President to Sign Law Allowing Prime Contractors to Count Lower-Tier Small Businesses On December 19, the Senate passed the National Defense Authorization Act of 2014 (NDAA), which includes a critical AGC-supported small business reform. The AGC-supported reform will allow prime contractors to count lower-tier small business contractors towards the prime contractor’s small business subcontracting goals. The current law only allows prime contractors to count first-tier small business subcontractors towards these goals. The simple change in this AGC-supported reform will encourage prime contractors to make sure small businesses have opportunities to compete for subcontracts at every tier, thereby allowing more opportunities for small business growth. In addition, it will help prevent first-tier small business “pass-through” situations and help provide transparency to the small business program. However, while the president will likely sign this change into law before the end of the year, the change itself will not be effective for at least 18 months after a rule making process occurs. And, as with any rule making process impacting your construction contracting business, AGC will proactively work with regulators to help ensure that contractors are not overburdened by the implementation process. Please see below for more details. Explanation of Lower-Tier Small Business Counting Legislation Enacted Section 1614 of the National Defense Authorization Act of 2014 will allow prime contractors to count lower-tier small business contractors towards the prime contractor’s small business subcontracting goals. However, this reform will not be effective—and therefore contractors will not see it included in contracts—until the fiscal year after the U.S. Small Business Administration (SBA) issues final regulations to implement this change. Congress set a deadline of 18 months for SBA to complete the rule making process for this reform. That stated, AGC notes that to date, SBA has not issued many final regulations stemming from the Small Business Jobs Act of 2010, despite statutory deadlines set by Congress. AGC points out that:
- The newfound ability to count lower tier small business subcontractors will not eliminate the prime contractor’s responsibility to make a good-faith effort to hire small business subcontractors at the first-tier level of subcontracting;
- Many subcontractors will have to maintain small business subcontracting plans. This requirement will not apply to small businesses subcontractors with no further subcontracting opportunities or subcontractors who receive subcontracts of less than $ 1 million—
- In addition, prime contractors will be responsible for monitoring subcontractor compliance with subcontracting plans.