The Department of Defense, General Services Administration, and National Aeronautics and Space Administration are proposing amendments to the Federal Acquisition Regulations (FAR) that will align the FAR with regulatory changes made by the Small Business Administration in 2020 in response to the John S. McCain National Defense Authorization Act. These changes primarily aim to provide additional incentives for the SBA mentor-protégé program and clarify subcontracting plan requirements for Alaska Native Corporations.

Key Changes and Potential Impacts

Subcontracting Plan Exemptions for ANCs

48 C.F.R. § 19.702 requires prime contractors with larger contracts to develop and implement small business subcontracting plans. This obligation is implemented through the inclusion of FAR 52.219-9 in the prime contract. The proposed rule clarifies that these subcontracting plans are not required of entities treated as small businesses by statute, such as those owned by Alaska Native Corporations. Such entities are small business concerns as a matter of law.

The proposed rule would amend 48 C.F.R. § 19.702 to state:

(b) Subcontracting plans (see paragraphs (a)(1) and (2) of this section) are not required—

(1) From small business concerns, including entities that are treated as small business concerns by statute for certain purposes (e.g., ANCs, see 43 U.S.C. 1626(e) and 13 CFR 125.3(b)(2)).

This proposed change will make it clear that entities owned by Alaska Native Corporations do not have to develop and implement small business subcontracting plans, even if their contract includes FAR 52.219-9.

Prime Contractors’ Reliance on Subcontractor Representations

A prime contractor must often rely on a subcontractor’s representation regarding the subcontractor’s size and socio-economic status for a variety of reasons, including compliance with limitations on subcontracting and meeting any required small business subcontracting goals. In recognition that a prime contractor is not the SBA, and has limited ability to independently confirm a subcontractor’s size or socio-economic status, the proposed rule specifies that prime contractors may rely on a subcontractor’s representations regarding its size and socioeconomic status unless the prime contractor has reason to doubt the representations.

The proposed rule will add a clause to 48 C.F.R. § 19.703(a) that states:

Unless the prime contractor has reason to question the representation, it may accept a subcontractor’s written representations of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, or a women-owned small business, if the subcontractor represents that the size and socioeconomic status representation with its offer are current, accurate, and complete as of the date of the offer for the subcontracts;

This clarification reduces the due diligence requirements for prime contractors, which should streamline the procurement process. As such, prime contractors may want to specifically require written representations by a subcontractor of their size and socio-economic status as part of the subcontract.

Incentives for Mentor-Protégé Agreements in Puerto Rico

The proposed amendments provide greater incentives for mentor-protégé agreements involving small businesses in Puerto Rico and other covered territories. Mentors subcontracting to their protégés can receive positive consideration for their past performance evaluations and apply costs incurred for training toward their subcontracting plan. The protégé must be a covered territory business or have its principal office located in the Commonwealth of Puerto Rico. A covered territory business is “a small business concern that has its principal office located in the United States Virgin Islands, American Samoa, Guam, or the Commonwealth of the Northern Mariana Islands.”

These incentives encourage larger firms to enter into mentor-protégé agreements with small businesses operating in Puerto Rico, including Alaska Native Corporations, which could potentially lead to more subcontracting opportunities and enhanced support in training and development.

The proposed amendments to the FAR represent a step forward in reducing administrative burdens for small businesses, including Alaska Native Corporations, and encouraging more dynamic mentor-protégé relationships, particularly in Puerto Rico. Small businesses and prime contractors that utilize small businesses should review these proposed changes to understand the potential benefits, and adjust their strategies to leverage these regulatory updates effectively.

The deadline for comments on the proposed rule is August 6, 2024. Comments may be submitted to FAR Case 2023-001 through the Federal eRulemaking portal at https://www.regulations.gov by searching for “FAR Case 2023-001.”

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.