What to know about the good faith in small business subcontracting final rule

The Federal Acquisition Regulation (FAR) will start providing examples of good faith efforts to comply with a small business subcontracting plan on Sept. 10, 2021. This amendment is in response to the National Defense Authorization Act for Fiscal Year 2017. Prior to this amendment, the FAR provided a definition of “failure to make a good faith effort” but it was not clear as to what would be considered good faith.

According to the FAR, failure to make a good faith effort to achieve the small business goals will result in liquidated damages payments. As such, it is crucial that the FAR clearly define this subjective term. Moving forward, good faith efforts may include, but are not limited to:

• Breaking up work so that it’s feasible for small businesses to participate
• Conducting market research by searching sites such as SAM.gov and SBA
• Participating in a formal mentor-protégé program
• Using services of small business associations such as local, state, and federal small business assistance offices, and other organizations

The amendment also provides examples of failure to make good faith effort which includes, but are not limited to:

• Failure to submit an acceptable Individual Subcontracting Report (ISR) or Summary Subcontract Report (SSR)
• Failure to designate and maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan
• Falsifying records of subcontract awards to small business concerns

This amendment will also allow commercial small business subcontractor plans to include indirect cost in their subcontracting goals. Companies are able to capture indirect cost in the SSR but were not accounted for in the subcontracting goals. This amendment alleviates the discrepancy between the goals and the report.

More information on these changes can be found here.