Applicability: This FAR solicitation provision, which is incorporated into the contract and thus becomes a clause, specifies the percentage of work that must be performed by a small business concern when it receives a set aside reserved for small businesses.  The provision is included in solicitations and contracts for supplies, services, and construction, if any portion of the requirement is to be set aside or reserved for small business and the contract amount is expected to exceed $150,000. This includes all contracts awarded under FAR Subpart 19.8, “Contracting with the Small Business Administration (the 8(a) Program)”.  The clause applies to parts of a multiple-award contract that have been set aside for small business concerns or 8(a) concerns; and orders set aside for small business or 8(a) concerns under multiple-award contracts.  This clause does not apply to the unrestricted portion of a partial set-aside.

Key Requirements:  Under this clause, the offeror/contractor agrees that the following percentage of the cost of contract performance will be incurred by and/or performed by the offeror/contractor:

(1) Services (except construction).  At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern

(2) Supplies (other than procurement from a nonmanufacturer of such supplies). The concern shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials.

(3) General construction. The concern will perform at least 15 percent of the cost of the contract, not including the cost of materials, with its own employees.

(4) Construction by special rate contractors. The concern will perform at least 25 percent of the cost of the contract, not including the cost of materials, with its own employees.

Compliance Verification:  Compliance with the clause is generally performed by the Contracting Officer Technical Representative (COTR) and/or the Contracting Officer.  In practice, the extent of such reviews has historically been very limited.  While some contracting personnel will track the amount of work performed by the small business concern, a larger majority of contracts do not.  Compliance verification is made difficult by the fact that the provision is based on the cost/performance percentage for the entire contract period and there is no specific remedy for noncompliance.  Thus, while a small business concern might be falling short of the required percentage at the midpoint (or later time) of the contract, there is generally no action to be taken, since the provision only applies to the percentage as of the end of the contract performance period and there is no specific remedy for failure to meet the specified percentages.

Remedies:  This FAR clause has no specific remedies.  Any potential remedies would generally affect future contract opportunities rather than the current contract.  These include potential impacts on past performance evaluations and potential actions by SBA for systemic noncompliances with the clause.

Background:  The purpose of the solicitation provision/contract clause is to assure that small business concerns perform a significant portion of the contract work when there is a small business set-aside.  The objective is to mitigate the potential for a small business to win the award and then have a large business perform most of the contract work.  This would circumvent the purpose of the small business set-aside program, which is to provide small businesses the opportunity to perform work under Government contracts.  However, the provision/clause has no specific remedy (e.g., the contractor is not required to return any monies if it does not achieve the required percentages).  Thus, the language in the provision/clause fails to provide a remedy that would allow it to fully achieve its purpose.

Other Key Information:  The language in the provision/clause is deficient in two additional areas.  First, while the language in the provision/clause only addresses the small business concern receiving the contract, in practice the provision is generally applied based on the percentage of work performed/cost incurred by all small businesses under the contract.  For example, if Small Business A receives the contract and performs 25% of the work, and Small Business B receives a subcontract and performs another 30% of the work, the percentage of work performed under the contract for purposes of applying the clause would be 55% (the amount performed by Small Business A plus the amount performed by Small Business B).  While this application is consistent with the purpose of the provision, it is not consistent with the language in the provision/clause.  The second deficiency is the failure of the provision to adequately address application to task orders under Indefinite Delivery/Indefinite Quantity (IDIQ) contracts.  When a small business concern receives multiple task orders under an IDIQ contract, questions arise as to whether the percentage applies to each task order or only to the total work performed under the IDIQ contract.  The language in the provision/clause fails to address this issue.

* (Addendum) It will be interesting to see if/how the FAR Council will revise this clause (or add any new clauses) in light of the Section 1651 of the 2013 NDAA.  For more see NDAA Authorizes Mentor Protégé Program . . .