council limitation rule for a company
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Answer:
The Department of Defense (DOD) has issued a class deviation that resolves the inconsistency between the Small Business Administration (SBA) regulations and the clause at Federal Acquisition Regulation (FAR) 52.219-14 related to the Limitations on Subcontracting Rule (LOSR). The FAR Council has also issued a proposed rule to amend FAR 52.219-14 to fully resolve this issue for all small businesses. Government contractors should be aware of these new changes and proposed changes, and should also know that they can make public comments on the FAR Council's proposed rule on or before February 4, 2019.
Generally, the LOSR prevents small business prime contractors from subcontracting the majority of the work under a prime contract to large businesses. The LOSR is intended to ensure that small businesses get the benefit of the set-aside prime contract. The government does not want a small business to get an award, perform only a small portion of the work, and then subcontract out everything else to large businesses.
Since 2016, SBA small businesses have struggled to comply with the LOSR because the regulations at 13 C.F.R. § 125.6 are inconsistent with the contract clause at FAR 52.219-14.
In 2016, the controlling regulation for the LOSR, found at 13 C.F.R. § 125.6, was amended to change the formula for calculating how much work a small business prime contractor can subcontract to other businesses. After that change, for example, the regulation now states that in the case of a contract for services (except construction), a small business shall not pay more than 50 percent of the amount paid to it by the government to firms that are not similarly situated. A similarly situated entity is a subcontractor that has the same small business program status as the prime contractor, and is small for the NAICS code that the prime contractor assigned to the subcontract.
However, the contract clause at FAR 52.219-14, which is included in many current government contracts, states that for contracts for services (except construction), "at least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees" of the small business, and makes no mention of similarly situated entities. This calculation is confusingly different from the formula contained in 13 C.F.R. § 125.6.
Therefore, small businesses have struggled with how to best implement these conflicting requirements when performing a contract or when making representations in their proposals about subcontracts. Several contracting officers also have taken the position that FAR 52.219-14 controls because that is the clause in the contract, even though it conflicts with the law.
Two recent announcements move towards finally resolving these conflicts.
Explanation:
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