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When is a Small Business Subcontracting Plan Required?

A Small Business Subcontracting Plan is generally required when the estimated cost of a federal contract will exceed $750,000 ($1,500,000 for construction) and the contract has subcontracting possibilities. This program was designed to guarantee that prime contractors will take seriously the need to increase the participation of small businesses in federal procurement.

Within this program, certain percentages of the direct cost expenditures of the contract are expected to be spent with suppliers in small business categories. According to the Federal Acquisition Regulation, non-personnel (non-salaried) supplies or services necessary to implement the contract are legitimate expenses to be considered for a subcontracting plan.

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Ideally, the products/services attributed to the objectives of a small business subcontracting plan include direct costs such as lab supplies, lab equipment, travel, printing, and livery services that may be sponsored by the contract. Any work included in the contract budget that will be formally subcontracted to another entity may also be included in the plan.

Note that a sample form for a small business subcontracting plan is most often included as an attachment link to a federal contract solicitation (RFP). A small business subcontracting plan is generally expected to be submitted with the main contract proposal, and it is subject to negotiation all within the negotiation phase of a proposal.

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What is a Business Subcontracting Plan?

A Small Business Subcontracting Plan is an agreement between private party government contractors presented with a bid proposal that shows the exact division of the work between contractors. It is more or less a concise agreement between a Prime and Subcontractor or between two Subcontractors.

Have it in mind that this plan notes specific goals for subcontracting and shows the process for attaining those goals and reporting progress. Indeed, the federal government has stipulated regulations requiring contractors to treat small businesses fairly and provide maximum opportunity for their participation in federal contract work.

However, while a good number of prime contractors that bid on government contracts have no issues with submitting plans, reports show that when the bid is awarded, some of these prime contractors fail to carry on with the program, especially since they know government agencies may not bother to follow up or enforce the statutory requirements for subcontracting plans.

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However, as inscribed in 15 USC 637 (d) (8), any contractor or subcontractor who fails to comply with the requirements of the subcontracting plan is in material breach of its contract.

Also, note that 15 USC 637 (d) (4) (F) directs that a contractor’s failure to make any genuine effort to comply with the requirements of the subcontracting plan will result in the imposition of liquidated damages. Under FAR 19.705-2, the contracting officer will have to take individual actions to analyze whether a proposed contract requires subcontracting plans or not.

How to Write a Small Business Subcontracting Plan

The primary objective of the Small Business Subcontracting Program is to guarantee that some of the federal contracting dollars are passed down to small businesses. Most often, contractors are required to submit the plans with their proposals.

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If the proposal guidelines note that your subcontracting plan will also be evaluated, then you must invest as much interest in it just as with any other solicitation evaluation requirements. Here are steps to help you write your small business subcontracting plan.

  1. Understand The Requirements

When looking to write a small business subcontracting plan, you must comply with the RFP requirements and limitations on subcontracting. Ideally, contractors submitting government bids are expected to show a genuine effort to find subcontractor candidates that align with the solicitation requirements.

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If you have companies that you have done business with in the past and can establish a commitment to carry out parts of the upcoming bid, then you may want to name them in the proposal. Note that to meet small business subcontracting plan requirements, you also want to state the work they will be carrying out and the exact percentage of the contracting dollars that will be applied to your overall goals.

Another way to aid your government’s RFP proposal response is to propose subcontracting plan goals in higher numbers than what the government wants to see. However, be careful not to exaggerate the numbers or even submit unrealistic goals

  1. Choose and Craft Your Plan

There are different types of small business subcontracting plans, and the exact one you choose will dictate the information you need and how you go about writing it. They include;

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a. Commercial Subcontracting Plan

According to FAR, this plan “covers the fiscal year and applies to the entire production of commercial items by either the entire company or a portion thereof (e.g., division, plant, or product line).” According to experts, this is the preferred plan for product manufacturers since it automatically includes indirect spending and all your corporate expenses.

To write this plan, you first need to report the period the plan is going to cover (the fiscal year), and what your expected sales are for that year. You will also have to report your company-wide sales, not just your federal contract sales.

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b. Individual Subcontracting Plan

This subcontracting plan “covers the entire contract period (including option periods), applies to a specific contract, and has goals that are based on the offeror’s planned subcontracting in support of the specific contract.” Unlike the commercial plan, it focuses on what you expect to subcontract for the period of the entire contract, instead of your past performance from the previous fiscal year.

To write this plan, you need to estimate the value of each contract, including all option periods, and then break it down into base and option periods. You will also need to divide the contract award money based on the different categories of businesses you’ll be subcontracting to.

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c. Direct Subcontracting Plan

This plan has to do with anything that is directly related to the work carried out under the contract. For instance, if you are contracted to provide plumbing services and you subcontract out to small businesses, those will both count toward subcontracting goals as direct subcontracting.

d. Indirect Subcontracting Plan

This is more or less anything that represents the costs of performing the business. For example, you may have to hire an accounting firm to help with your taxes. Have it in mind that you can still count these toward your subcontracting goals, but they are considered non-controllable sources.

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You can include these costs in individual plans, but you will be expected to state whether you intend to include them and how you will account for these costs. Don’t forget that these are also automatically included in a commercial plan.

  1. Report Your Subcontracting Plan

After you must have chosen the type of plan and also crafted it, you need to report its progress to the government on a fairly regular basis. Have it in mind that both commercial and individual plans will have to fill out a Summary Subcontract Report (SSR) in the Electronic Subcontracting Reporting System (eSRS).

Within the SSR, you will be expected to report your subcontracting numbers by business type whether it’s a large or small business (including small business categories), and compare these numbers to the goals noted in your plan.

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If you’re not reaching those goals, you will be expected to show the federal government you are making a “good faith effort.” You can make notes in the remarks section of the report to demonstrate the lengths of your effort. The SSR report is due once a year by October 30. If you crafted an individual plan, you will have to submit an additional report in the eSRS which is referred to as the Individual Subcontracting Report (ISR).

Note that this particular report is due twice a year on April 30 and October 30. However, same as with the SSR, you will also have to report how much money was invested toward subcontracting and compare it to your goals. Howbeit, this report is incremental and will automatically fill in the totals from all your contracts if you have multiple.

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Federal law mandates a subcontracting plan once the value of the contract exceeds a set dollar amount—currently $750,000. This amount is often referred to as the “simplified acquisition threshold.” However, before you go about writing and submitting a small business subcontracting plan, first seek out credible small businesses that can actually carry out the work.