2014 NDAA Allows Prime Contractors to Count Lower Tier Small Businesses

For a quick break in the current series, I want to briefly talk about an upcoming change in small business subcontracting resulting from the 2014 National Defense Authorization Act (NDAA).  On 26 December 2013 President Obama signed the NDAA into law.  While there is much discussion on funding levels for the Department of Defense (DoD) and its programs, there are other features of the NDAA of interest to DoD OSBP Image 2federal small business interest groups.  Specifically, prime contractors will be able to count lower tier small business contractors towards the prime contractor’s small business subcontracting goals.  Based on what is known today, it should be noted the new policy allowing primes to count lower tier small business subcontractors won’t eliminate the prime contractor’s responsibility to make a good-faith effort to meet negotiated 1st tier subcontracting requirements.

The objective of this post is to put this concept in front of prime contractors and 1st tier large business subcontractors to use this lead time to prepare for implementation by the Small Business Administration (SBA).  That said, it will be 18-24 months, or longer, before the change is reflected in the acquisition regulations.  In fact, SBA hasn’t issued many final regulations from the Small Business Jobs Act of 2010, despite statutory deadlines set by Congress.  In the meantime large business contractors can take several steps that will prove beneficial regardless of the exact language in the regulations.  In addition to the points raised in my 21 May 2013 post Small Business Utilization Monitoring and Reporting the attributes of a successful small business program are highlighted below:

  1. Ensure the Small Business Liaison Officer post is filled and has a direct report capability to senior leadership in the organization.
  2. Update small business utilization policies and procedures.
  3. Assess the strength and effectiveness of small business outreach program.
  4. Conduct compliance of the prime’s subcontracting program.  The SBA recommends a five year look back.
  5. Conduct initial (as required) and periodic training for employees involved with subcontracting.  The project manager and support staff will require additional assistance to effectively manage the new requirements.
  6. Update small business source lists.
  7. Ensure the proper flowdown of small business subcontracting clauses.
  8. Ensure adequate controls are in place for 1st tier large business subcontracting plan compliance.

Several questions come to mind as we wait for implementation over the next 18-24 months:

  1. Will this impact subcontracting goals for the agencies and primes?
  2. Will the new requirements change the distribution of subcontracting goals within some of the agencies?

In summary, the change probably won’t happen too quickly and there will most likely be more scrutiny placed on prime contractors for enforcement of the requirements at all tiers.  I believe this change will be manageable, but it will be made easier with advance preparation.

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2 thoughts on “2014 NDAA Allows Prime Contractors to Count Lower Tier Small Businesses

  1. Some large business federal contractors don’t do a very good job of tracking 1st tier vendor spend. Adding a requirement for second tier vendors to be counted is simply going to make the federal small business program vendor spend data more suspect than it already is.

    • Phil – good comment and I share your concern. Adequate oversight will be required. I believe we are going to need more transparency in the program for the planned changes. I hope the acquisition community seeks outside input when they draft the new policy.

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