RGCI - Prime Contractor Responsibilities under SBA Final Rule for Past Performance Rating for Small Businesses

The Small Business Administration issued a final rule effective August 22, 2022 (Federal Register: Past Performance Ratings for Small Business Joint Venture Members and Small Business First-Tier Subcontractors), which provides two new methods for small business government contractors to obtain/receive credit for past performance ratings. Prior to this rule, small businesses did not always receive credit for past performance for much of their efforts supporting the Federal Government. A small business can now get credit for past performance under a joint venture or use a past performance rating for work performed as a first-tier subcontractor to compete for their own prime contracts. See Redstone’s blog “Small Businesses Have More Opportunities to Obtain Past Performance Ratings under SBA Final Rule”. It is unclear whether the FAR 52.219-9 Small Business Subcontracting Plan clause will be updated.

What is the Prime Contractor’s Responsibility for Preparing a Past Performance Rating?

The final rule requires small business subcontracting plans to include the requirement to provide past performance rating to small business first-tier subcontractor when requested. A prime contractor is required to prepare a past performance rating timely when requested by a first-tier small business subcontractor, but there are some stipulations:

  • Request is from a first-tier subcontractor under a prime contract that requires a small business subcontracting plan
  • request must be made within 30 calendar days of completion of the prime contract (not the subcontract)
  • prime contractor must respond in 15 calendar days

Contractors beware. While it may seem more practical that the subcontractor submit its request after completion of the subcontract, this was addressed in the comments, rejected by the SBA and is not included in the final rule. The final rule states the 30-calendar day request is upon completion of the period of performance for the prime contractor’s contract, so a prime contractor can point back to the requirement in the final rule, if the subcontractor makes an early request.

However, the prime contractor must be vigilant to the 15 calendar day response time as this will be part of its subcontracting plan. Prime contractors can negotiate a longer period of time with the subcontractor to submit the request but cannot shorten the 30 calendar day time period (mentioned in the paragraph above). If the subcontract is not under a prime contract requiring a small business plan or the subcontractor’s request is not timely (miss the 30 calendar day request window), the prime contractor is not required to prepare a performance rating but can at its discretion.

Is There a Format for the Past Performance Rating the Prime Must Use?

Yes and no. While there is not a standard form, the final rule includes the minimum evaluation factors and rating system that the prime must use. At a minimum, the following evaluation factors (which are the same five evaluation factors as Contractor Performance Assessment Reporting System (CPARS) used by the Government), must be included in the rating:

  • Technical evaluation regarding the quality of the product or service;
  • Cost control evaluation if other than firm-fixed price (FFP) or FFP with economic price adjustment contracts;
  • Evaluation regarding the schedule/timeliness;
  • Evaluation on management or business relations; and
  • Other evaluation factors as applicable.

The prime contractor must provide the performance rating within 15 calendars days of the request by the small business using the five-scale rating system in FAR 42.1503(b)(4):

  • Exceptional
  • Very good
  • Satisfactory
  • Marginal
  • Unsatisfactory

While prime contractors may already have a vendor rating system, we recommend they ensure it is aligned with the mandatory evaluation factors and rating structure above or update it.

More Work and Possible Penalties for the Prime Contractor

It looks like this final rule really puts a lot of added work on prime contractors in addition to other requirements, along with possible penalties. The final rule requires prime contractors to provide a timely past performance rating when requested by a small business. Fifteen calendar days is a short turnaround time when prime contractors may not have an evaluation system in place for subcontractors consistent with the requirements in the final rule or at all. More importantly when a prime contractor doesn’t comply with the small business’ request the penalties can include:

  • Termination for default;
  • Withholding of award fees;
  • Lower past performance rating under the subcontracting element;
  • Liquidated damages for failing to make a good faith effort to comply with the subcontracting plan; and
  • Debarment if failure is willful or repeated.

Is the application of penalties to prime contractors consistent and fair? Absolutely not. When a prime contractor requests a past performance from a government agency, there is not a timeframe or penalty in the regulations even if the government is nonresponsive.

To top it off, small business can tattle on prime contractors to the Contracting Officer when the prime doesn’t provide the past performance rating timely, although this may not benefit the small business in the long run.

One plus for the prime contractor, there is no dispute or rebuttal process in the final rule which would involve more work for the prime contractor.

What Actions Should a Prime Contractor Take

Prime contractors need to understand the importance of the 15 calendar day response time, when they have contracts with a small business subcontracting plan so there are no penalties or negative impact to the prime contractor’s ratings. As part of its purchasing system, prime contractors use a vendor rating system.   Prime contractors should review their vendor rating system and align it with the evaluation and rating factors in the final rule, so there aren’t two different rating systems which can lead to discrepancies. If there is no vendor rating system in place, Redstone recommends prime contractors create a standard form with the evaluation criteria and specific ratings from the final rule as soon as possible and recommends use of the minimum criteria. The evaluation factors and ratings correlate CPARS rating criteria.

Prime contractors should update their small business subcontracting plan and policies and procedures to include the requirements and timeline for issuing a past performance rating. The subcontracting plan will address the subcontractor request 30 days after completion of the prime contract with a 15 day prime contractor response per the final rule. However, a prime contractor can elect to revise its policies to include both processes -issue the rating after subcontract completion or if requested by the subcontractor after prime contract completion. One wouldn’t expect the subcontractor to request a second rating after the prime contract performance ends, but if they did the prime contractor would need to meet the timelines in the final rule.   It is important that a prime contractor coordinate with the subcontractor and request/obtain examples of exceptional performance or extraordinary actions that may have been taken to deliver the product/services early or on time, to assist in preparing an accurate rating.    

The final rule is not retroactive, it is effective August 22, 2022, so prime contractors should review any prime contracts (with small businesses subcontracting plan requirement) to determine the volume of subcontractor requests that may be submitted, and whether a new form needs to be created or whether the existing vendor rating system needs to be revised to address the mandatory rating criteria.  

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Written by Lynne Nalley, CPA

Lynne Nalley, CPA Lynne is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to Commercial Item Determinations and support, Cost Accounting Standards, DFARS Business System Audits, Proposals, and Incurred Cost. Prior to joining Redstone Government Consulting, Lynne served in several capacities with DCAA and DCMA for over 35 years. Professional Experience Lynne began her career working with DCAA in the Honeywell Resident Office, Clearwater, FL in 1984. Lynne’s experience included various positions which involved conducting or reviewing forward proposals or rate audits, financial capability audits, progress payments, accounting and estimating systems, cost accounting standards, claims and disclosure statement reviews. She is an expert in FAR, DFARS, CAS and testified as an expert witness. Lynne assisted in drafting the commercial item guidance for DCAA Headquarters. Lynne was assigned as a Regional Technical Specialist where she provided guidance to 20 field offices on highly complex or technical issues relative to forward pricing, financial capability or progress payment issues. As an Assistant for Quality, she was involved in reviewing and ensuring audit reports were in compliance with policy and GAGAS as well as made NASBA certified presentations to the staff including but not limited to billing reviews, CAS, unallowable cost and progress payments. To enhance her experience in government contracting, Lynne accepted a position with DCMA in 2015 as part of the newly organized DCMA Cadre of Experts in the Commercial Item Group. This included performing reviews of prime contractor’s assertions and/or commercial item determinations as well as performing price analyses. Lynne was a project lead and later became a lead analyst where she engaged with the buying commands on requests and reviewed price analysis reviews performed by a team of 5 analysts. She also assisted the DCMA CPSR team relative to commercial items and co-instructed the Commercial Item Training presented to DCMA. Education Lynne earned a Bachelor of Science Degree in Accounting from the University of Central Florida. Certifications State of Florida Certified Public Accountant State of Alabama Certified Public Accountant Defense Acquisition Workforce Improvement Act (DAWIA) Level III- Auditing DAWIA Level III – Contracting

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

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Topics: Small Business Compliance, Contractor Purchasing System Review (CPSR)