On September 10, 2021, the FAR Council published a final rule amending the Federal Acquisition Regulation (FAR) to clarify how contracting officers should evaluate a prime contractor’s “good faith efforts” to comply with a small business subcontracting plan.

Small business subcontracting plans are required from large prime contractors when a contract is expected to exceed $750,000—or $1.5 million for construction—and has subcontracting possibilities. FAR 19.704 lists the elements of the plan, which include the contractor’s goals for subcontracting to small business concerns and a description of the efforts the contractor will make to ensure that small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns have an equitable opportunity to compete for subcontracts. Failure to make a good faith effort to comply with the plan may result in the assessment of liquidated damages.

The final rule adopts existing Small Business Administration guidance on this topic, including a list of examples of good faith efforts and a list of examples of failure to make good faith efforts. Examples of good faith efforts include:

  • Breaking out work to be subcontracted into economically feasible units to facilitate small business participation;
  • Conducting market research to identify potential small business subcontractors;
  • Soliciting small business concerns as early in the acquisition process as practicable;
  • Providing interested small businesses with adequate and timely information about plans, specifications, and requirements for performance of the prime contract;
  • Negotiating in good faith with interested small businesses;
  • Directing small businesses that need additional assistance to SBA;
  • Assisting interested small businesses in obtaining necessary resources;
  • Utilizing the available services of small business associations, offices, and other organizations;
  • Participating in a formal mentor-protégé program with one or more small business protégés that results in developmental assistance to the protégés;
  • Exceeding the subcontracting goal in one or more socioeconomic categories; and
  • Fulfilling all the requirements of the subcontracting plan.

The final rule also provides guidance on what contracting officers should document when evaluating whether a contractor has made good faith efforts to comply with a small business subcontracting plan. Finally, it requires that a contracting officer give a contractor written notice if the contracting officer decides that the contractor has failed to make good faith efforts, and provides a period of fifteen days for the contractor to respond and demonstrate what good faith efforts have been made.

Although this update to the FAR is largely a restatement of existing SBA guidance, it clarifies which activities constitute good faith efforts and consolidates guidance on how such activities should be evaluated. Thus, the final rule assists both contracting officers and contractors in enforcing and complying with the various regulations concerning small business subcontracting plans.