe the only reason that Section 19.501 doesn't discuss sole-source small business set-asides is that such a process is an anomaly.

happy sails! joel

By joel hoffman on Tuesday, August 07, 2001 - 04:50 pm:

Linda, FAC 84-40 (Federal Register/Vol. 53, No. 207/ Wednesday, October 26, 1988) finalized the rule to require the Limations in Subcontracting Clause. I may have missed some other rules, but this one led me to Section 921 of the Def. Auth. Act for FY87, entitled "Small Business Set-Asides". This law amended Sections 8 and 15 of the Small Business Act. Part of that statute required the FAR Council to develop a limitations in subcontracting clause. Other applicable legislation are PL 99-591 and PL 100-26. As far as I can determine, none of them distinguish between sole source and competitive small business set-asides, in principle. The intent is the same. happy sails! joel

By Vern Edwards on Wednesday, August 08, 2001 - 07:59 am:

Joel:

A sole source award other than an 8(a) award is not a set-aside. I agree with Linda that the limitation on subcontracting policy does not apply to Anonymous's procurement.

By Linda Koone on Wednesday, August 08, 2001 - 08:48 am:

Joel:

My answer is based on the last sentence of Anonymous's post which states that the requirement has not been set aside.

I agree that the Limitation on Subcontracting clause belongs in 8(a) awards.

But I don't think it applies to an unrestricted procurement, whether it's sole source or competitive.

By Anonymous on Wednesday, August 08, 2001 - 09:15 am:

Linda,

I'm a little confused by your comment that it is an unrestricted procurement if it is a sole-source. I have always understood "unrestricted" deals with the competitive status.

I tend to agree with Joel, the major intent of the Small Business Program is to ensure a fair portion of the work is directed toward small business(es), to keep them as a viable source of support in a very competitive industry.

If we don't require the SBs to do a certain percentage of the work, what purpose does the program serve? Why pay more money just to past the work through a small business?

By joel hoffman on Wednesday, August 08, 2001 - 09:47 am:

Anon, I totally agree with you. Are you intending to negotiate with a sole source small business, after excluding all other sources?

Just because somebody didn't officially designate the acquisition as "a set-aside" doesn't change the fact that the acquisition will exclude all competition. Congressional intent is to expand opportunities for small business, but at the same time, to ensure that the contract is not brokered, in name only, to a small business.

As I said before, the FAR doesn't discuss the term "sole source small business set-aside", only because excluding competition is an (authorized) deviation from the normal way things are officially supposed to be done. The FAR doesn't usually waste space and words on alternate methods. Application of inferential thought process should lead one to understand that the principles involved here involve what is essentially a set-aside for small business - the fact that there is only one doesn't really change that.

Why can't you include the LOS clause, if you want to? I assume you are negotiating the terms of the contract. Happy Sails! Joel

By CMERCY on Wednesday, August 08, 2001 - 09:50 am:

Linda is correct. In the first place it could not be a small business set aside if it cannot meet the "Rule of Two". If you intend to make it sole source then you are ,in fact,intentionally not meeting the rule of two and as such it cannot be considered a set aside. Also it would be unwise to do such a thing anyway because if its a true sole source situation why constrain the contractor? He is not winning the contract because he is small but because he is unique. In this situation being small is irrelevant.

By joel hoffman on Wednesday, August 08, 2001 - 10:03 am:

C - how unique is a contractor that won't agree to self perform a percentage of the contract?

That made no sense to me. happy sails! joel

By Linda Koone on Wednesday, August 08, 2001 - 10:59 am:

Anonymous:

The term 'unrestricted' means that any business, regardless of size, may compete for an award. It doesn't describe the competitive nature of the requirement. It could be sole source or competitive.

Joel:

If a small business owns the rights to the data necessary to manufacture a part, we have to buy that part from the small business on a sole source basis. It's not that unique a situation in our arena.

The goals of the Small Business Program are satisfied through the award to a small business.

By joel hoffman on Wednesday, August 08, 2001 - 11:53 am:

Linda, The LOS clause isn't intended to apply in a contract with a non-manufacturer of a part for which it owns the data rights to necessary manufacture. I didn't understand your point. Please clarify.

"The goals of the Small Business Program are satisfied through the award to a small business"

Sorry, Linda - that statement always sets me off. It's not personal.

It's like saying, once we sign the contract, we don't care whether you broker out all the work or not. We don't care if you are a front for another firm or not. Well, Congress cares and specifically stated it in the authorizing legislation. Congress and the FAR require more than just "award to a small business". The Government is supposed to administer the contract, too. happy sails! joel

By anon2 on Wednesday, August 08, 2001 - 12:50 pm:

Joel asked: - how unique is a contractor that won't agree to self perform a percentage of the contract? -- We have a number of sole sources (both large and small) who have unique capability in hardware items. Usually they are the designers and OEMs of the hardware. Occasionally we do a modification or enhancement of the hardware in question. In such circumstances, the contractor in question IS a sole source and is unique (we've on occasion tried to compete and got no bids from all other sources with related expertise or capability) BUT they may well contract out various components or software effort. It is, in fact, a fairly common occurrence that ONE source is the expert on the hardware and does the integration but buys components and other "stuff" from outside. We have a number of contractors who build stuff but don't do flight tests in-house.
So the answer to your question, at least in some situations, is that a contractor can be VERY unique and still contract out a sizeable portion of a contract. It all depends on what it is one is getting and if a 'breakout" would or wouldn't jeopardize system integrity. Or would you really compete a buy for another (identical) space shuttle or would you go to Boeing North American as sole source even though they are obviously going to subcontract a lot of that work out?

By joel hoffman on Wednesday, August 08, 2001 - 01:28 pm:

Anon2 - I don't think the examples you cited would be restricted by the LOS clause.

Original Anon, can you please describe the type of contract? happy sails! joel

By joel hoffman on Wednesday, August 08, 2001 - 01:31 pm:

Anon2, your example concerning a space shuttle is not relevant. The LOS clause is not applicable to large business acquisitions.

By Anonymous on Wednesday, August 08, 2001 - 02:11 pm:

Linda,

It could just be semantics but to me "unrestricted" means the competition is open to everyone. It is not limited to 8(a), SB - this is competition but not full and open, so when you said unrestricted to me that means everyone has the opportunity to bid. This in my mind relates to competitive status of the requirement.

I believe that when award is made to a Small Business that we are "subverting" the intent of the statute if the SB contractor does not perform the majority of the work ( the 51% percent rule).

I'm like Joel, it is very frustrating to deal with those that think the rules only apply up to award.

I have had several OSDBU offices "shove" a set-aside down my throat when it was totally impossible for SB to perform, then after award they come to me and ask me what am I going to do to fix the problem. As a example of a recent experience, we had an agency "MOBIS" contract with 2 8a and 2 SB contractors. When they tried to compete on task orders, they were always proposing 0-30% of their own workforce. We had a five year historical precedence where we did nothing but pay pass-throughs to the 8a's and SB's. They simply couldn't perform the requirements with in house staff. My first debriefing with them after competing a task order ended up with one of the 8a's saying "Well the agency, the SB specialist, the OSDBU, the SBA all knew we could not handle the workload and meet the 51% requirement, but everybody signed up to an 8(a) award. The second 8a didn't even try to compete. I didn't make awards to 8a's and SB's if they couldn't come close to the 51% because our internal audits kept criticizing the issuance of orders to SB firms who acted as nothing but pass throughs. I have to agree with Joel -- where is the SB Specialist, the OSDBU and the SBA when it comes to the administration of the contract.

I don't want to make an award for the sake of meeting some goal that I had very little input into. I want to make an award because it makes good business sense, it is in the best interest of the Government and the taxpayer, and the contractor has a reasonable expectation of succeeding.

Anon2 - It is anticipated that subcontracting will be a part of the effort described here, but "breakout" is not considered cost effective.

Just for the record - We did the synopsis and J&A justifying award to only one source. We had an inquiry but no one interested in even trying to compete for this requirement. No requests for the solicitation, no interest at all.

By Anon2U on Wednesday, August 08, 2001 - 09:43 pm:

If you set aside a requirement for small business and issue a RFP, it should not matter if the firm passes the work to another company. You are evaluating the proposals for technical ability and price. If they and their subs have the low price or win a "best value" then who cares if most of the work goes to someone else.

The SB benefits from the profits and the government gets the low price or best value. If you are worried about the subs, then the prime shouldn't be evaluated the best value. If they are making too much "pass through" profit, they should lose the price competition.

It is the government's goal to promote small business even at a higher cost to the government. This has never been in question. The person who has to use his organization funds usually cares and the taxpayers may care. However, the taxpayers are not making Congress change the laws. In fact, Congress wants more laws to promote SB.

However, 8(a) sole source is another matter. My agency loves this type of contract because you can award immediately if under $3M and you get applauded by everyone for exceeding the 8(a)goals. The problem: If the requirement is being awarded sole source, there is no competition to hold down profits on the pass throughs (or other costs). In addition, it exempts competition and is not fair to other businesses if the company does not perform most of the work. So they have a 51/49 rule but, in my opinion, this is not right either. It should be 75/25 or 70/30. Almost every 8a I have seen is 51% in house and 49% big business. I'll also bet that a lot of cooking the books is done to meet those percentages.

I have heard of workers who have "quit" a large business, went to work for a small 8a, and as soon as the contract is finished, went right back to work for the large again. Sounds shady to me. But the government cuts funds for oversight so why should I stay awake at night worrying about it all.

In fact, what am I doing writing this at 9:43 at night? :>)

By Linda Koone on Thursday, August 09, 2001 - 08:41 am:

Anonymous:

I'm using the term 'unrestricted' as it is used in the FAR in Part 19. It describes a procurement that is not set-aside or restricted to small business, SDB, HUBZone...

The terms used in the FAR to describe "unrestricted" competition is 'Full and Open Competion'. Small Business Set-Asides, competitively speaking, are classified under the category of 'Full and Open Competition after Exclusion of Sources' (FAR 6.2).

I was trying to answer your original question as to whether the LOS clause is required for a procurement that is sole source to a small business (and not an 8(a) firm). It's not. The fact that it isn't required obviously bothers you (and Joel), but I'm bothered by many regulations. Unfortunately, or fortunately, as the case may be, that doesn't change them.

Joel: Sorry to have pushed your button with my comment. I'm glad that the LOS clause is required in acquisitions that are set-aside because it helps to ensure integrity in the process. And certainly, I agree that there's been abuse in the 8(a) program. But, in general, in a true sole source situation involving a regular small business, I believe that the award does support the Government's small business goals, one of which is to ensure a fair proportion of contracts is placed with small business.

By Vern Edwards on Thursday, August 09, 2001 - 09:22 am:

Joel:

I hate to disagree with you, but you are dead wrong.

FAR 19.508 and 19.811-3 are quite clear about when the limitation on subcontracting clause is to be used. It is to be used when a procurement has been set-aside for small business in accordance with FAR subpart 19.5 and when an 8(a) award is made. (A different clause is used for HUBZone awards.)

Anonymous said the procurement was "sole source." A sole source procurement is just that. It is not a small business set-aside under FAR subpart 19.5. A small business set-aside under FAR subpart 19.5 is clearly a competitive procedure. See FAR 6.203 and 19.502. Except for sole source HUBZone and 8(a) awards, FAR 6.302-1 makes no provision for contracting sole source based on size status. The first Anonymous made no mention of 8(a) or HUBZone awards.

A sole source award is made when only one firm can do the job, regardless of its size status. The fact that the firm happens to be a small business does not justify inclusion of the limitation on subcontracting clause. The clause is required "when applicable." Contracting officers have no authority to otherwise impose the clause and the contractor does not have to agree to its inclusion in the contract. The parties can negotiate some other agreement about subcontracting, but Anonymous asked specifically about inclusion of the clause.

By joel hoffman on Thursday, August 09, 2001 - 09:27 am:

ANON2U, "If you set aside a requirement for small business and issue a RFP, it should not matter if the firm passes the work to another company. "

1) The LAW says it does matter; the FAR implements the Law, authorizing such set-asides.

2) If you think "it" (brokering) "doesn't matter", I can fully understand why Congress wants to cut the Defense acquisition workforce by 12,000 positions, next year.

Thiry years ago, my first Air Force assignment was in Merced CA. I often wondered why, on many of our base maintenance and construction jobs, the second low bidder ended up performing the work - I never saw or heard from the actual winning contractor. They weren't 8(a) contractors, they were small business, taking the AF to the cleaners. You weren't in the Base Procurement shop there, were you? You see, "it doesn't matter" that the firm passed the work to the other company. Good Grief...
happy sails! joel

By joel hoffman on Thursday, August 09, 2001 - 09:31 am:

OK, folks. happy sails! joel

By Anonymous on Thursday, August 09, 2001 - 10:53 am:

Throwing in the towel is not the way to do this. Some of us want to know that you understand the issue and if not many of these writers are happy to provide more info. If you just quit none of us gains anything by it.

By joel hoffman on Thursday, August 09, 2001 - 12:51 pm:

Suffice it to say that I fully understand your positions. (Vern, I may be "wrong" but I am definitely not "dead"! At least I don't think so.)happy sails! joel

By joel hoffman on Thursday, August 09, 2001 - 01:00 pm:

Anonymous 10:53AM, please note that my 09:27 post was not related to the sole source question. It addressed an assertion by someone that a situation which IS covered by FAR and specifically by statute (competitive small business set-asides) is meaningless, therefore it is unnecessary to include or enforce the limitation on subcontracting clause in competitive set-asides . Please be assured that I won't EVER agree with that broad statement. happy sails! joel

By bob antonio on Thursday, August 09, 2001 - 01:11 pm:

All:

I used Title 13 of the Code of Federal Regulations (CFR) which is the controlling regulation for small business programs. Unrestricted simply means not restricted to some type of business--in these cases small, small disadvantaged, etc.

I believe we may have uncovered a flaw in our regulations. Below is the rule from the CFR.

"Sec. 125.6 Prime contractor performance requirements (limitations on subcontracting).

(a) In order to be awarded a full or partial small business set-aside contract, an 8(a) contract, or an unrestricted procurement where a concern has claimed a 10 percent small disadvantaged business (SDB) price evaluation preference, a small business concern must . . . . ."

Now we have an unrestricted procurement for a certain category of small business being required to do a designated part of the work in house.

Forget these rules for a moment and apply some logic. Under the Small Business Act, agencies are to set goals for small business awards. We can forget the other categories of small businesses for now.

Suppose "First Anon" awards an unrestricted contract on a sole-sorce basis to a small business. The firm certifies it is a small business using the Small Business Administration's (SBA) size standards. The small business plans to subcontract 60 percent of the work to a large business (assume the limitation is 50 percent). Under the FAR provision that Linda provided, this appears to be acceptable and if it is not an SDB claiming a price differential it appears fine according to SBA.

It seems that the regulations are written only to cover certain "preferential gimmicks" under the Small Business Act. However, small businesses wear the SBA brand due to its determination of size standards which is itself a preferential gimmick. Are some preferential gimmicks more worthy than others?

Will this unrestricted sole-source award be used to reach our small business goals under the Small Business Act? If so, we now have two forms of small business--one in which large business can do the majority of work and one in which small business must do the majority of work.

I would add the limitations of subcontracting clause to the contract. It may not be required by some regulation but it seems the correct thing to do. If the program has a problem with that, I would look more deeply into their request for a sole-source--which I am sure thay have provided.

There is a wealth of opportunity to do research and write a wonderful article on the differences between FAR Part 19 and Title 13 of the CFR. Why doesn't someone give it a try?

By Anon2U on Thursday, August 09, 2001 - 11:12 pm:

Joel,

You are right, and I was wrong. I put the old foot in my mouth again. The law is as you stated, set asides must comply with the 50% rule. However, because I see it happen all the time, as you did in the Air Force, I never realized it was wrong.

I stand behind my logic however. On competitive small business set asides, competition and best value selection should eliminate most pass through firms that take profit but provide no added value. Most technical teams give low ratings to the management plans of firms who subcontract a lot of the work.

As a contracting officer I am supposed to enforce the 51% rule in administation too. Well, I don't goof off, I work overtime constantly, and I still would not have the time to even think about monitoring that. Cut 1102's, they better hire more or redistribute some.

By Anonymous on Friday, August 10, 2001 - 08:05 am:

Anon2u,

I wondered whether you consider the 50% rule when you do the best value? My experence has been to look at the proposal to determine that the proposal is as you said 51% small 49% large. Then reality sits in during performance, small is not meeting the 50% rule, never intended to. I only knew this if I adminstered the contracts I awarded. I have been in both situations, cradle to grave and just pre-award, or just post award administration.

Unfortunately, my experience with the tech teams are that they don't even know the 50% rule exists. I have worked with both DOD and Civilian agencies and it has been the same in both worlds.

By joel hoffman on Friday, August 10, 2001 - 08:52 am:

Anon2U, I "forgive" you!

Anon 0805, whenever my contract will require a minimum amount of self performance, I include this in the proposal submission requirements and as an evaluation subfactor, for competitive RFP's and in sole source 8(a) acquisitions. We define what we consider to be self performance, depending upon the applicable clause, and use a standard worksheet for the offeror to fill out, identifying the work and its share of costs.

Then, the evaluators, the KO and ACO CAN'T ignore the requirement, as easily as they could in a "don't ask, don't tell" scenario. happy sails! joel

By Vern Edwards on Friday, August 10, 2001 - 09:42 am:

Bob:

Your analysis of the sole source situation, which led you to conclude that including the limitation on subcontracting clause is the right thing to do, is faulty.

In the first place, Anonymous's acquisition is not "unrestricted." That term applies only to competitive acquisitions that have not been set aside. It means that the competition has not been restricted to small businesses. A sole source acquisition is not competitive, so it doesn't make sense to refer to it as unrestricted.

FAR 2.101 defines a sole source acquisition as follows:

"'Sole source acquisition' means a contract for the purchase of supplies or services that is entered into or proposed to be entered into by an agency after soliciting and negotiating with only one source."

It is the product or capability of the firm in question that makes it a sole source, not its size status. If the firm happens to be a small business, then the agency is right to take credit against its small business goals, but the goals are not what led the agency to award to that firm. FAR does not permit a sole source award on the basis of size status. The award is not made to the small business in order to reach a small business goal; the firm just happens to be a small business.

The limitation on subcontracting clause is designed to ensure that the public will actually receive the benefits that we sought when we restricted competition or made a sole source 8(a) or HUBZone award specifically in order to assist small businesses and their employees. Presumably, we pay a price when we restrict competition and we should ensure that we get the compensating benefits. Those benefits are part of the bargain, so to speak.

But when we make a sole source award for any of the reasons in FAR 6.302-1(a)(2), then the fact that the firm is a small business is merely incidental and is not the reason for negotiating with only one firm. The firm's size status in not one of the benefits we sought. Hence, the clause is not applicable and its inclusion is inappropriate. If the firm is a legitimate sole source despite the fact that it subcontracts 80 percent of the work, then so be it. It may be that the basis for the sole source award lies in the 20 percent that the firm will do itself.

By bob antonio on Friday, August 10, 2001 - 11:26 am:

Vern:

That is funny. I knew I was running out of time and I was in too much of a hurry. Without competition, we could not have a preferential set-aside.

However, the point of my note is that it makes little sense to have two versions of small business--one with the limitation provision and one without. That could lead to where we have sole-source small business awards that are simply passed through to large businesses counted towards our legislated small business goals. Does this happen a lot? I don't think so but I may be wrong. It seems that this is inconsistent with the purpose of our small business contracting and subcontracting programs.

For that reason, I would include the limitations provision. However, if this small business award is not to be included towards our small business goals, I would not include the limitation of clause in the contract.

If the 20 percent of the award performed by the small business is truly unique and noteworthy, it could perform as a subcontractor to the large business who is needed to do the work. In that manner, small business subcontracting would be aqppropriately counted.

By joel hoffman on Friday, August 10, 2001 - 12:02 pm:

Bob, all awards to small or small and disadvantaged business are usually counted toward goals. It doesn't matter whether the solicitiation is an unrestricted one. happy sails!

By bob antonio on Friday, August 10, 2001 - 12:15 pm:

Vern:

I looked at your note again--I finished lunch and have a few minutes.

I also agree with your issue about the basis for a sole-source. In fact, I had written in an assumption as if the sole-source was based on exception 1 with 80 percent of the award going to a large business. However, I deleted it to make my note shorter.

If I saw an exception 1 to a small business with 80 percent subcontracted to a large business, I probably would laugh at the contracting officer. After that, I would ask for ten more of his contracting activity's contracts to review.

Maybe I am jaded but I remember visiting a small business who received a similar contract on a sole-source basis. I visited because the small business' address was the same as that of the large business who was the subcontractor. The small business' office was a closet in the large business' office.

By bob antonio on Friday, August 10, 2001 - 02:31 pm:

Joel:

You seem to have similar thoughts to me about this. Suppose there was a sole-source award that incidentally was to a company that is classified as a small business in accordance with the SBA's small business size standards.

Assume 80 percent of the work was to be contracted out to a large business with 20 percent kept by the small business.

In the first case, the subcontract award to the large business is shady. However, no limitation clause was included because it was not required. Do you believe this small business award should be included towards the agency's small business goals?

In the second case, the subcontract award to the large business was valid. However, no limitation clause was included because it was not required. Do you believe this small business award should be included towards the agency's small business goals?

By formerfed on Friday, August 10, 2001 - 03:52 pm:

Bob and Joel,

I don't see a problem either way, and why it makes a difference. I can't think of a single reason someone benefits from having a small business broker work to a large one on a non-competitive award (outside of 8(a)'s). The small business must have developed some capability on their own, even if that means subcontracting a large piece to a large business. So I don't see a problem. Isn't self-sufficiency and growth what the small business program is all about?

By Anonymous on Friday, August 10, 2001 - 03:59 pm:

Bob, Joel,

I am the "anon" sender of the question posed in the first place. I agree with both of you and have from the beginning. But Vern is right, when it comes to taking credit for the purpose of reaching the goals, the agency counts that award as meeting the small business goals even if it was not set-aside. This has been my experience with every agency I have worked and I have worked for about 8-10 contracting activities. I wouldn't agree that it was right, but it happens. If that is logical, I don't understand why Vern, Linda and Cmercy thinks excluding the clause is the logical thing to do. If we take credit for it in our goals why we should not expect the SB to perform the 50% required by the clause, to meet the intent of the SB Program.

By joel hoffman on Friday, August 10, 2001 - 04:05 pm:

Bob, Are these the two cases you referred to?
1) Sole source award to small business under the FAR competition exeception 1. Large business sub performs 80% of the work.

2) Sole source award, incidentally made to a small business. Large business sub performs 80% of the work.

"Do you believe this small business award should be included towards the agency's small business goals?"

Yes, in both cases it should be counted toward the goal, if only because that is the system they use. It would be a statistical nightmare to track and record actual shares of performance costs by small business.

Speaking of your experience, back in 1996, when DOD had the SDB competitive set-aside program, I tried to negotiate down unreasonable prices on an IFB for civil works project a town in Mississippi, after bids busted the budget (the IFB had been converted to an RFP).

I negotiated with a certain fellow for one of the SDB contractors. He said he was the owner's primary estimator and further that they were planning to sub "some of the work" to a well known excavating contractor. Well, I was never able to get prices down to a reasonable level. So we cancelled the solicitation and a couple of months later, went out unrestricted IFB.

One day, my secretary left me a note to call this same fellow - however the note said he was working for the well known contractor!

Upon my call (to the well known contractor's office), Sam introduced himself as THEIR chief estimator and said - "Remember the bid for that project over in Tupelo awhile back that you were working with us on? The Corps is re-bidding the project and I was just calling to see if you're still interested in quoting the job as a sub to us?"

When he realized I wasn't a contractor, but the Corps' representative, he went brain dead for a few seconds. Then, he became really embarassed , mumbled some type of apology and hung up!

I still have the telephone note with his name on it. The project was awarded to another small business, way under the lowest original SDB proposal price - I mean WAY under. The project went off without a hitch...

Having been responsible for all negotiated construction procurements for 7 years for a District, including unrestricted, 8(a) and SDB set-asides, I've forgotten more stories like this one than most people know.

I know all about "fronts" , phony joint ventures, dredgers that have no dredges, excavators that have no employees, shops or equipment, etc. happy sails! joel

By bob antonio on Friday, August 10, 2001 - 04:52 pm:

Joel, Anonymous,Vern and all:

This is where I am with this one now.

1. It is possible on a non-set-aside sole source award to a small business, to end with a prime award to a bogus small business who does not plan to do the majority of the work. No limitations clause is required in this instance.

2. There are valid instances where a small business prime has a special competence but plans to award a majority of the work to a large business subcontractor. No limitations clause is required in this instance.

3. The small business prime award will be reported to meet our small business goals regardless of whether it was a bogus small business prime or a real prime with special competence. Trying to exclude a bogus small business award from counting towards our goal would be a record-keeping mess and it would, by itself, create two classes of small business.

4. It appears that regulation requires the use of the limitations clause in certain cases but does not prohibit it in others.

If my 4 points above are valid, the contracting officer will need to use judgment whether the clause should be added when it is not required. There are cases when it seems appropriate and cases where it may not.

If First Anon's question comes up more than once, maybe the FAR should be amended to add a note on contracting officer discretion for use of the clause in cases where it is not required. Some examples could be added. This may seem silly and already inherent in the FAR, but it may provide clarity.

Joel and others:

By the way, the Senate Committee on Small Business is hot on administering small business subcontracting clauses. I will add it after I post this.

By bob antonio on Friday, August 10, 2001 - 04:58 pm:

Here is the Senate Committee article. You interpret it in your own way.

http://sbc.senate.gov/107press/july1701.html

By joel hoffman on Friday, August 10, 2001 - 05:08 pm:

Bob:

It is interesting to note that, while Congress pushes subcontracting to small business, there is no way of policing whether small business subcontractors do any of the subcontracted work or sub-bub it out to others. There aren't any provisions for that. Are there "fronts", taking advantage of subcontracting quotas - oops, I mean goals? Probably. However, I would guess that most smaller subcontracts are primarily performed by the actual subcontractor.

Bob, you have overcomplicated the application of the clause. It is fairly simple. The Limitation of Subcontracting clause is prescribed for
1) sole source awards under the 8(a) procedures
2) award to an SDB under competitive 8(a) procedures
3) award to an SB or SDB under an SB set-aside. (the FAR does not contemplate a contract to be reserved for a "sole-source SB", so only competitive SB set-asides are included in the requirement.) happy sails! Joel

By bob antonio on Friday, August 10, 2001 - 05:45 pm:

Joel:

Actually, I think we are all confused. Which of your three does First Anon have on his/her hands.

Eric must be on vacation or he would have straightened us all out by now.

By joel hoffman on Friday, August 10, 2001 - 06:48 pm:

"First Anon's" sole source SB contract does not fit any of the three types, above, which prescribe use of LOS Clause.

According to the rest of the gang, a sole source SB contract is not defined as a "set-aside" (in my opinion only because it was never contemplated as a normal means of contracting by the FAR Council).

Therefore, according to the rest of the gang, there is no prescription for use of the LOS Clause in this contract.

Vern says we can't use it in a sole source, negotiated SB contract, even if we wanted to.

Is that clearer? I think I captured the gist of this thread.

To complicate things further - in all construction contracts - except those which include the LOS clause - we use another Clause: "Performance of Work by the Contractor." (FAR 52.236-1)

This clause requires a specified percentage of work to be performed by the firm's own forces. The percentage is filled in by the Agency, however 20% is most often used.

The definitions of self-performed work in the two clauses are somewhat different. That is one reason why I include a definition of "self performed work" , in accordance with the appropriate clause, in the proposal submission requirements for my RFP's.

So, public policy requirements for self-performance of some amount of work by the prime contractor on construction contracts are covered one way or another.

Have a great weekend. happy sails! joel

By bob antonio on Friday, August 10, 2001 - 08:30 pm:

Joel:

That is what I laid out in probably more words than necessary. I reread Vern's note and he said the use of the clause is inappropriate when not required. I disagree with him. In those instances when we can only obtain an item from a small business who will subcontract a large portion of the work, it would be inappropriate. However, I would like to see those sole-source justifications. There probably are other instances where the clause has a valid use when it is not required. So I believe it is up to the contracting officer to make a decision based on the circumstances whether it is appropriate.

I did not see anything in the CFR or FAR that prohibits its use. However, I did not scour the FAR Part. If there is a prohibition somewhere, that settles it.

By Linda Koone on Friday, August 10, 2001 - 09:26 pm:

Interesting thread from what appeared initially to me, at least, to be an easy question to answer.

It seems to me that some of us may be a bit jaded based on some bad experiences. Others of us may be a bit too trusting. But I agree with Formerfed that there really wouldn't be much to gain by having a small business front a large business in this type of scenario (excluding the 8(a) scenario). A few questions about costs would undoubtedly arise in a sole source environment and the game would be over.

Vern has stated that the LOS clause is inapplicable, but remember, he also said that you could attempt to negotiate some type of subcontracting requirement in a sole source environment. Nothing prohibits that. But what would you do if legitimately, a large portion of the subcontracted effort is done by a large business? Require the small business to develop another source? At who's expense?

Vern: One question. I never associated the term 'unrestricted' with competition because even in a sole source environment, you may find other companies interested in your procurement. Is the term used only with respect to competitive procurements?

By bob antonio on Saturday, August 11, 2001 - 06:32 am:

Linda and Formerfed:

Here is what First Anon said.

"Just for the record - We did the synopsis and J&A justifying award to only one source. We had an inquiry but no one interested in even trying to compete for this requirement. No requests for the solicitation, no interest at all."

What do you make of that?

By joel hoffman on Saturday, August 11, 2001 - 10:30 am:

Sounds like they justified a sole source acquisition under Exemption 1, 'no other source', and, after public synopsis, nobody commented. happy sails! joel

By bob antonio on Saturday, August 11, 2001 - 01:05 pm:

Joel:

That is right. I believe with a few more questions we can get to the bottom of this. Here are my questions for First Anon.

1. Did the program office recommend the source as the sole source on their purchase request?

2. Was the recommended sole-source the incumbent for the program office? If so, how long?

3. Had the small business done previous work under some small business set-aside? Better yet, did the small business receive the original award for the program office under a preference program?

If you answer no to all of the above, please give us some basics on the small business source. I think we all may eventually agree on a course of action after some clarification.

Formerfed and Linda, please answer my question when you have a chance.

By Vern Edwards on Saturday, August 11, 2001 - 04:04 pm:

Linda:

This IS an easy question to answer, but some of our colleagues are very confused about small business policies and programs.

In answer to your question, and to the best of my knowledge, FAR uses the term "unrestricted" only to refer to a competitive acquisition that has not been set aside for small business.

Bob:

You seem to make two arguments in favor of including the limitations on subcontracting clause in a sole source award to a small business. The first appears in your post of August 10 at 11:26am, in which you said, "[I]f this small business award is not to be included towards our small business goals, I would not include the limitation of clause in the contract." Sic. By inference, I suppose that if you were going to count the award towards your goal then you would include the clause. So you think that it is goal-counting that justifies inclusion.

Your second argument appears in your post of August 10 at 12:15pm, in which you said, "If I saw an exception 1 to a small business with 80 percent subcontracted to a large business, I probably would laugh at the contracting officer." Thus, I understand your position to be that sole source status is necessarily linked to the percentage of the work done by the contractor in-house.

Your first argument fails because FAR does not link the clause to goal counting. FAR does not prescribe procedures for goal counting. FAR simply says that if you restrict competition based on size status, then make sure that a certain amount of the work is done by the small business that won the contract. The objective of this policy is to ensure the integrity of the small business programs and to prevent large businesses from using "fronts" to win set-asides. But sole source awards other than 8(a) and HUBZone sole source awards are not made under the auspices of the small business programs and do not affect the integrity of those programs, so FAR does not prescribe the clause for such sole source awards.

Your second argument fails because there is no necessary link between sole source status and the percentage of work done by the contractor in-house. If there were any such link, then limitations on subcontracting should apply to sole source awards to large businesses as well as to small businesses. The percentage of work done by a contractor in-house depends on several factors: the nature of the work, industry structure, and make or buy analysis within the firm. There are many reasons why a supply or service is available from only one source. In analyzing the contract work breakdown structure one may find that the basis for sole source status lies in only one element of the product design or the manufacturing or service delivery process. That element may represent what the firm considers to be its "core competency." In justifying a sole source award the contracting agency should investigate these things and ensure that the work is legitimately sole source. If they do and if it is, then the percentage of work done by the contractor in-house, in and of itself, does not invalidate the sole source justification.

Joel:

Your arguments are a little harder to follow. It appears that you consider any award to a small business to be a kind of small business set-aside, apparently for no other reason than that the firm happens to be a small business. It appears that you think that any award to a small business is somehow made under the auspices of the small business programs. That's wrong.

The limitations on subcontracting clause applies only to contracts awarded pursuant to the small business programs described in FAR Subparts 19.5 and 19.8. It does not apply to other awards to small businesses. (HUBZone sole source awards use a different clause.) Would you apply the limitations on subcontracting clause to a small business that wins an unrestricted competition? If so, on what grounds? If not, then why would you apply it to a firm that is sole source for reasons unrelated to its size status?

All:

FAR is clear and unambiguous about the applicability of the limitations on subcontracting clause. It appears that some folks have embarked on personal policy-making ventures.

By Vern Edwards on Saturday, August 11, 2001 - 07:34 pm:

Bob and Joel:

Sorry, guys. When I wrote my last post I somehow missed your posts of August 10 at 4:52pm and August 10 at 5:08pm. It appears that you both now agree that the limitations on subcontracting clause does not apply to Anonymous's sole source procurement.

Bob and Joel, I'm going to buck you two now, so tighten up your cinches. It shouldn't have required Eric to straighten you out. Linda gave the correct answer to Anonymous's question on the very first day of this thread and deserves credit for it. You two wouldn't listen to her. CMERCY tried to straighten you out on August 8 at 9:50pm. You would listen to him, either. Forget about listening to me.

The two of you and some other participants in this thread got pretty carried away making your own acquisition policy, referring to legislative history and Congressional intent and talking about "subverting" the intent of the statute. Joel got uncharacteristically P.O.d and was ready to walk out on the conversation in a huff until one of the Anonymouses quite righly chastised him for it. Now you both coolly settle on the right answer as if someone else had led us on this long wild goose chase. Bob, Joel is telling you that you have "overcomplicated the application of the clause"! And you, Bob Antonio: "Actually, I think we are all confused"? I don't think so.

I'm writing this with affection for friends and a real big smile on my face. But I am wondering -- What are you two guys drinking these days?

Thanks for trying, Linda. You, too, CMERCY. Joel and Bob are buying the beer.

Vern

By bob antonio on Sunday, August 12, 2001 - 06:41 am:

Actually, Vern nothing has been decided. You misinterpert my notes. I still believe it may be worthwhile to add the limitations clause to this contract. At this point, with the evidence provided to date there is no reason to believe there is anything unique about the small business in this instance. If First Anon answers my questions as I expect, we all may agree that the clause in the contract is worthwhile.

By the way, the rotational assignment idea for which you chastised me is not as unrealistic as you believed. The Procurement Executives actually have one in place. Primitive but in place. I will take my beverages at your expense in the Caymans.

By bob antonio on Sunday, August 12, 2001 - 07:34 am:

Vern:

In response to your 4:04 PM, your arguments are fine. However, the reality may be quite different.

When I post here, I like to think things through. I am still wondering. However, here are my thoughts at this time.

1. A small business in government contracting is a small business because the government declares it to be a small business.

2. If a procurement is set-aside for small business, the small business with a contract has the right to sell its wares in a federal building. They may walk the halls drumming up business. They can tell program officers it is the end of the fiscal year and they can do the work on a sole source basis. They can GAME the system. (Trust me on this. I tried to deal with it years ago but I ran into Congressional intent that wanted the small businesess to market their wares in federal buildings.)

3. When the contracting officer receives a sole-source request from a requiring organization, it may be a result of marketing by a small business that currently enjoys a set-aside contract. The sole-source request then may be based on two things. One is a valid expertise of the small business. A second may be to improve the requiring office's small busines statistics or just to dump end-of- fiscal year funds.

4. Based on the two examples I have outlined in 3, I believe the contracting officer should have the discretion to add the limitations clause in a contract since it is not prohibited.

5. If there is a valid reason for a sole-source based on the small business' expertise and if most of the work needs to be performed through subcontract, I would not include the limitations clause. However, if the sole-source is not based on an expertise that requires most of the work to be subcontracted, I would add the clause.

6. Small business results for legislated goals are used by Congress to evaluate the need for legislation. Congress wants to know if small businesses are enjoying the fruits of their programs. If large businesses are obtaining a significant chunk of the results that are reported under the small business goals, Congress would be upset. I don't think Congress would be upset if small businesses were subcontracting a large portion of the work to large businesses if the small businesses' expertise drove the results. However, if the system is being gamed, they would change the law.

By bob antonio on Sunday, August 12, 2001 - 07:55 am:

Anyone:

Is there anyone that believes the following situation shows unique capabilities of a small business?

"Just for the record - We did the synopsis and J&A justifying award to only one source. We had an inquiry but no one interested in even trying to compete for this requirement. No requests for the solicitation, no interest at all."

By Vern Edwards on Sunday, August 12, 2001 - 01:12 pm:

Bob:

Your real issue seems to be phony sole source justifications. I have rewritten five of your six points mainly by inserting the word "large" where you had written "small."

1. A large business in government contracting is a large business because the government declares it to be a large business.

2. If a procurement is not set-aside for small business, the large business with a contract has the right to sell its wares in a federal building. They may walk the halls drumming up business. They can tell program officers it is the end of the fiscal year and they can do the work on a sole source basis. They can GAME the system.

3. When the contracting officer receives a sole-source request from a requiring organization, it may be a result of marketing by a large business that currently enjoys a non-set-aside contract. The sole-source request then may be based on two things. One is a valid expertise of the large business. A second may be to dump end-of-fiscal year funds.

4. Based on the two examples I have outlined in 3, I believe the contracting officer should have the discretion to add the limitations clause in a contract since it is not prohibited.

5. If there is a valid reason for a sole-source based on the large business' expertise and if most of the work needs to be performed through subcontract, I would not include the limitations clause. However, if the sole-source is not based on an expertise that requires most of the work to be subcontracted, I would add the clause.

Bob, the point of my exercise is to show that you can use the same facts and propositions to justify using a limitations on subcontracting clause in every sole source procurement. But would it be a good idea to do so in order to prevent government employees from writing phony sole source justifications? If the sole source justification is valid, then you don't need to limit subcontracting. If it's not valid, then limiting subcontracting won't make it valid.

Limiting subcontracting is a drastic thing to do. It may be especially drastic to use the fixed limitations in the FAR clause. What if something unexpected happens within the contractor's operation that makes subcontracting essential to timely completion of the work? This happens all the time. Will the prime have to negotiate a change to the contract in order to proceed?

As the government tries to use more commercial and performance-based methods and get out of the business of controlling every aspect of contractors' operations, why should a CO limit subcontracting when FAR does not require such limitations? During the 1990s, the FAR Council cut back on requirements for formal make-or-buy programs and subcontract approvals. Compare FAR 15.703, Acquisitions requiring make-or-buy programs, in the 1997 edition of the FAR with today's FAR 15.407-2(c). Would you limit subcontracting under a contract for commercial items?

In the commercial sector today we see more outsourcing than in the past as firms try to limit their operations to their core competencies and contract out other work. Morevoer, small business prime contractors can gain a lot from close relationships with large business subcontractors. They can gain technical and managerial advice and assistance, and practical know-how. The can also gain experience and a record of past performance, since the presence of a large business in a subcontracting support role may convince government technical personnel, who tend to doubt the competence of small business firms, that the award to a small business is not quite so risky. A firm can be a valid sole source and still have much to gain from subcontracting large parts of the work to a large business.

You and Joel seem to see a "broker" or a "front" under every bush. I have no idea how often large businesses use small businesses as "fronts" in ways that leave small businesses with no real gain. Do you? Does anyone out there? I don't care about anecdotal "I know of a case..." stories. Do we have any solid statistics about the frequency of phony subcontracting arrangements between fronts and large businesses? Are there any facts to indicate that there is a real problem?

By Vern Edwards on Sunday, August 12, 2001 - 01:19 pm:

Bob:

Re the rotational assignments idea--The Procurement Executives had it in place for some time. But I went to a conference this summer in which a representative from the Procurement Executives said they were having a hard time finding agencies to commit their best people.

I won't be so demanding. I know a nice little bar near your office. I'll be in town Sept 14 to attend the tribute dinner to Nash and Cibinic. We can start drinking early.

By Ramon Jackson on Sunday, August 12, 2001 - 02:07 pm:

This is an interesting discussion and seems to be reaching a fairly satisfying consensus that if the contractor was selected purely on grounds excluding its SB/SDB status the special precautions applying to SB/SDB do not apply. One observation and one reservation apply to my conclusion in reading the thread from start to finish on first entry.

It occurred to me within the first few exchanges that a small business entering into government work outside its usual SB/SDB mechanism and having such unique capabilities in the specific work to warrant a truly solid sole source would be rather foolish to roll over to the "usual" limitations if contrary to the way it does this specific business. Many actual small businesses, as opposed to some rather large ones officially designated as such, simply do not do government work because of such limitations and "meddling."

If a company is in a really solid sole source position I can see them taking a firm position of "I've got it, you need it, this is how I work this problem and this is not the usual SB game. I'm not going to play by your usual rules." I wondered if the company in question would react that way if the limitation on subcontracting were attempted anyway. Their confidence in being a real sole source would probably show. Of course the sole source thing is a government decision and it would seem somewhat unethical to see what they would do just from curiosity.

The reservation is that this situation for a SB/SDB is probably fairly rare and also likely to be reasonably defined clearly up front. For example, despite Joel's dredging and waterway work being often highly technical and somewhat arcane I cannot see it likely qualifying. In sole source justifications due to a valid need to duplicate a product line or similar need it is usually not going to be one of the SB/SDB firms. For the SB/SDB I'd expect this likely to fall into either a category of ownership of trade secrets, proprietary processes or some other intellectual property or into something really exotic, very new or experimental like work. In essence, where a small business either legally controls the techniques or holds the intellectual specialty for the moment.

As with others here I'd like to find out more about the work at hand. That would probably reveal much about whether this is a very solid sole source or a weak one done for someone's convenience. The old Russian saying about a fish rotting from the head applies. If the sole source is unsound an exemption from the subcontracting limits is just the rotten tail.

As for Bob's last question about whether the "unique capabilities" were adequately defined my answer would be "no" -- assuming I am understanding the "inquiry" accurately. I am assuming the "inquiry" was essentially some market research and making contact with a number of firms familiar and/or local to the agency and not a widespread announcement. The lack of result in my "usual cast of suspects" does not mean the most likely among them is the one. We've seen notable and even infamous examples of poor detective work based on the same practice focusing on the wrong, but easy, person. This may be a similar case in sole source. It may get a result, but not a good one and could be a rotton fish as a result.

By Ramon Jackson on Sunday, August 12, 2001 - 02:27 pm:

I just read Vern's latest comments and will include as a result something I deleted from mine just before pasting.

Vern noted the fact that limiting subcontracts often makes little sense. I cut an example I felt specific to the area of a SB/SDB being a solid sole source. That example went as follows:

A group of very smart technical people form a SB/SDB for IT support with a few technical employees and do 90% of their business through that official Federal mechanism. Recently they have developed an exceptional means of "injecting" a cure to network virus/worms that is getting commercial and government attention. The firm owns the process and subcontracts for actual delivery of their proprietary solution, though it will be done by their on-site staff for their existing maintenance contracts. Business if pretty good and they see real commercial expansion. They actually do very little of the "work" involved in the cure, but you cannot do it without them. They are a real sole source and (for the moment at least) an actual SB/SDB.

What would be their reaction if one of the services suddenly recognized their unique capability, did a sole source and decided to impose the limitation? I know my reaction. "Have fun fighting the things on your own. Don't bother me again until you are ready to play by my non-SB/SDB rules."

Of course failure to recognize this stance in many businesses is one reason the government found itself limited in the expertise it had available. If I recall, this was an identified issue in the days of Acquisition Reform, particularly in IT and other technologies converting from being military driven to market driven.

By bob antonio on Sunday, August 12, 2001 - 03:51 pm:

Vern:

There you go again! You are changing the subject. This is about small business and not about large business. Additionally, it is about developing small business within the government's small business program. In my note of 7:34 am I added the following:

"2. If a procurement is set-aside for small business, the small business with a contract has the right to sell its wares in a federal building. They may walk the halls drumming up business. They can tell program officers it is the end of the fiscal year and they can do the work on a sole source basis. They can GAME the system. (Trust me on this. I tried to deal with it years ago but I ran into Congressional intent that wanted the small businesess to market their wares in federal buildings.)"

Congress believes that drumming up business in the halls of government will help the marketing skills of small business. I agree with Congress although I have some personal reservations. I also believe that part of small business development is hiring employees for internal growth, managing those employees, etc. Subcontracting is part of it also. I believe the limitations clause can help manage the small business development process.

In First Anon's (FA) case, we all agree that the limitations clause is not required by the SBA regulations and the FAR.

Without going back to your one note, you believe that if the clause is not required its use is not appropriate. I do not agree with that blanket statement. I believe that if the clause is not prohibited, the contracting officer has the discretion to use it where the contracting officer believes it will help small business development. That is our only area of disagreement.

Using the limitations clause is not appropriate where a small business truly has a unique expertise and the use of large business for a majority of the work is a necessary part of the contract. However, there are cases where the contracting officer may believe the limitations clause is appropriate. One possible case is where the small business has drummed-up business in the halls of government and obtains a sole-source from a program office. The contracting officer, after speaking with the agency small business specialist or SBA representative, may decide that the limitations clause will enhance the small business' development. This may be the case that FA is describing. FA will have to decide.

I agree with you that this may be a justification for sole-source issue based on FA's note below

"Just for the record - We did the synopsis and J&A justifying award to only one source. We had an inquiry but no one interested in even trying to compete for this requirement. No requests for the solicitation, no interest at all."

FA followed the law and placed a sysnopsis for an exception 1. No responses were received. Altough this meets the requirements of the Competition in Contracting Act (CICA), it does little to determine if there is competition for the requirement. This CICA provision is similar to a couple taking marriage vows. The preacher looks up and asks if anyone objects. Hell, the decision has already been made. Why waste good marketing funds?

I am not going to question the sole-source issue here. It meets the general process requirement of law. However, I believe that this may be a case for the limitations clause.

Crooks are not everywhere. I have spent a career working with Congress trying to make its contracting programs work. The use of the limitations clause in the right circumstances, even where it is not required, can help small business development. All I am saying is let the contracting officer use his/her mind to arrive at a sound decision.

By bob antonio on Sunday, August 12, 2001 - 03:56 pm:

Vern:

The reason that the rotational assignment "effort" is not working in the eyes of the Procurement Executives is because no one is dedicated to it.

Given the opportunity, I will make the program a success within two years. If I fail, I will pay your way to the Caymans and buy your beverages.

By bob antonio on Sunday, August 12, 2001 - 04:00 pm:

Ramon:

I think you are missing the point of my notes. In the case you described, a limitations clause would not be appropriate. Is that the norm under SBA's small business program?

By CMERCY on Monday, August 13, 2001 - 09:03 am:

Actually it is the norm. For years the participation levels required by contract terms were generally half,less so in construction,and yet the whole contract was reported as small business. What I found really galling was when the SBA invented the non-manufacturing rule. You could make it a small business set aside even though no small business made the product. And lets not forget the under 25K rule. Right now,things seem to me to be a horse apiece....tinkering with the FPDS would be more work than its worth and we would gain nothing.

By Vern Edwards on Monday, August 13, 2001 - 09:33 am:

Bob:

Okay, let's leave the rotational assignment thing to another thread. And by the way, I'd like to fly first class.

Now, about limitations on subcontracting...

I haven't changed the subject, I have merely pointed out that when I read your notes it seems to me that what really bothers you is the legitimacy of sole source justifications.

In your Aug 12, 3:51pm note, you said: "One possible case is where the small business has drummed-up business in the halls of government and obtains a sole-source from a program office. The contracting officer, after speaking with the agency small business specialist or SBA representative, may decide that the limitations clause will enhance the small business' development."

Here's my position: You have not made a case for limiting subcontracting when FAR does not require inclusion of the clause. If the small business is a legitimate sole source, then why are you worrying about enhancing its development by including a limitation on subcontracting clause? Just leave the firm alone to enhance its own development.

Please give us a specific example: Under what circumstances would you limit a small business's freedom so subcontract even though FAR does not require you to do so? Please give us an example of a sound reason.

Limiting a firm's freedom to subcontract is a drastic thing to do. COs have no business doing it unless they can articulate a sound reason for doing so. You have yet to articulate such a reason, other than your apparent concerns about the legitimacy of sole source justifications. If a sole source justification is not legitimate, then limiting subcontracting won't make it legitimate.

Finally, and as a general matter, I don't like COs including standard FAR clauses in contracts when the clauses are not required. However, I won't say that it's illegal to do so.

By Ramon Jackson on Monday, August 13, 2001 - 09:58 am:

Bob, I think I do understand your point. The SB/SDB programs allow members special license for things the "big" companies are at least discouraged from doing overtly. They enjoy some special privileges so some special constraints need also apply.

You have a point on whether an action with a Federally designated SB/SDB can be separated from that status and the program. We've reached a conclusion that a usual restriction does not apply because this instance does not depend on the designation. There is still a big "but" lurking here. Did the contractor obtain a special sole source by its SB/SDB ability to go in and drum up business?

If so, it took advantage of its special status in part, is not necessarily a sole source (common English usage and not by virtue of a special program, ability to wander halls with a pass to seek a "special" sole source classification) and its total exemption seems unfair. At the same time, full application of the rule being discussed may be nonsensical depending on the business model. Some rule modification as you suggest may be in order. I'd rather see the limitation on subcontracts rule modified to reflect actual business practices while still blocking pure pass through contracting. I think it could be done with some study and care. Maybe that is a good topic for another discussion. What would make sense?

On the other hand Vern is right in the observation we have no empirical data on abuses from which we could make rules making sense. That applies all across the board for Federal contracting. I'll never quite understand the reluctance, even negligence, to collect Federal level data on any number of such issues. I suspect it may be a case of "rather not know" and fear of finding a smoking gun somewhere.

I also realize the hypothetical case I made is outside your concerns, indeed probably outside Federal contracting practice. It was simple illustration of my hypothesis that a SB/SDB in an actual sole source position would probably be confident in taking a "go fish" attitude.

As my Federal time fades I'm increasingly surprised at how irrelevant its contracting is to most small businesses and even many very large ones. To some extent I'm increasingly feeling that Federal contracting exists in its own "ghetto" with very little awareness of real business practice. Quite frankly, I see Federal contracting people who are the "business" sense of government that view everything through that particular peculiar lens.

I also recognize and often approve of the political drive to spend all the people's money in a way promoting "a more perfect Union, establish justice, . . . promote the general welfare" by imposing unique rules to government contracting -- rather than just do business. Politics is imperfect and so are the results. At the same time I don't think Congress or the regulation writers do enough on the pragmatic side.

I know of more than one small business, with second hand knowledge of some large ones, that simply will not do business with all the special rules. In more than one case I know the government got second or even third best because one with real excellence had no patience with the red tape. We could only hope to get some of their excellence second hand at a markup. I think it is possible and desirable to better keep essential social contract with the taxpayers in both fairness and pragmatic business decisions. To do so we need more care in rule making and periodic barnacle scraping.

By Vern Edwards on Monday, August 13, 2001 - 12:00 pm:

Ramon and Bob:

Where in FAR does it say that a small business has special status to market its services on a sole source basis? Where does FAR say that agencies can relax the rules about competition in order to give a small business a sole source contract?

By Linda Koone on Monday, August 13, 2001 - 02:42 pm:

Bob:

In answer to your question, what do I make of the following post...

"Just for the record - We did the synopsis and J&A justifying award to only one source. We had an inquiry but no one interested in even trying to compete for this requirement. No requests for the solicitation, no interest at all."

If your market research was adequate, it's exactly what I would expect... that there's nobody else out there capable of meeting the requirement. We usually get those same results anytime we synopsize our sole source requirements.

What concerns you about it?

By joel hoffman on Monday, August 13, 2001 - 11:28 pm:

Hello, folks. I'm out west, this week and just checked into this thread. To clarify your misconceptions about my understanding, I agreed last week that the Limitation on Subcontracting Clause technically does not apply to a sole source acquisition with a small business prime.

It is not and should not be used in an award under unrestricted basis to a small business. I never said so.

I believe I also answered a question by Bob, stating that any small business prime award, either on an unrestricted, sole source or SB set-aside basis counts toward small business contracting goals. To my knowledge, no-one measures actual dollars self-performed by SB or SDB.

Much of this week's discussion seems to concern the validity of the LOS Clause, in situations when it is required and whether there is any value added by such a requirement. Some asked whether there are any statistics to verify abuse or a problem.

My direct experience indicates that there was/is rampant abuse in (construction) programs which restrict competition or business opportunities to any class of contractors.

There probably are vast differences between small business contracting for construction, services and supply. In my experience with service contracts, the brokering situation most often occurs with professional and consulting type contracts. The prime is often essentially a labor broker, hiring independent contractors. So, I will confine my remarks to construction.

I had seven years direct experience in negotiating or supervising negotiation of all sole source 8(a) construction contracts in our Distict, administering competitive IFB 8(a) contracts, about 2 or 3 years with competitive RFP's and IFB's in the DOD SDB set-aside program (however long it lasted).

(Because the Corps of Engineers meets its goals for small business contracting, the DOD Small Business competitive demonstration program (or some similar name)exempts construction from SB set-aside requirements. So we no longer use that special program.

Yes, dredging contracts, excavation contracts and specialty trade contracts were designated, set-aside, whatever you want to call it for one of these programs and contractors with absolutely no capability, resources or equipment to self-perform this work were more often than not matched up or competed for these restricted programs. We often rejected offered contractors and worked with SBA to find a real contractor.

In RFP's, we requested to see the offerors' management plans with the proposal. we saw all sorts of machinations and abuse of joint venture and teaming agreements. The majority of the competitive proposals I evaluated were fronts for large businesses or non-SDB small businesses. Were there legitimate SDB's? - oh yes! There were very good firms and there were emerging firms which were inexperienced but willing to learn.

In the 1 1/2 years I was stationed at the base in California in 71-72, four construction contracts were awarded to local small business construction companies that I never dealt with - the "second low bidder" amazingly discovered a cheaper way than the low bidder, to enable the winner to subcontract 100% of the project to the "loser". To this day, I will maintain that there was rampant bid rigging and collusion occuring at that Base. I don't remember if those were small business set-asides or if there was such a program in 1971. I think that most of our construction work was advertised as small business set-asides during my 71-76 Air Force term.

If you think I'm jaded, perhaps. I'm just frustrated with firms constantly taking advantage of programs which restrict competition. ALL Federal construction contracts require some sort of prime contractor self-performance. I have vigorously enforced those provisions.
Happy Sails! Joel

By bob antonio on Tuesday, August 14, 2001 - 01:58 pm:

To this thread:

Here are my final responses to some notes since my last note.

Vern:

In your 8/13 9:33 note you were discussing the sole source issue. Here is what happens. A small business set-aside is awarded. The contract is awarded with the limitations clause. The contractor performs satisfactorily and a follow-on contract is requested with the firm. The program writes a justification for sole-source stating that the firm is the only source that can do the work for some reason or another. The contracting officer looks at it and decides to go with exception 1 and places a synopsis in the CBD or FEDBIZOPS. Since we state we are going sole-source, few companies ever submit an inquiry.

This justification can be challenged. However, it went through the CICA process as I have noted earlier and it goes unchallenged. So, the sole-source sticks. Now we have a justified sole-source that CICA blessed and we make a non-set-aside award. I have seen this or something similar many times at different agencies. I have seen programs and contracting offices change base years and option years to squeeze sole source awards through. Again and again, I have seen this. In the early 1990s I issued a report outlining this.

OK. Let's go back over this once again. We have a potentially bogus sole-source justification for a small business contract that moves through CICA. Once it gets into the CBD as an exception 1 and no one challenges it, I have to accept it as a bona fide sole-source. CICA proved it. That is the way it is.

In these cases, the contracting officer should have the discretion to include the limitations clause. Vern, it is in the current contract already. So they are just adding it into a "fairly won" sole-source contract. There are variations on this theme but this note is already long.

Vern:

You have a note asking where in the FAR does it state a preference for small business to market their wares. As I mentioned in two earlier notes under the caption "2" legislative history provides the preference. In the early 1990s, I issued a report dealing with some of the same examples I am trying to remember here. I no longer can find that report. However, I remember looking at amendments to the Small Business Act from the late 1980s or early 1990s. The legislative history supports that. I remember it well because I was stunned when I read it. Congress believes that small business' marketing skills can be enhanced by allowing them to walk through government buildings selling their wares once they have a set-aside award in that building. So once you are in, you are free to rig. That is congressional policy. Since all American citizens are saints, we have nothing to worry about. I don't think I can ever find the Congressional document. However, I assume it is at least a Committee report because anything less would have questionable value as legislative intent. I would not have considered it.

Linda:

Exception 1 and its subsequest synopsis in the current format is a contrived Congressional process. Congress was disgusted with all "only one source" availables in the late 1970s and early 1980s. So they thought it would be nice to throw in a little hoop to jump through. Since they didn't trust contracting officers to do market research, they forced contracting officers to do something else. That something else is the synopsis after you write an exception 1 justification and which First Anon described many, many notes ago.

A competitor must decide how it wishes to use its scarce marketing funds. If it believes it has a fair chance to win, it very likely will compete. However, if you say you are planning an award to a firm but will listen to late-arrivers, it may dishearten competitors. They will make a judgment on how to spend that marketing money and probably decide it is not a level playing field. So this may not really be a true indicator that competition is not available.

FINIS

By Vern Edwards on Tuesday, August 14, 2001 - 03:57 pm:

Bob:

You have confirmed for me that your real issue is phony sole source justifications. In my opinion, inserting a limitation on subcontracting clause in a phony sole source contract does not make it legitimate. Any contracting officer who lincludes a limitation on subcontracting clause so he or she can feel better about making a phony sole source award is foolish, at best.

By Ramon Jackson on Tuesday, August 14, 2001 - 05:26 pm:

Exactly. That is what I was trying to get at in my "fish rotting from the head" bit. I think Bob confirmed that there is no FAR or other formal provision for an exception to normal rules, there is just an easy hoop that is not uncommonly used to bless some sort of sole source follow on. I believe a variant has been used for even an initial contract period.

Again, perhaps without formal blessing things often seem relaxed for the small business. That seems particularly true if an agency is trying to improve its numbers. I wonder how many "Large Business Days" are held.

By Anonymous on Wednesday, August 15, 2001 - 08:53 am:

To all who have participated in this thread, I appreciate all the input. I felt that this would be a relatively simple question, but I guess it has turned out to be more controversial than expected. I especially liked the response that indicates there is no provision prohibiting the clause's use in the sole source award and FAR does not prohibit its use. I have passed on this thread to the Contracting Officer that will be signing the award and let her use her best judgement based on all the feedback through this forum.

I for one think the clause should be in the contract and if I was the CO, it would be included. In my opinion, there is no reason that the potential offeror could not meet the 50% requirement. It will all depend on his technical approach. Bob/Joel - if you would like the specifics of the Justification I would be glad to discuss off-line, but I don't want o publish them in this thread.

The first Anon.

By joel hoffman on Thursday, August 16, 2001 - 02:09 am:

Thanks, First. I'm out of town, this week and next, but would be interested in the specifics. happy sails! joel

By Dave Barnett on Monday, August 20, 2001 - 01:57 pm:

Personally, I think Part 19 is getting messier and messier...

By Eric Ottinger on Tuesday, August 21, 2001 - 07:55 am:

Anon,

I disagree, mostly for philosophical reasons.

First, I am reluctant to put anything into a contract unless I think the government will actually follow-up and enforce the requirement.

(Some clauses can be enforced in court, if it comes to that. Other clauses can be enforced if the government makes the effort, even though it is unlikely that the issue would be taken to court.)

One big problem with the 50% rule is that there is no consistent procedure to follow-up and enforce.

Are you going to terminate for default as soon as the prime’s share falls to 49%? I doubt it. Is anyone even going to notice?

Second, I think standard FAR clauses should be used strictly in the circumstances specified by the FAR and strictly for the purposes intended by the FAR.

If the clause is not required and you feel that there should be some agreement to the effect that prime will do some percentage of the work, it would be best to specify this in the statement of work or in an “H” clause.

Third, it would be best to address this issue in the selection process. Does the prime really have the resources? Does the prime really have a plan to do the work? If I am not really comfortable on this point at the outset, why should I expect a clause to get me the result that I want?

Eric

By C. on Tuesday, August 21, 2001 - 03:16 pm:

Words mean things, read the
FAR prescriptions for the use of the LOS clause. It's darn evident that it applies to certain socioeconomic programs addressing contract preferences for limiting the award to SB or SDBs.

By Anonymous on Wednesday, August 22, 2001 - 07:42 am:

Eric,

I don't know if you realized this is a sole-source, so I am somewhat confused by your use of the "selection process".

I usually pay more,(not always- usually)when I have to take into account the socio-economic programs and I am a taxpayer and do not like to spend more and receive nothing in return. When I do business with small business and receive nothing but the pass through costs and no "value-added", I am paying more than I believe necessary. As indicated above, I don't like to waste the taxpayer's money, because I am one of those taxpayers.

When I compete requirements and have the opportunity to avoid such pass throughs I certainly do so. If I did not misunderstand Bob's message, Bob found no where in the regus or the statute that precluded the use of the clause and I do believe we should get the benefit of the contractor's support if we have to use him. As I indicated before, I am fully confident the contractor can meet the 50% requirement if he wanted to. It will all depend on his technical strategy.

Thanks C. I agree with you.

By Anonymous on Wednesday, August 22, 2001 - 03:10 pm:

As near as I can gather the sole source award was not in furtherance of any socio-economic program....therefore the LOS is neither necessary nor required. And assuming one does the rest of one's job....like Part 9 determinations...why would you care? Much ado about nothing folks...

By Roston on Monday, September 10, 2001 - 09:35 am:

Along the lines of this discussion, a thougt just occurred to me: Isn't the non-manufacturer rule really just a formal and allowable way to do a "pass through" procurement? ie: the award is made to a SB but the SB is only minimally involved?

The Gov't pays more, the SB doesn't gain much in the way of experience, and the large business, who would have probably rec'd the business anyway, still gets it!

I'm all for socioeconomic programs and especially assisting SB. I also understand the complexities that make them very difficult to develop, implement and maintain.

It just seems there should be an easier way to perform the contracting function and assist SB.

By Anonymous on Monday, September 10, 2001 - 10:17 am:

The NMR is ,in effect,a retail set aside. It has never made sense to me and I view it more like an agricultural subsidy which adds nothing positive to the nations economy. It was just another device designed to make the government look good...politically. In fact it is counter-intuitive to sound economic policy....but then what is'nt?

By AnonSB on Monday, September 10, 2001 - 10:27 am:

Anonymous 10:17,

I'm a small business who benefits from the NMR. Please explain how the NMR is counter-intuitive to sound economic policy.

By Anonymous on Monday, September 10, 2001 - 11:10 am:

Simple...first it has no value added...second retailers do not invest in capital equipmentr or production facilities which can either manufacture goods or improve designs...third retailers do not expend capital on R&D, fourth ,at least in Federal contracting, the practice violate the Walsh-Healy Public Contracts Act.And if this were otherwise why are we not buying fighter jets from small businesses? After all they should qualify under the NMR as well..true?

By Roston on Monday, September 10, 2001 - 11:13 am:

AnonSB

In what way does your firm benefit from the NMR?
I'm very interested to know the good things about NMR vs the not so good....