New Small Business Tools from the National Defense Authorization Act
[A]gencies are required to consider the past performance of certain small business offerors that have been members of joint ventures or have been first-tier subcontractors. The agencies shall consider the small business’ past performance for the evaluated contract or order similarly to a prime-contract past performance.
13 C.F.R. § 125.11(a). The regulations also require certain prime contractors to provide performance ratings to first-tier subcontractors upon request. The following is a brief summary of the new regulations.
Joint Venture Past Performance: The new regulations provide that where a small business cannot “independently demonstrate past performance necessary for award,” the business has the option to use the experience and past performance of a joint venture. 13 C.F.R. § 125.11(b)(1). Notably, the small business can use the joint venture’s experience regardless of whether or not its joint venture partner was also a small business. 13 C.F.R. § 125.11(b)(1)(i). As such, past performance realized from joint ventures formed under mentor-protégé agreements can be used on future procurements. The only limitation on use of joint venture past performance is that the past performance relied on must have been the small business’s own performance and not “work that was performed exclusively by other partners to the joint venture.” 13 C.F.R. § 125.11(b)(1)(ii).
To use such past performance, a small business will have to, when submitting a response to a solicitation:
- Identify the joint venture of which the small business is or was a member;
- Identify the contract or contracts of the joint venture that the small business elects to use for its experience and past performance for the prime contract offer; and
- Identify what duties and responsibilities the small business carried out or is carrying out as part of the joint venture.
13 C.F.R. § 125.11(b)(1)(i)(A), (B), and (C). Contractor officers are required to consider the joint venture past performance in accordance with the terms of the solicitation and after taking into account the “duties and responsibilities the concern carried out or is carrying out as part of the joint venture.” 13 C.F.R. § 125.11(b)(1)(i)(C).
While the new regulations permit small businesses to use joint venture past performance, the SBA declined to address the use of affiliate/sister company past performance. The SBA noted that the use of affiliate/sister company past performance is addressed by the Federal Acquisition Regulation System (FARS) and the SBA does not have the authority to amend those regulations.
Subcontractor Past Performance: The new regulations also provide that small businesses serving as first-tier subcontractors may request performance ratings from their prime contractors. 13 C.F.R. § 125.11(c)(1). This requirement applies only to first-tier small business subcontractors performing on prime contracts that require the prime contractor to have a subcontracting plan. There is no dollar threshold that applies. Accordingly, the new regulation applies to any prime contractor with a contract that requires them to have a subcontracting plan, regardless of the dollar size of the prime contract or the subcontract.
The prime contractor must provide the performance rating to the subcontractor within 15 days of the subcontractor’s request, and the prime contractor must use the same five-scale rating system in FAR 42.1503: Exceptional, Very Good, Satisfactory, Marginal, and Unsatisfactory. 13 C.F.R. § 125.11(c)(1). The prime contractor must rate the subcontractor on the following factors:
- Technical (quality of product or service);
- Cost control (inapplicable for firm-fixed price or fixed price with economic price adjustment arrangements);
- Management or business relations; and
- Other (as applicable).
13 C.F.R. § 125.11(c)(1). The subcontractor and the prime contractor can negotiate to determine the deadline by which the subcontractor must request a performance evaluation, although the prime contractor cannot “impose a deadline earlier than 30 days after the completion of the period of performance for the prime contractor’s contract with the Government.” 13 C.F.R. § 125.11(c)(2).
The regulations do not mandate that prime contractors use any specific form to provide performance ratings to their first-tier subcontractors. Moreover, the prime contractor’s evaluation of the subcontractor is not submitted to the Contractor Performance Assessment Reporting System (CPARS), but rather is directly provided to the subcontractor. The subcontractor can then elect to use, or not use, the performance evaluation in future procurements. Contracting officers are to treat first-tier subcontractor past performance evaluations as equivalent to CPARS ratings.
Timeframe in which Past Performance Can Be Used: The SBA’s initial proposed regulations said that the past performance needed to have been within the past three years (six for construction and architect/engineering) to be considered relevant. With the final rule, the SBA reversed course and specifically declined to define or limit the timeframe in which joint venture or subcontractor past performance could be used. Instead, the SBA noted that procurement agencies retained the “discretion to determine what is relevant with regard to past performance and could accept past performance that is older than the period in FAR 42.1503(g) . . . .”
Enforcement of Prime Contractor’s Obligation to Provide Performance Ratings: The SBA also expressly declined to include any enforcement mechanism that is specific to the prime contractor’s obligation to provide performance ratings to their first-tier subcontractors. The SBA instead took the position that the existing FARS give contracting officers the necessary tools to compel compliance, including the ability to default prime contractors for not following their subcontracting plan, award prime contractors a lower CPARS rating under the subcontracting element, and impose liquidated damages for failing to make a good faith effort to comply with a subcontracting plan. The SBA also noted that subcontractors can submit complaints to the contracting officer in cases where the prime contractor has refused or failed to provide a request for performance evaluation:
Furthermore, subcontractors may notify the contracting officer of the prime’s failure to provide a required rating, similar to the process provided for in FAR 52.242–5. SBA is therefore adding to this final rule that subcontractors should notify the contracting officer in the event that the prime contractor fails to submit the requested rating within the rule’s prescribed timeframe.
Challenging a Prime Contractor’s Performance Ratings: The SBA also declined to include any process with which a subcontractor can challenge the performance ratings issued by a prime contractor. As such, absent a contractual provision in the subcontract providing for a process to resolve disputes over performance ratings, a subcontractor may need to simply accept the ratings given by the prime contractor, regardless of their accuracy. The SBA explained that it did not believe a rebuttal process for prime contractor performance ratings was necessary because the prime contractor performance ratings are not being submitted to CPARS and subcontractors can simply elect to not use unfavorable performance ratings.
Weighting Joint Venture and Subcontractor Past Performance: The SBA also declined to include language requiring contracting officers to weigh joint venture or subcontractor past performance the same as (or less than) past performance as a prime contractor. The SBA explained that, in its view, “[t]he recency and relevancy of past-performance information will differ from one source selection to the next; therefore, it is not necessary to indicate that the past-performance rating provided to a first-tier small subcontractor by its prime contractor is equally weighted in importance to information obtained from CPARS.” However, SBA did “clarif[y] that the importance of past performance information is dependent on the individual acquisition, not on the source of the information.”
Conclusion: The new SBA regulations provide a tool for small businesses to develop and document their past performance for use in future procurements. Small businesses that are considering submitting responses to solicitations should revisit their joint venture past performance to determine if the new regulations will permit them to bolster their proposals. Small businesses, and prime contractors, should also consider having provisions in their subcontracts that specifically address subcontractor requests for performance ratings, including identifying the form they will take, the deadline by which they may be requested, and, potentially, a process for resolving any disputes over the ratings provided by the prime contractor.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.
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