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):
- Very good
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.