The federal government is taking aim at two of subcontracting’s most loathed business practices: slow payments to, and the improper substitution of, subcontractors on federal projects.
In a rule proposed Oct. 5, the U.S. Small Business Administration seeks to amend several provisions of the Small Business Jobs Act of 2010 with new requirements that would expose slow pay, bid shopping and other subcontractor sore points.
Small Business Administration
|The rule would publish the names of habitually slow-paying prime contractors in a public database.|
The changes are being spearheaded by the American Subcontractors Association. Covered contracts are those for which a small business subcontracting plan is required (currently valued above $1.5 million for construction and $650,000 for all other contracts).
The main changes would require prime contractors to notify the contracting officer in writing whenever the prime:
• Does not use on a project a subcontractor that had been part of the bid or proposal;
• Reduces payments to a subcontractor; or
• Pays a subcontractor 90 days or more past the due date.
Deadbeat primes would also become well-known to the subcontracting community, as contracting officers would be required to “record the identity of a prime contractor with a history of unjustified, untimely payments to subcontractors” in the publicly accessible Federal Awardee Performance and Integrity Information System (FAPIIS) Database.
Overstating ‘Subcontracting Achievements’
The proposal also takes steps to counter inflated claims involving subcontractors.
SBA notes a 2005 Government Accountability Office (GAO) report that found that “large business prime contractors had overstated their small business subcontracting achievements by excluding certain subcontracts from the base, such as electricity and utilities, thereby making it appear that the prime contractor awarded a much higher percentage of its subcontracts to small business concerns than the prime contractors actually awarded.”
However, SBA went further, saying that electricity and utilities should not be included in the federal subcontracting base at all, because they create “the illusion that there are more subcontracting opportunities for small business than are actually available.”
The rule, therefore, would also spell out which subcontracts must be included (and excluded) when primes report on small business subcontracting performance.
Other changes would:
• Clarify that the contracting officer is responsible for monitoring and evaluating small business subcontracting plan performance;
• Change subcontracting plan thresholds;
• Require the contracting officer to review subcontracting plan reports within 60 days of the report ending date; and
• Address how subcontracting plan requirements and credit toward subcontracting goals can be implemented in connection with certain federal contracts.
‘A Step Forward’
ASA President Kerrick Whisenant called the proposed rule “a step forward to exposing practices like bid-shopping and slow payment that punish subcontractors that play by the rules and expect to be treated as real partners on the construction team.”
|ASA President Kerrick Whisenant called the proposal “a step forward” for subcontractors.|
“Subcontractors invest enormous resources into preparing bids for, and performing, federal projects,” Whisenant said.
ASA is seeking input from members on improving the rule, he said. The comment period ends Dec. 5.