SBA Final Rule Lets Small Businesses Obtain Qualifying Past Performance For Work Under First-Tier Subcontracts And In Joint Ventures

On July 22, 2022, the U.S. Small Business Administration (SBA) issued a Final Rule that gives small businesses opportunities to overcome one of the most often-cited obstacles to landing a prime contract award - namely the lack of experience and past performance as a prime contractor.  Implementing certain provisions of the National Defense Authorization Act for Fiscal Year 2021 (NDAA 2021), the Final Rule provides two new methods for small businesses to obtain qualifying past performance that can be used in connection with a prime contract offer.  First, a small business can use the past performance it obtained as a first-tier subcontractor for work performed under a prime contract with a subcontracting plan.  Second, a small business can use the past performance of a joint venture that it is a member of, as long as it actually performed work on the joint venture’s contracts.

 

With regard to the first new method - obtaining past performance for work under a first-tier subcontract - under the Final Rule, subcontracting plans must require prime contractors to provide a performance rating for a first-tier subcontractor’s past performance within fifteen (15) calendar days after receiving a first-tier subcontractor’s request.  The performance ratings to be used by the prime contractor are the same five-scale ratings under FAR 42.1503 that agencies are required to use when evaluating a prime contractor’s performance - Exceptional, Very Good, Satisfactory, Marginal, and Unsatisfactory.

 

For a first-tier small business subcontractor to use a requested performance rating in connection with an offer on a prime contract, the requested rating must include, at a minimum, the following evaluation factors: (a) Technical (quality of product or service); (b) Cost control (not applicable for firm-fixed-price or fixed-price with economic price adjustment arrangements); (c) Schedule/timeliness; (d) Management or business relations; and (e) Other (as applicable).

 

Under the Final Rule, unless the first-tier small business subcontractor and prime contractor have agreed to a later deadline, the first-tier small business subcontractor must request the performance rating from the prime contractor within thirty (30) calendar days after the completion of the period of performance for the prime contractor's contract with the Federal Government.

 

Government contractors may recall that several years ago the SBA amended its rules under 13 CFR 125.8 to permit a joint venture submitting an offer on small business set-aside to utilize the experience and past performance of its individual members.  The Final Rule now permits small business joint venture members to utilize the experience and past performance of the joint venture.

 

Specifically, under the Final Rule, a small business that has been a member of a joint venture can elect to use the experience and past performance of the joint venture (whether or not the other members are small businesses) when the small business does not independently have the past performance required for a contract award.  When making the election in a prime contract offer, the small business must (i) identify the joint venture to the contracting officer, (ii) identify the joint venture contracts it is electing to use for experience and past performance, and (iii) inform the contracting officer what duties and responsibilities it carried out as part of the joint venture.  The small business cannot identify and use work that was performed exclusively by other partners to the joint venture.

 

For his or her part, the contracting officer must consider the past performance of the joint venture when evaluating the past performance of the small business, giving due consideration to information submitted by the small business about the joint venture’s duties and responsibilities that the small business carried out.

 

The Final Rule becomes effective on August 22, 2022, and may significantly change the federal government contracting landscape for small business contractors.  Small businesses that have formed joint venture relationships should examine the Final Rule and determine how they may use joint venture past performance in upcoming bids.  Likewise, small businesses that perform work as first-tier subcontractors should take a close look at the Final Rule and be prepared to request past performance ratings from their prime contractors, particularly those that are required to have subcontracting plans.