"self-performance requirements"

Congress continues to promote opportunities for small business contractors to do business with the federal government. It also continues to increase the penalties for those taking unfair advantage of small business opportunities. Here is a look at the most recent set of carrots and sticks, which appear in the National Defense Authorization Act for Fiscal Year 2013.

1. Subcontracts with “similarly situated” small businesses

Section 1651 of the 2013 NDAA provides a new exception to the small business subcontracting cap, which restricts small businesses from subcontracting more than 50 percent of the amount paid under a services contract. With the passage of NDAA, the amount paid under any subcontract with a small business concern that has the same small business status as the prime contractor is excluded from the small business subcontracting cap. The term “similarly situated entities” includes service-disabled veteran-owned small businesses, HUBZone small businesses, women-owned small businesses, and economically disadvantaged women-owned small businesses.

This provision also changes the method for calculating the 50-percent subcontracting cap. Previously, the subcontracting limits in FAR 52.219-14 counted only direct labor costs. Under section 1651, “amount paid” under a subcontract, including labor, material, and other direct costs, is used to determine the 50-percent subcontracting cap. This is a strong incentive for small business prime contractors to award subcontracts to similarly situated small businesses. The old formula continues to govern subcontracting limitations for construction contracts, but the NDAA directs the SBA to establish similar limitations on construction contracts.

The penalty for violating the subcontracting cap is the greater of $500,000 or the dollar amount expended over the cap. The “amount expended” clause is a new penalty.

More legislation to address the recent high-profile abuses of the SBA contracting system is in the works. A bipartisan group led by Senator Olympia Snowe (R-ME) has introduced legislation called the Small Business Contracting Fraud Prevention Act of 2011 [pdf]. Among other things, the bill would amend the provisions of the Small Business Act relating to misrepresentations as to the status of companies as small business concerns, including HUBZone, 8(a), woman-owned, and service-disabled veteran-owned small businesses.