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Subcontracting or teaming with a prime contractor can be a profitable experience as well as a growth opportunity for your business. If, after assessing the capabilities and capacity of your business, you conclude that you are not ready to bid competitively for prime contracts, consider the opportunities available through subcontracting. The experience gained from performing as a subcontractor can assist you in responding to solicitations as a prime contractor. Subcontracting, however, should not be viewed only as an opportunity for less-experienced business, but also as a vehicle to enhance your qualifications to become more competitive to perform as a prime contractor.
Over the years, several laws have been passed regarding subcontracting to small business. All of these are now incorporated into Section 8(d) of the Small Business Act and, in most cases, FAR 19.7. These laws require prime contractors having contracts that exceed the simplified acquisition threshold (SAT) to provide maximum practicable subcontracting opportunities to small business, HUBZone small business, women-owned small business, veteran-owned small business (VOSB), and service-disabled VOSB. The clause "Utilization of Small Business Concerns," must be included in all federal contracts exceeding the SAT.
These laws, among other things, require that:
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on contracts more than $500,000 (or $1,000,000 for construction of a public facility) large prime contractors and other-than-small subcontractors submit subcontracting plans containing specific percentage goals for small business, HUBZone small business, women-owned small business, VOSB, and service-disabled VOSB.
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subcontracting plans must contain a description of the methods and efforts used to assure that small business enterprises have an equitable opportunity to compete for subcontracts.
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subcontracting plans must be submitted by contractors for review prior to the award of any contract; failure to comply in good faith with its approved plan may subject the contractor to liquidated damages or termination for default.
The requirement to submit a subcontracting plan does not apply to:
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small businesses,
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contracts under the prescribed dollar amounts,
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prime contracts not offering subcontracting possibilities, or
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contracts
to be performed entirely outside the United States
Recommendations:
As a small business engaged in subcontracting, be sure you understand the terms and conditions of your contract with the prime contractor before agreeing to serve as a subcontractor. Ask:
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How and when will I receive compensation from the prime contractor?
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How much can I rely on the prime contractor for special tools, engineering advice, information on manufacturing methods, etc.?
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How will quality control and inspection procedures be applied to my subcontract?
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