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Managing Subcontract Management Plans. Breakout Session # 305 Name: Tom Reid. 1. Managing Subcontract Management Plans. Presented by: Tom Reid, JD, CPCM Chief Problem Solver Certified Contracting Solutions, LLC. Syllabus. PRE-AWARD

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Managing Subcontract Management Plans

Breakout Session #305

Name: Tom Reid


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Managing Subcontract Management Plans

Presented by:

Tom Reid, JD, CPCM

Chief Problem Solver

Certified Contracting Solutions, LLC

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  • Statutory and regulatory underpinnings for requiring small business subcontracting plans.

  • When a subcontracting plan is required, dollar thresholds, when to submit, how goals are set, and required content.

  • Discussion of the roles and responsibilities of interested parties, including:

    • Contracting officers

    • Contract specialists/contract administrators

    • Other project team members

    • Contractors

    • Other competitors

    • Indian tribes

    • The U.S. Small Business Administration (SBA)

  • Protests by the contracting officer or SBA; protests by other interested parties.

  • Dealing with unacceptable subcontracting plans, the negotiation process, and role of the SBA

  • Individual, master, and commercial subcontracting plans

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Syllabus (con’t)


  • Negotiation pre-award and post award

  • Subcontracting plan monitoring during contract performance – who does what when

  • Determining satisfactory performance; timing and actions required; “good faith” efforts.

  • Remedies, notice requirements, final decisions, and the disputes process.

  • Liquidated damages and the “miscellaneous receipts” problem.

  • Reporting requirements, roles and responsibilities, and the Electronic Subcontracting Reporting System (eSRS)

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  • FAR Part 19

  • 15 USC §631

  • 41 USC §252

  • 13 CFR Part 121

  • FAR Part 52

  • 10 USC §2323

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Schools of Jurisprudence

Natural School

Historical School

Analytical School

Sociological School

Command School

Critical Legal Studies

Law and Economics School

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Public Policy on Small Business

“It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts or subcontracts for maintenance, repair, and construction) be placed with small-business enterprises, to insure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the overall economy of the Nation.”

15 USC §631 (a)

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Socioeconomic Policies

May be legislated policies or edicts stemming from executive order

Permit the taking of a contractual action that is not based on the lowest price/best value to the government or not consistent with the rules for full and open competition.

Designed to further a particular governmental objective.

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It is a matter of public policy that small businesses will be supported

By various other legislative statements, Congress has further stated support for a variety of businesses by granting them a preferred status

These policies take precedence over other procurement policies

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FAR Part 19 Overview

  • Subpart 1 – Size Standards

  • Subpart 2 – Policies

  • Subpart 3 – Determination of Status

  • Subpart 4 – Cooperation with SBA

  • Subpart 5 – Small Business Set Asides

  • Subpart 6 – COC’s and Responsibility

  • Subpart 7 – Small Business Subcontracting Program

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FAR Part 19 Overview

  • Subpart 8 – The 8(a) Program

  • Subpart 9 – Reserved

  • Subpart 10 – Small Business Competitiveness Demonstration Program

  • Subpart 11 – Price Evaluation Adjustments

  • Subpart 12 – Small Disadvantaged Businesses

  • Subpart 13 – HUBZone Program

  • Subpart 14 – SDVOSB Program

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Status of Woman-Owned Small Business Goals


Regulations – Round 1

Regulations – Round 2

Regulations – Round 3

Current Status

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Current Regulation

§ 127.501   How will SBA and the agencies determine the industries that are eligible for EDWOSB or WOSB requirements?

(a) SBA determination of underrepresented or substantially underrepresented industries.

(1) Approximately every five years, SBA will conduct a study to identify the industries in which WOSBs are underrepresented or substantially underrepresented in Federal contracting. The study will include an analysis of the extent of disparity of WOSBs in Federal contracting.

(2) Data collection. In determining the extent of disparity of WOSBs in Federal contracting, SBA may request that the head of any Federal department or agency provide SBA, or other designated entity, data or information necessary to analyze the extent of disparity of WOSBs in Federal contracting.

(3) Based upon its analysis, SBA will designate by 4-digit NAICS Industry Subsector industries in which WOSBs are underrepresented or substantially underrepresented.

(b) Agency determination of discrimination. Each agency that is considering restricting competition with respect to a contract in an industry pursuant to this rule is responsible for carrying out a relevant analysis that would justify a restriction on competition under the equal protection requirements of the Due Process Clause of the Fifth Amendment of the Constitution. Where an agency seeks to reserve a procurement for competition exclusively among WOSBs or EDWOSBs within an industry designated by SBA in paragraph (a)(3) of this section, the agency must conduct an appropriate analysis of the agency's procurement history and make a determination of whether there is evidence of relevant discrimination in that industry by that agency.

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Government Responsibilities

Use set-asides for preference holders

Work closely with SBA to encourage small business participation

Counsel and assist small businesses

Refer negative responsibility determinations for small businesses to SBA

Enforce contract clauses aimed at assisting small businesses and preference holders

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Small Business Subcontracting

Use the appropriate clauses

Require a workable plan

Assist in locating eligible firms

Require reports and review them

Administer the clause up to and including assessing liquidated damages or terminating the contract

File accurate past performance reports

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When Required - Situations

Subcontracting Plan Required

  • From large businesses, state/local governments, educational institutions, foreign owned firms

  • On contracts > $550K ($1M construction) AND subcontracting opportunities exist

  • On modifications > $550K ($1M construction) with new work AND subcontractingopportunities exist

  • On Multi-year contracts / contracts with options

    • Cumulative value of base contract & all options

    • SEPARATE goals for base & each option

      Subcontracting Plan NOT Required:

  • From small businesses

  • For personal services contracts

  • For contracts / modifications performed entirely outside US & outlying areas

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For all procurements:

“Within the time limit prescribed by the contracting officer”

For negotiated acquisitions only

“Acceptable to the contracting officer”

May be required with original offer or any time prior to award

Integrity of process

Maximum opportunity for small business

Burden placed on offerors

When Required - Timeliness

Ref: FAR 19.702(a) and 19.705-2(d)

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Types of Plans




Comprehensive (DOD only)

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Plan types

  • Individual

    • Goals support planned subcontracting for full term of contract

    • Covers entire contract period, including options

    • Contains required elements (FAR 19.704)

    • May include pro rata share of overhead SB awards

    • Submit ISR (semiannually)

    • Submit SSR (annually all others)

  • Master

    • Boiler plate plan – Same required elements as Individual Plan except goals

    • Goals negotiated for each applicable contract

    • Effective for 3 years after approval of CO

    • May be developed on Plan / Division basis

    • Submit ISR (semiannually)

    • Submit SSR (annually all others)

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Plan Types Continued

  • Commercial

    • Preferred for commercial items (as defined in FAR 2.101)

    • Applies to entire production of commercial items sold by either the entire company or a portion thereof (division, plant, or product line)

    • Contains required elements (FAR 19.704)

    • Plan (including goals) covers contractor’s fiscal year

    • Annual plan (all government contracts in effect during that period)

    • Submit SSR annually

  • Comprehensive Subcontracting Plan (CSP)

    • DoD Test Program (expires 30 Sept 2010)

    • May be on Plan/Division/Corporate basis

    • Annual plan

    • DCMA administers program

    • Submit SSR (semiannually)

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Subcontracting Plans

For all contracts over the simplified acquisition threshold:

  • Contractor must agree that preference holders will have “maximum practicable opportunity to participate in contract performance consistent with its efficient performance”

  • Contractor must agree to pay such companies promptly

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Subcontracting Plan Contents

Ref: FAR 19.704

  • Separate percentage goals for EACH preference category including WOSB

  • A statement of total dollars to be spent with subcontractors spread by each preference

  • Description of supplies and services to be subcontracted, and those that will be targeted to the various preference holders

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Contents Continued

  • Description of method used to develop goals

  • Description of method used to identify potential suppliers

  • Treatment of indirect costs in achieving goals

  • Name and job description of person charged with administering the plan

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Contents Continued

  • The efforts the contractor will make to “ensure” that preference holders have an equitable opportunity to compete

  • Assurance of flow-down inclusion, enforcement, and administration of plan requirements with subs

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Contents Continued

  • Agreement to:

    • Participate in studies and surveys

    • Report on plan progress

    • Use of eSRS

    • Ensure subs also report

    • Provide prime contract number and DUNS number to first tier subs (to link eSRS reports)

    • Require first tier subs with reporting requirements to provide same info to their subs

  • Records that will be maintained

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Federal Goals

  • SBA negotiates goals with the Federal agencies to establish individual agency goals such that in the aggregate, the Government-wide goals are established.

  • Before the beginning of the fiscal year, agencies submit proposed goals to SBA. SBA's Office of Government Contracting determines if these individual agency goals, in the aggregate, meet or exceed the government-wide statutorily mandated goals in each small business category. When that is achieved, SBA notifies the agencies of the final goals 

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Statutory Goals


  • The statutory goals are as follows:

    • 23 percent of prime contracts for small businesses;

    • 5 percent of prime and subcontracts for small disadvantaged businesses;

    • 5 percent of prime and subcontracts for women-owned small businesses;

    • 3 percent of prime and subcontracts for HubZone businesses

    • 3 percent of prime and subcontracts for service-disabled veteran-owned small businesses.

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What is Acceptable?

Every agency has its own “nature” to its procurement

Each program has a unique set of subcontracting opportunities

Each industry has its unique set of small business preference holders available and capable of performing the work

Every prime contractor has its own make-or-buy philosophy

There can be no fixed rules on acceptable subcontracting

Only through a detailed analysis of the work to be done, the circumstances of the market, and the capabilities of the prime can a determination be made concerning the appropriate level of subcontracting goals.

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How has the Government Done?


Small Business Goaling Summary Report

2006 2006 2007 2007

Category Goal % Revised $ % $

Small Businesses 23% 22.8% $77.7 billion 22% $83.2 billion

Small Disadvantaged

Businesses 5% 6.8% $23 billion 6.6% $24.9 billion

Service-disabled Vets 3% 0.9% $2.9 billion 1.01% $3.8 billion

Women 5% 3.4% $11.6 billion 3.4% $13 billion

HUBZone 3% 2.1% $7.2 billion 2.2% $8.5 billion

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Scorecard Ratings

Ratings of performance on all five goals:

  • Three agencies – VA, DOE and SBA – met or surpassed their goals in all areas.

  • Seven agencies – DHS, USDA, DOT, and DOI, NRC, GSA, and EPA – met or surpassed four of the five goals.

  • Two agencies – DOL and State, – met or surpassed three of the five goals.

  • Five agencies – Treasury, HUD, OPM, NSF and NASA – met or surpassed two of the five goals.

  • Five agencies – DOC, DOD, SSA, Department of Education, and HHS – met or surpassed one of the five goals.

  • Two agencies – DOJ and USAID – met none of the five goals.

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In a July 2008 report:

“The main reasons that contracts to large businesses have been incorrectly coded as small business contracts relate to data entry mistakes, reliance on incorrect data, and a failure on the part of contracting officials to verify business size reported in Central Contract Registration,” said DOI Inspector General Earl Devaney.

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Dealing with Unacceptable Plans

  • CO must review plans to ensure compliance with requirements

  • Factors to consider:

    • Prior involvement of small Businesses in prior prime or subcontracts for similar acquisitions

    • Proven methods of getting small businesses involved as subs in similar acquisitions

    • Relative success by prime in the past, based on the records it has maintained

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Reasonable Goals

The goals should be based on current and accurate market data

The goals should be achievable, but not a slam-dunk

There should be some risk and challenge

Post-award the reports are reviewed and active discussions held regarding progress

Modifications should yield new goals

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Pre-Award Responsibilities

Consider past subcontracting performance as a factor in responsibility

Assure timely submission of plan

Notify SBA and give opportunity to comment

Determine incentive fee (if applicable)

Ensure that an acceptable plan is incorporated and made a material part of the contract

Even letter contracts must contain at least a rudimentary plan

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Ref: FAR 19.705-4(b)

  • Review for compliance with 11 elements

  • If unacceptable must

    • Specify deficiency

    • Set fixed time for resubmission

  • If not submitted by deadline, bidder is not eligible for award

  • Even if responsive, evidence of intent to NOT comply shall yield a nonresponsibility determination

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Ref: FAR 19.705-4(c)

Negotiate each of the 11 items

Set goals at level reasonable under the circumstances

Avoid unreasonably low goals

Define “good faith efforts”

Avoid goals that would unreasonably increase cost or frustrate acquisition objectives

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Post Award Issues

  • Re-negotiating

  • Monitoring the plan

  • What is satisfactory performance

    • What is good faith?

  • Remedies, notice, and disputes

    • Role of the Contract Disputes Act

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Post Award Responsibilities

Notify SBA of the award

Forward commercial plans to SBA region

Provide copy of plan to SBA rep

Notify SBA of opportunity to review revised plan due to modifications

Assess liquidated damages when appropriate

Take action to enforce contract

Acknowledge and approve reports

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Companies self-certify their status, except for 8(a) and HUBZone

These also self certify, but must be verified through CCR

Locked fields

Only SBA can modify

Contractors and CO’s may, in good faith, rely on the written self-certifications, but must verify 8(a) and HUBZone


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Protests of Status HUBZone

By Contracting Officer


By Competitors

By Other Interested Parties

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Typically the CO or the SBA may protest preference status HUBZone

“Other interested parties” may submit information to CO or SBA to encourage them to protest status

Processed through SBA using procedures found in 13 CFR §124.1015 through §124.1022


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Flow-down Provisions HUBZone

FAR 52.219-8, Utilization of SB Concerns

  • All subcontracts, including those to small businesses, that offer subcontracting opportunities

    FAR 52.219-9, SB Subcontracting Plan

  • Requires all subcontractors (except SBs) with subcontracts > $550K ($1M construction) and subcontracting opportunities to adopt subcontracting plan and submit subcontracting reports [Individual Subcontracting Report (ISR) and Summary Subcontracting Report (SSR)]

    • Prime contractor / higher-tier subcontractors review their subcontractor's ISRs

    • Government reviews prime’s ISRs and all subcontractors’ SSRs

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Monitoring the Plan HUBZone

  • Who does what and when?

    • Contracting officers (of all types)

    • Contract specialists/contract administrators

    • Other project team members

    • Prime Contractors

    • Subcontractors

    • Other prime competitors

    • Potential subs including Indian tribes

    • The U.S. Small Business Administration (SBA)

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Role of the SBA HUBZone

Ref: FAR 19.707

  • Assist both agencies and contractors in carrying out plans

  • Review solicitations requiring plans within 5 days

  • Review and make recommendations on any anticipated negotiated award within 5 days

  • Evaluate contractor’s compliance with plans

  • SBA has no authority to:

    • Direct awards

    • Prescribe level of subcontracting

    • Exercise any CO administrative authority

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Indian Tribes HUBZone

FAR 19.703(c)(1)(i) tells us that subcontracts awarded to an ANC or Indian tribe shall be counted towards the subcontracting goals for small business and SDB concerns regardless of the size or SBA status of the entity.

(ii) provides that the TRIBE gets to designate which tier of up line contractor gets to claim the credit

Protests concerning status may be made by any “interested party” and are handled by BIA, not the SBA. See FAR 26.103

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Penalties HUBZone

  • Past performance

  • Liquidated damages

    • Miscellaneous receipts

  • Default

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Definitions HUBZone

  • “Failure to make a good faith effort to comply with the subcontracting plan”

    • Means willful or intentional failure to perform in accordance with the requirements of the subcontracting plan, or willful or intentional action to frustrate the plan.

    • FAR 19.701

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Willful or Intentional HUBZone

  • “Willful”

    • A willful act may be described as one done intentionally, knowingly, and purposely, without justifiable excuse, as distinguished from an act done carelessly, thoughtlessly, heedlessly, or inadvertently.

  • “Intentional”

    • Willful

      From Black’s Law Dictionary

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Past Performance HUBZone

The evaluation should include the past performance of offerors in complying with subcontracting plan goals for small disadvantaged business (SDB) concerns (see Subpart 19.7), monetary targets for SDB participation (see 19.1202), and notifications submitted under 19.1202-4(b).

FAR 15.305(a)(2)(v)

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Liquidated Damages HUBZone

15 USC §637(d)(4)(F) Requires that failure to make a good faith effort “shall” result in the imposition of liquidated damages

15 USC §637(d)(8) makes a contractor’s failure to make a good faith effort with the requirements of the subcontracting plan a material breach of its contract

Failure to meet goals, standing alone, does not indicate lack of good faith

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Liquidated Damages HUBZone

  • Liquidated damages amount equals total amount by which goals were not achieved

  • Assume goal was $1M on $5M program (20%) and contractor only awarded $750,000.

  • Assume also that failure to achieve goal WAS due to lack of good faith.

    What is amount of liquidated damages?

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Liquidated Damages Considerations HUBZone

Failure to attempt to contact eligible firms

Failure to have a designated official to administer the plan

Failure to file reports

Failure to maintain records

Adoption of company policies designed to frustrate the plan

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Liquidated Damages Process HUBZone

CO must determine that failure to meet goals was due to lack of good faith

CO issues final decision of determination

CO assesses liquidated damages in proper amount

Final decision must conform to appeal notice provisions in Disputes clause

Liquidated damages are in addition to all other government remedies

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Miscellaneous Receipts HUBZone

  • 31 USC § 3302(b)

  • “…an official or agent of the Government receiving money for the Government from any source shall deposit the money in the Treasury as soon as practicable without any deduction for any charge or claim.”

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Remedy - Default HUBZone

  • Typically there are three situations where a default termination may be appropriate:

    • failure to deliver the goods or services,

    • failure to make progress so as to endanger performance, and

    • failure to comply with any other term or condition of the contract.

  • Failure to comply with subcontracting plan requirements is an “any other term or condition of the contract” situation

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Notice Requirements HUBZone

  • Delinquency Notices (FAR 49.607)

    • Cure Notices

    • Show cause notice.

  • The written notice required by regulations requires the agency to give the contractor information that specifically identifies the failure.

  • Case law has expanded on that obligation and has held that the government must specifically identify the defects in performance and give the contractor information on what would be necessary to overcome the defects.

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Default Terminology HUBZone



Advising a contractor of possible default if failure to perform is not cured within a specified number if days.

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Default Terminology HUBZone



Demanding a contractor to show cause within a specified number of days why it should not be defaulted.

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Remedy of Last Resort HUBZone

A default termination is a drastic measure

It should only be taken when all other remedies have been ineffective or are not available

FAR Part 49 lists a number of other options for the CO to take in lieu of T4D

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Contract Disputes Act HUBZone

Ref: 41 USC § 601-613

  • The Contract Disputes Act of 1978 establishes formal procedures and requirements for asserting and resolving claims arising under or related to a contract.

  • It provides for:

    • Final decisions by the contracting officer,

    • A defined appeal process that includes:

      • An administrative appeal option

      • A federal court appeal option

    • The payment of interest on claims,

    • Certification of contractor claims, and

    • A civil penalty for fraudulent or misrepresented claims.

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CO Authority Under the CDA HUBZone

  • Contracting officers are authorized to:

    • resolve all claims arising under or relating to a contract subject to the Act.

    • Use ADR procedures to resolve claims.

  • Contracting officers are NOT authorized to:

    • Settle claims exclusively under the jurisdiction of another Federal agency

    • The settlement, compromise, payment, or adjustment of any claim involving fraud.

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Final Decisions HUBZone

  • A final decision of the contracting officer shall be a writing that includes:

    (i) A description of the claim or dispute;

    (ii) A reference to the pertinent contract terms;

    (iii) A statement of the factual areas of agreement and disagreement;

    (iv) A statement of the contracting officer’s decision, with supporting rationale;

    (v) Specified paragraphs that describe the contractor’s appeal rights

  • Sent to the contractor by certified or registered mail

  • Sureties should be copied on any termination correspondence

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Appeals HUBZone

  • The contractor has the right to appeal

    the CO’s decision to:

    • The agency Board of Contract Appeals (BCA)

      • Within 90 days of the date the decision was received


    • The United States Court of Federal Claims

      • within 12 months of the date the decision was received

  • Appeals from either forum go to the US Court of Appeals for the Federal Circuit

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US Courts Systems HUBZone















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Reports HUBZone

Contractors are required to file periodic reports on their progress against the plan

Contracting officers are required to review, accept, and approve reports

Reports are required from all tiers of subcontractors who have a subcontracting management plan

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  • Electronic Subcontracting Reporting System (eSRS) is part of the President’s Management Agenda for Electronic Government (E-Gov)

  • System falls under the Integrated Acquisition Environment (IAE) at General Services Administration (GSA)

    • Small Business Administration (SBA) is the program manager

  • System eliminates the need for paper submissions and processing of Standard Form (SF) 294 and 295s.

    • Individual Subcontracting Report (ISR) replaces the SF 294

    • Summary Subcontracting Report (SSR) replaces the SF 295

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eSRS Facts HUBZone

  • Officially launched in the federal space on 28 October 2005 and became fully capable in March 2006

    • Civilian agencies were first to use the system

  • Department of Defense delayed deployment until system requirements were met:

    • Leveled hierarchy

  • System now allows layers of subcommands in hierarchy

    • Comprehensive Subcontracting Plan Test program (CSP)

    • P-14 Report

  • DoD began using system for April 08 reporting period

    • Phased approach to deployment

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Reports HUBZone

Individual Subcontract Report (ISR) – Formerly SF-294

  • Who Needs to File a Report:

    • All Other Than Small Businesses (OTSB) with contracts/subcontracts with Individual Subcontract Plans

  • Reports are:

    • Submitted semi-annually during contract performance

    • Due April 30 and Oct 30 (30 days after the reporting period ends)

    • Due at the completion of contract performance

      Summary Subcontract Reports (SSR) – Formerly SF-295

  • Who Needs to File a Report:

    • All OTSB with at least one contract/subcontract with a Subcontracting Plan

  • Reports are:

    • Required semi-annually for DoD and NASA

    • Due April 30 and October 30 (30 days after the reporting period ends)

    • Due at the completion of contract performance

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eSRS Data Flow HUBZone

Electronic Subcontracting

Reporting System (eSRS)

Vendor ISR or SSR


• Date Submitted

• Reporting Period

• Prime or Sub contractor

• Major Product or

Service Lines

• Goal Dollars

• Actual Dollars for

Each Business Type

**A contract must be marked in FPDS as

having a subcontracting plan or it will not pullover to eSRS. If it is not marked correctly, the vendor will get an error message when trying to input an ISR and will be directed to contact their government contracting official.**

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Government Roles and Responsibilities HUBZone

Agency Coordinator (AC)

  • – Have full access to eSRS for their parent organization, sub-commands, and below

  • – Manage and approve organization registration requests

  • – View/accept/reject contractor reports

  • – Run reports on data from their registered level and below

  • – Participate in monthly Federal User Group meetings

  • – This person would most likely be the organization’s lead for subcontracting activities

    Point of Contact (POC)

  • – The POC has all the same access to the system that the AC has

  • – This person would most likely be found at the contracting office level of an organization

    Contracting Official (CO)

  • – View/accept/reject contractor reports

  • – Run reports on data at their registered level

  • – This person should be the individual responsible for the contract

    Designated Government User (DGU)

  • – View accepted contractor reports

  • – Run reports on data at their registered level

  • – This person is most likely the Small Business Specialist

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Report Status HUBZone

Pending (PEN)

  • The report has been submitted by the contractor and is waiting to be “accepted” or “rejected” by the appropriate government contracting official.

    Accepted (ACC)

  • A government contracting official has reviewed the report and has found no known errors, issues or concerns and doesn’t require any clarification, information, or corrections at this time. They acknowledge receipt of the report. Even though a report has been “accepted,” it can be reviewed again and rejected at any time.

    Rejected (REJ)

  • A government contracting official has reviewed the report and has found errors, issues, or concerns and requires clarification, information or corrections to the report.

    Revised (REV)

  • The original report was rejected by the appropriate government contracting official. The report has been revised by the contractor, resubmitted, and is awaiting to be “accepted” or “rejected” by the appropriate government contracting official.

    Reopened (RPN)

  • The report has been opened by a government contracting official after previously being “accepted” into the system. This may occur when the government contracting official finds error or issues with the original report. Once the report has been reopened, it may be “accepted” or “rejected” again.

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Processing Reports HUBZone

Government CO


report in system

Report is submitted to eSARS by contractor

eSRS system

sends e-mail

to those listed

in report

Contractor receives

e-mail indicating

report accepted

Government CO

accepts report

into eSRS

Report is rejected

Contractor must edit

report and resubmit

for review

E-mail is sent to

contractor detailing

reasons for rejection

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Government Actions HUBZone

Vendor submits ISR

Submitted ISR goes into “pending” status

ISR returned to vendor for corrective action


Appropriate Government official logs into eSARS

Each ISR must be either “accepted” or “rejected”

Government official identifies ISRs to review

ISR now in database and included in reports


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Limitations on Subcontracting HUBZone

Ref: FAR 52.219-14

When a contract is awarded under a preference, it is expected that the preference holder will be the beneficiary

Limitations on the subcontracting by the preference holder prevent “marketing” in government contracts

Generally the contractor must perform 50% or more of the cost or performance (15% for construction)

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FAR 52.219-10 HUBZone

Ref: FAR 19.705

  • Incentive subcontracting

    • Permits monetary incentives to contractors

    • Does not apply to SDB subcontracting (see 19.1203)

    • Must EXCEED goals

    • Goals must be realistic

    • Rewards are commensurate with effort

    • Normally negotiated AFTER reaching agreement on the underlying plan

    • Typically used when unique effort required

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Rothe Development HUBZone

Rothe Corporation is a woman-owned and -controlled consortium of businesses based in San Antonio, Texas. Since 1987, Rothe has contracted with the Air Force to maintain, operate, and repair the computer systems at Columbus Air Force Base in Mississippi. It bid on another such contract in 1997, and, although Rothe’s was the low bid, the contract was awarded to Rothe’s chief competitor, a Korean-owned business, because of the Department of Defense’s “Section 1207 program,” which includes a racial preference or quota.

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Rothe HUBZone

In November 1998, Rothe challenged the constitutionality of the Section 12 program. On appeal, the U.S. Court of Appeals for the Federal Circuit ruled for Rothe in August 2001. The case was remanded for a factual determination regarding Congress’s reauthorization of the program. In July 2004, the trial court ruled against Rothe. After the Federal Circuit, in June 2005, reversed, the trial court ruled again, on August 10, 2007, against Rothe. Rothe again appealed to the Federal Circuit.

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Rothe HUBZone

The rulings in favor of Rothe have been based on the Supreme Court’s 1994 ruling in Adarand Constructors, Inc. v. Peòa. The rulings against Rothe have relied on decisions by the U.S. Court of Appeals for the Tenth Circuit in two challenges to race-based contracting that were not reviewed and reversed by the Supreme Court.

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Rothe HUBZone – So What?

For the foregoing reasons, we hold that Section 1207, on its face, as reenacted in 2006, violates the equal protection component of the Fifth Amendment right to due process. Because the statute authorizes DOD to afford preferential treatment on the basis of race, we must apply strict scrutiny. And because Congress did not have a “strong basis in evidence” upon which to conclude that DOD was a passive participant in pervasive, nationwide racial discrimination—at least not on the evidence produced by DOD and relied on by the district court in this case—the statute fails strict scrutiny. We reverse the judgment of the district court in part, and remand with instructions to enter a judgment (1) denying Rothe any relief regarding the facial constitutionality of Section 1207 as enacted in 1999 or 2002, (2) declaring that Section 1207 as enacted in 2006 (i.e., the current 10 U.S.C. § 2323) is facially unconstitutional, and (3) enjoining application of the current 10 U.S.C. § 2323.

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Effect of Rothe HUBZone

Might be reviewed by Supreme Court

Applies ONLY to DOD

Because it was the CAFC, applies nationwide

Too new to have much official reaction….yet

Calls into question all set-aside programs

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Summary HUBZone

It is the policy of the US government to support small businesses generally, and specific categories of small businesses with a preference in the award of government contracts

An extensive statutory and regulatory scheme exists to support these policies

FAR Part 19.7 covers subcontract management plans

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Summary HUBZone

  • Subcontracting plans have 11 significant components

  • These plans are a material part of the contract

  • Failure to comply can lead to severe penalties

    • Negative past performance

    • Liquidated damages

    • Default

  • Successful performance is a cooperative endeavor

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“The first responsibility of a leader is to define reality. The last is to say thank you.”

Max DePree

Author & Business Executive