Putting Teeth In Small Business Subcontracting Plans

76fj40 said:

I have heard that the law has recently been changed to provide a mechanism to hold primes accountable for not living up to the goals in their Small Business Subcontracting Plans.  I'm hoping that the great minds of WIFCON can help me locate any changes that I can share with my primes in order to get what was promised during the proposal phase.

Thanks in advance.

How about this? https://www.natlawreview.com/article/new-rule-finalizes-small-business-subcontracting-changes

The National Law Review article is dated as July 2016 and the latest clause 52.219-9, as of July 23, 2018, is dated  Jan 2017 .https://www.ecfr.gov/cgi-bin/text-idx?SID=39ef558d62d2d8bfdbe19c63bf9feae0&mc=true&node=pt48.2.52&rgn=div5#se48.2.52_1219_69

I noticed that the date at the top of the page at the National Law Review website is July 25, 2018. I’m guessing that is related to the currency of the article under “45 New Articles” but I don’t know. 

It looks like more tools are available to the government in its oversight and enforcement role, if the KO and contract administrators are active and proactive and if the latest clause is in the prime contract.  It might be toothier but is toothless if the government isn’t more active/proactive in its oversite role than in my prior experience. Other members are free to offer their opinions, especially the current 1102 community.

For instance, see this recent discussion thread: 

There might be something newer concerning Subcontract Plans but that National Law Review article and that version of the Subcontracting Plan clause are what I found.

See also where subs can discuss matters directly with the government. 

Good luck to you!

76fj40 said:

I'm hoping that the great minds of WIFCON can help me locate any changes that I can share with my primes in order to get what was promised during the proposal phase.

Get what that was promised to whom?

Promised to my company as a subcontractor.

Thanks for your help Joel.

On 7/25/2018 at 2:19 PM, 76fj40 said:

Thanks for your help Joel.

Hope it helps you, 76fj40. Congress tends to respond to small business and subcontracting industry complaints. But they keep expecting bureaucrats who don’t have privity of contract with subs and don’t have all the facts concerning disputes or business relations between primes and subs, to police internal contractor team relations.  In addition, many don’t understand the internal business operations or processes of the various businesses/contractors.  They don’t have time to get involved in many internal contractor team affairs.  

Government acquisition personnel and project manager performancei evaluations are often based upon making awards and getting contracts completed, not necessarily upon the costs involved or on extent of harmony within a contractors’s team. In practice, the office that doesn’t bring issues to higher level management as long as the contract gets done are the favorites of those higher level managers. Consequently, they often overlook strict scrutiny of some administrative or non-technical contract requirements, taking a hands off approach. At least that’s my observation and experience within my organization from a field level, multi-District, Multi-Division and Command-Wide perspective.  

And it is apparent to me that service contracting contract administration is even more hands off than A/E and construction contracting from my involvement and from participating in this Forum site for many years.

@joel hoffman

Can your last remarks be summed us as saying that the new laws won't be on much help to the OP in resolving its own contractual disputes with its customer?

76fj40, I think you are going to be spitting into the wind on this.  Contractors have an obligation to comply with the terms of their contracts.  If there are any consequences to a contractor for failing to comply with a subcontracting plan that is incorporated into a contract, those consequences would generally be stated in the prime contract particularly FAR 52.219-9.  The current clause has a date of January 2017.  I suggest that you read that clause and try to gain an understanding of what it requires of primes.

76fj40 said:

Promised to my company as a subcontractor.

So, the issue is the prime says they are going to subcontract to you in their proposal to the Government, but during performance they don't. Correct?

On 7/24/2018 at 6:50 PM, 76fj40 said:

to get what was promised during the proposal phase

Proposals are how potential prime contractors "promise" things to the government.

Your concern is what the prime contractor "promised" to you, the subcontractor.

Do you have an enforceable teaming agreement with a statement of work? If so, enforce it.

If not, and you're relying on the promises the prime contractor made to the government, this won't end well for you. Remember that you don't have privity of contract with the government. The prime's contract or promises to the government are between the prime and the government. 

Lesson: Always get an enforceable and specific teaming agreement or contract. Pay an attorney to make sure it has "teeth." Don't rely on the government to bully prime contractors into giving you subcontracts. That's not a long-term strategy.

Thanks again for all of the help, even if the situation is still pretty hopeless.

Don - You are correct.  We assist in the proposal, lend our experience, skills, and past performance to the winning effort and then get little or nothing after award, even with a specific workshare in the TA.  The primes offer a range of excuses or just blow us off.

Have you checked to see if a teaming agreement is considered a contract in your state?

I have not checked to see if a TA is considered a contract but the terms of the TA are generally incorporated into the subcontract. Even when the promises made in the TA are incorporated into the subcontract, we still have trouble collecting what's been promised. We can sue the prime in an attempt to get what's due but that spoils any relationship with the prime, current and future. We are getting better in the specificity of the TAs we sign.

"Never confuse winning with delivering"

A few observations on this (note, I'm being purposely vague here, I leave it to you, 76fj40, to research):

You mentioned the SubK Plan in your first post - have you seen a SubK Plan were your firm is mentioned and committed?  In my limited experience, the prime's commitment is to hit % subcontracting goals - while maintaining their right to choose how those goals are met (and with whom).   The SubK Plan may provide a list of subcontractors and even indicate where TA's exist, but primarily to show that the Prime can be reasonably expected to deliver on their Plan - not as a binding commitment to the Government to subcontract business to those particular companies.  

I believe RetreadFed is suggesting recent rulings in VA where TAs were not considered contracts because they were "promises to make promises" or something like that...and thus generally not enforceable.   Subcontracts are another story - but if you're subject to things like "at a reasonable price" or "as decided by the PM" or such, well, then they probably aren't much better and all you really have is a ticket to be considered...which may never result in any actual business.     

Yet - someone is doing the work.   I'd talk to the Prime(s) and ask where it is going and why.   I'd figure out how to be THAT guy (the one getting the business post-award) rather than the guy spending resources helping the prime win in the first place.   And don't think that one has much of anything to do with the other.   Its different decision makers, different care-abouts, different goals.

I think this language from FAR 52.219-9(d) should be of interest to 76fj40.  The language upon which this requirement is based was added to the Small Business Act in 2016.

(12) Assurances that the Offeror will make a good faith effort to acquire articles, equipment, supplies, services, or materials, or obtain the performance of construction work from the small business concerns that it used in preparing the bid or proposal, in the same or greater scope, amount, and quality used in preparing and submitting the bid or proposal. Responding to a request for a quote does not constitute use in preparing a bid or proposal. The Offeror used a small business concern in preparing the bid or proposal if–

(i) The Offeror identifies the small business concern as a subcontractor in the bid or proposal or associated small business subcontracting plan, to furnish certain supplies or perform a portion of the subcontract; or

(ii) The Offeror used the small business concern’s pricing or cost information or technical expertise in preparing the bid or proposal, where there is written evidence of an intent or understanding that the small business concern will be awarded a subcontract for the related work if the Offeror is awarded the contract.

(13) Assurances that the Contractor will provide the Contracting Officer with a written explanation if the Contractor fails to acquire articles, equipment, supplies, services or materials or obtain the performance of construction work as described in (d)(12) of this clause. This written explanation must be submitted to the Contracting Officer within 30 days of contract completion.

76fj40 said:

Don - You are correct.  We assist in the proposal, lend our experience, skills, and past performance to the winning effort and then get little or nothing after award, even with a specific workshare in the TA.  The primes offer a range of excuses or just blow us off.

This is not uncommon. I think this happens because the Government creates incentives for contractors to behave this way.

Vern Edwards said:

@joel hoffman

Can your last remarks be summed us as saying that the new laws won't be on much help to the OP in resolving its own contractual disputes with its customer?

No, not necessarily.

It does appear to me from some of the comments here that many government personnel may not be aware of the statutory changes or of the revised clause at 52.219-9.  

Don Mansfield, is DAU addressing in its teaching curricula for Small Business Subcontracting Programs attempts to increase the accountability of primes for what they say they are going to do in their bids or proposals (or associated subcontracting plans) ?

The situation appears pretty hopeless until COs start taking an interest but I appreciate the education and opinions provided.

Don Mansfield said:

This is not uncommon. I think this happens because the Government creates incentives for contractors to behave this way.

Don, with respect to the above quote and to my question to you, I noticed that the clause at 52.219-9 (which was revised over 1 1/2 years ago) added sub-paragraphs (d) 12-15, as well as some other revisions.  

It would seem to me that these revisions, as well as the other steps that are referred to in the article at https://www.natlawreview.com/article/new-rule-finalizes-small-business-subcontracting-changes - the "government" is creating disincentives for contractors to act this way.

FAR 19.708 (b) prescribes including the clause at 52.219-16, Liquidated Damages - Subcontracting Plan, in all solicitations and contracts containing the clause at 52.219-9, Small Business Subcontracting Plan,

FAR 19.708(c)(1), allows the KO to include a subcontracting program incentive clause at 52.219-10.

Don, what  are some government created  incentives that you referred to which are in conflict with these policies?

Of course, the workforce would have to be aware of the revisions and would also have to supportive in practice for the policy to have any effect. I'm not aware of the extent of knowledge of the revisions.  With respect to the extent of federal workforce support of the policies and procedures intended to help promote small business participation and treatment by primes, I have doubts...

See the final rule that changed FAR 52.219-9, 81 FR 45833, 45838, July 14, 2016, Comment 11 and response:  

Quote

11. Privity

Comment: One respondent stated that permitting a subcontractor to discuss payment or utilization matters with the contracting officer will allow the subcontractor to establish its own relationship with the contracting officer. Another respondent recommended that the FAR be amended to require that contracting officers monitor contractors' compliance in terms of not prohibiting subcontractors from discussing matters of payment or non-utilization with the contracting officer. A third recommended that where a subcontractor has furnished an allegation of lack of good faith effort to the contracting officer, the contracting officer must share the submission with the contractor to make them aware of the allegation.

Response: The recommendations made by these respondents are not in keeping with the principles of privity. Although limited communication between the contracting officer and the subcontractor may occur in accordance with this clause, it is not the role of the contracting officer to take any action on behalf of the subcontractor; rather, any action the contracting officer may take will be with respect to the contractor. As SBA noted in its final rule, the contracting officer cannot be a party to disputes between the contractor and its subcontractor, although he or she will be involved in evaluating the contractor's subcontracting performance. FAR Case 2014-004, Payment of Subcontractors, provides more specific guidance related to payments to subcontractors.

Emphasis added.

joel hoffman said:

FAR 19.708 (b) prescribes including the clause at 52.219-16, Liquidated Damages - Subcontracting Plan, in all solicitations and contracts containing the clause at 52.219-9, Small Business Subcontracting Plan,

My favorite section of  52.219-16 is the part where the CO is required to transfer the liquidated damages extracted from the prime to the sub or subs who were harmed by the prime's non compliance....SAID NO ONE EVER!!  🤣

joel hoffman said:

Don, what  are some government created  incentives that you referred to which are in conflict with these policies?

An example would be using "Proposed Participation of Small Business" as an evaluation factor in source selection. There's an incentive for offerors to propose high participation to win the competition. However, during performance the contractor is only required to make a good faith effort to comply with its plan. When I researched this, I could not find a single case where the Government actually assessed liquidated damages for the contractor's failure to make a good faith effort to comply with its plan. That tells me that it is very hard to prove. I was told of an instance of NAVFAC doing this, but I think it's very rare. The changes that you reference will create more paperwork for contractors, but I don't think it will be enough to change behavior.

The carrot for proposing high participation is significant, but the stick for failing to follow through is not.

From FAR 52.219-9(d)

Quote

The Offeror’s subcontracting plan shall include the following:

*     *     *

(12) Assurances that the Offeror will make a good faith effort to acquire articles, equipment, supplies, services, or materials, or obtain the performance of construction work from the small business concerns that it used in preparing the bid or proposal, in the same or greater scope, amount, and quality used in preparing and submitting the bid or proposal. Responding to a request for a quote does not constitute use in preparing a bid or proposal. The Offeror used a small business concern in preparing the bid or proposal if–

(i) The Offeror identifies the small business concern as a subcontractor in the bid or proposal or associated small business subcontracting plan, to furnish certain supplies or perform a portion of the subcontract; or

(ii) The Offeror used the small business concern’s pricing or cost information or technical expertise in preparing the bid or proposal, where there is written evidence of an intent or understanding that the small business concern will be awarded a subcontract for the related work if the Offeror is awarded the contract.

(13) Assurances that the Contractor will provide the Contracting Officer with a written explanation if the Contractor fails to acquire articles, equipment, supplies, services or materials or obtain the performance of construction work as described in (d)(12) of this clause. This written explanation must be submitted to the Contracting Officer within 30 days of contract completion.

Are "assurances" promises? Is "identifying" a small business concern the same as promising to hire that concern? Does the written explanation have to meet any particular standard of explanation? And what is a contracting officer to do if he or she is not satisfied with the written explanation. Demand that the prime hire a particular sub? And if the prime accedes to the demand under threat of liquidated damages, what if the sub defaults?

Is a sub under a prime contract that contains this clause a third-party beneficiary?

It's all nonsense, written by people elected to Congress who have little but nonsense in their heads.

'So, there ya are', as they say.

At any rate, I'm guessing that DAU doesn't  provide training on the policies and procedures, if any,  to administer the current contract terms for subcontracting plans.

Vern Edwards said:

From FAR 52.219-9(d)

Are "assurances" promises? Is "identifying" a small business concern the same as promising to hire that concern? Does the written explanation have to meet any particular standard of explanation? And what is a contracting officer to do if he or she is not satisfied with the written explanation. Demand that the prime hire a particular sub? And if the prime accedes to the demand under threat of liquidated damages, what if the sub defaults?

Is a sub under a prime contract that contains this clause a third-party beneficiary?

It's all nonsense, written by people elected to Congress who have little but nonsense in their heads.

Agreed.   One "good faith effort" is to create a portal, is it not?   The subcontractor bids against others on pieces of the contract as they come up.  If the subcontractor doesn't have the lowest qualified price, they aren't selected.   The Prime enabled the sub in every way, providing a good faith effort; all the sub needed to do was to propose a better price.   

The clause has the feel that it was written by a prime.   Like the Fox's security system for the Hen House.

joel hoffman said:

At any rate, I'm guessing that DAU doesn't  provide training on the policies and procedures, if any,  to administer the current contract terms for subcontracting plans.

Yes, we do. SBP 210: Subcontracting.

Don Mansfield said:

Yes, we do. SBP 210: Subcontracting.

👍

Vern Edwards said:

It's all nonsense, written by people elected to Congress who have little but nonsense in their heads.

Its probably written by their staffers for the  people elected to Congress who have little but nonsense in their heads.

In my limited experience*, the staffers don't know much, if anything about the subjects, either. Industry trade groups might provide draft wording. At any rate, neither the staffers, members of Congress or the trade groups appear to understand all the impacts/ramifications of the proposed actions in relation to other processes.

(*I have participated in reviewing about a dozen legislative proposals for design-build, construction and A/E initiatives that are or were initiated by industry trade groups or industry coalitions.)

Edited 29-30 July: 

Unfortunately, this policy is more like loose dentures than teeth.  

The USACE (US Army Corps of Engineers) uses a clause [1] in its design-build and some traditional style, sole source and competitively negotiated construction contracts to require KO approval for any substitutions of key subcontractors or personnel that were named in the contract proposal.

The contractor must explain why the substitution is necessary and must submit the same type of information for proposed substitutes as that which was evaluated during the contract formation.  The substitutes must be equally qualified as the original person or firm. The KO might require consideration for the substitution under certain circumstances, for example bid shopping. 

The intent of the clause is to discourage bid shopping of subs and bait and switch gold plating of proposed key personnel, while allowing for normal, legitimate turnover or non-availability. 

The qualifications of originally proposed personnel or subs are the basis for the minimum standards for substitution.

While primarily adopted for the benefit of the government, anti-bid shopping efforts also recognize potential benefits for those subcontracting firms who were involved and identified during the proposal process. 

Under another contract clause [2], the solicitation, including any amendments, and the accepted final proposal form the contract.  The order of precedence defines "Betterments" as "[a]ny portions of the accepted proposal, which both conform to and exceed the provisions of the solicitation".  Betterments become the new minimum contract requirement.  Thus,  any proposed substitution must meet the minimum contract requirements, including betterment’s included in the accepted proposal. 

From USACE Acquisition Instruction (UAI) Version 4 dated 25 JAN 2017:

[1]  UAI 5152.236-9001, Personnel, Subcontractors and Outside Associates or Consultants (MAY 2006) 
[2]  UAI 5152.236-9000, Design-Build Contract Order of Precedence  (AUG 1997)

As usual, @Don Mansfield and @Vern Edwards are spot-on.

Subcontractors,

Don't rely on the federal government to get primes to honor their promises, subcontracts, "assurances," or anything else which are made to subcontractors. There are some laws and regulations meant to help you, but don't rely on them. There's a privity of contract problem that the federal government has not and probably will not be able to solve.

The way to get primes to do what they said they would do is by...

...contracts, subcontracts, teaming arrangements, workshare agreements, etc.

Don't outsource your legal and contracting duties to Uncle Sam. He's got bad past performance and horrible references in those areas.

Don't be one of those subcontractors that gets screwed over. Pay for excellent legal and contractual representation.

good advice, Pepe. Don't rely on the FEDS.