On January 20, 2016 the US Department of Defense (DoD), the National Aeronautics and Space Administration (NASA) and General Services Administration (GSA) issued a proposed Federal Acquisition Regulation (FAR) rule to implement section 1334 of the Small Business Jobs Act of 2010 (Act) (Pub.L. 111-240).  The proposed FAR will also implement section 1334 in the 2013 final rule issued by the Small Business Administration (SBA).  The January 20, 2016 proposed rule can be found here.

This proposed FAR rule imposes a self-reporting requirement on prime contractors who have one or more small businesses serving it as a subcontractor under a contract requiring a small business subcontracting plan.  The prime contractor must notify the contracting officer (CO) if (1) the prime contractor’s payment to a small business subcontractor is reduced or (2) the payment is more than 90 days past due.  Interested parties can submit comments to the Regulatory Secretariat on or before March 16, 2016.

The interim rule requires that a CO record the identity of a self-reporting contractor “with a history of late or reduced payments to small business contractors in the Federal Awardee Performance and Integrity Information System (FAPIIS).”

In accordance with the implementation of section 1334 of the Act  in the SBA final rule, this proposed FAR rule applies to prime contracts that require small business subcontracting plans.  It is important to note that this proposed rule covers the acquisition of commercial items, including acquisitions for commercial-off-the-shelf (COTS) items.  The FAR Council has determined that it is not in the best interest of the federal government to exempt commercial items or COTS items from the requirements of this proposed rule because the proposed rule furthers Administration goals, whereas excluding the large segment of contracting represented by commercial item and COTS acquisitions would limit the full implementation of subcontracting objectives.  The Federal Register announcement also notes that this Administration has taken a number of steps to ensure that the government promptly and efficiently pays small businesses providing goods and services through government contracts.

COs are to ensure that reported information is included with “other contractor performance information” and used by the government for past performance evaluation purposes.  This proposed rule amends FAR 42.1502 to require past performance evaluations assess reduced or untimely payments to small business subcontractors determined by the CO to be unjustified.

Federal contractors should note that this proposed rule is another indication that the government continues to have strong interest in supporting small business participation in federal contracts.  Contractors may recall that in November 2013, the FAR Council issued a final rule mandating accelerated payments to small business subcontractors.  That final rule created 52.232-40, a new FAR provision, to require prime contractors provide such accelerated payments to all tiers of small business subcontractors.  However, that clause only requires that prime contractors provide accelerated payments to small business subcontractors if the prime contractor receives accelerated payments from the government customer.  Also, in a one week period in June 2015, federal contractors saw three FAR rules issued to implement the Small Business Jobs Act of 2010 to improve opportunities for small businesses working on federal contracts.