President to Sign Law Allowing Prime Contractors to Count Lower-Tier Small Businesses
On December 19, the Senate passed the National Defense Authorization Act of 2014 (NDAA), which includes a critical AGC-supported small business reform. The AGC-supported reform will allow prime contractors to count lower-tier small business contractors towards the prime contractor’s small business subcontracting goals. The current law only allows prime contractors to count first-tier small business subcontractors towards these goals.
The simple change in this AGC-supported reform will encourage prime contractors to make sure small businesses have opportunities to compete for subcontracts at every tier, thereby allowing more opportunities for small business growth. In addition, it will help prevent first-tier small business “pass-through” situations and help provide transparency to the small business program.
However, while the president will likely sign this change into law before the end of the year, the change itself will not be effective for at least 18 months after a rule making process occurs. And, as with any rule making process impacting your construction contracting business, AGC will proactively work with regulators to help ensure that contractors are not overburdened by the implementation process. Please see below for more details.
Explanation of Lower-Tier Small Business Counting Legislation Enacted
Section 1614 of the National Defense Authorization Act of 2014 will allow prime contractors to count lower-tier small business contractors towards the prime contractor’s small business subcontracting goals. However, this reform will not be effective—and therefore contractors will not see it included in contracts—until the fiscal year
after the U.S. Small Business Administration (SBA) issues final regulations to implement this change. Congress set a deadline of 18 months for SBA to complete the rule making process for this reform. That stated, AGC notes that to date, SBA has not issued many final regulations stemming from the Small Business Jobs Act of 2010, despite statutory deadlines set by Congress.
AGC points out that:
- The newfound ability to count lower tier small business subcontractors will not eliminate the prime contractor’s responsibility to make a good-faith effort to hire small business subcontractors at the first-tier level of subcontracting;
- Many subcontractors will have to maintain small business subcontracting plans. This requirement will not apply to small businesses subcontractors with no further subcontracting opportunities or subcontractors who receive subcontracts of less than $ 1 million—
- In addition, prime contractors will be responsible for monitoring subcontractor compliance with subcontracting plans.
Questions remain as to the degree to which prime contractors must monitor or be responsible for subcontractor compliance with subcontracting plans, among other things. This is where AGC will continue its pro-active efforts to help ensure that the administration issues the least burdensome rules possible – as AGC successfully did for the
veterans and disabled hiring rules –
for this important small business reform.
Background on AGC Legislative Effort
At the request of the AGC Federal and Heavy Construction Division, the AGC Board of Directors approved this reform as a national legislative priority in late 2012. AGC of America worked closely with its chapters and members to win support of key legislators in Congress. AGC members throughout the country—through coordinated national and chapter legislative action center efforts—sent hundreds of letters to their representatives and senators in Congress on this issue. AGC members met with members of Congress both in Washington, D.C., and in their offices at home.
Among those key legislators AGC contacted were Reps. Sam Graves (R-Mo.)—chairman of the House Small Business Committee—and Richard Hanna (R-NY)—chairman of the House Small Business Subcommittee on Contracting and Workforce. With Chairman Graves’ support, Rep. Hanna held a hearing and had
AGC testify on prospective legislation before the House Small Business Committee in May. On June 4, Chairman Graves introduced H.R. 2232, the Make Every Small Business Count Act of 2013, which included the AGC-supported reform. Along with Reps. Graves and Hanna, Reps. Scott Peters (D-Calif.), Duncan Hunter (R-Calif.), Chris Collins (R-N.Y.), Gerald Connolly (D-Va.), Mike Coffman (R-Co.) and Derek Kilmer (D-Wa.) cosponsored the bill. By the end of June, the House of Representatives passed H.R. 2232 as an amendment to the National Defense Authorization Act of 2014, which also passed that chamber.
In the Senate, Sens. Chris Coons (D-Del.) and Roger Wicker (R-Miss.) introduced a lower-tiers counting amendment—at AGC’s urging—to that chamber’s NDAA bill in November. Although the Senate never voted on any amendments to its NDAA bill—as a result of time lost and ill-will generated from the change in the Senate’s approval of administration judicial and administration nominees, called the “nuclear option”—the Coons/Wicker amendment and AGC letters sent to the Senate generated momentum for the advancement of this important change.
While the final law enacted includes some implementation requirements not originally included in H.R. 2232 and the Coons/Wicker Amendment, it will allow prime contractors to count lower-tier small business subcontractors towards their small business goals. AGC will pro-actively work with the SBA and Federal Acquisition Regulation Council to help ensure that the implementation of this important reform does not overburden prime contractors.
For more information, please contact Jimmy Christianson at (703) 837-5376 or christiansonj@agc.org.
