Intro to Subcontracting
What is Subcontracting?
You’ve registered your business at the System for Award Management (SAM.gov or SAM) website and are looking to tap into the billions that the federal government awards in recession-proof spending. As a business owner, that’s a smart move; in Fiscal Year 2023 alone, the Federal Government Spent more than $745B in Government Contracts to Private Entities. [1] Getting just a tiny percentage of that can ensure your business will thrive, even in lean economic times.
Of that $745B, $72B went to Subcontractors, working for the Principal Awardees, The Prime Contractors. Many businesses just like yours begin their long, prosperous journey in working for the Federal Government as a Subcontractor to a larger Prime. To best understand how this works, let’s start by defining the terms.
Prime Contractors, as defined by the Small Business Administration (SBA), are Contractors who:
“… work directly with the government. They manage any subcontractors and are responsible for ensuring that the work is completed as defined in the contract.” [3]
Prime Contractors are the main players responsible for fulfilling contract obligations. They benefit the most from partnering with government agencies. However, according to Federal Law, Prime Contractors classified as “Other Than Small Business” must subcontract some of their work to Small Businesses. They also have to follow a detailed process to show they’re meeting this requirement. In this training, we’ll discuss these responsibilities briefly. Understanding them will help you grasp why the government is keen on subcontracting and how it benefits companies like yours.
What a Subcontractor is:
“a business or organization that offers specialized expertise to prime government contractors.
Since subcontractors are considered specialists in the federal government contracting industry, their responsibilities revolve around completing a specific area of the federal project given to them by their prime contractor. Suppose the prime contractor is awarded a federal contract requiring them to construct a new office for a government agency. The federal subcontractor may be assigned to supply the necessary materials, plan its interior design, or prepare the wiring and electrical diagrams. The job of the government subcontractor depends on their advertised expertise.” [4]
Per the Federal Acquisition Regulations (FAR) 19.702(a), any Prime Contractor designated “Other than Small Business” awarded a contractor greater than $750,000 in value ($1.5MM in Construction) must:
“Submit an acceptable subcontracting plan. If the apparently successful <prime contractor> fails to negotiate a subcontracting plan acceptable to the contracting officer within the time limit prescribed by the contracting officer, the <prime contractor> will be ineligible for award.”[5]
As you can see, there is a requirement for the Prime Contractor to find a business just like yours to not just complete the contract with your needed skill and/or product, but to even be awarded! Later in our discussion we’ll go into a little more detail about the process involved with this expectation, and the tools for accountability the Federal Government uses to ensure compliance.
To become a subcontractor under this rule, you must qualify as a Small Business according to the Small Business Administration (SBA). You may think it’s a simple revenue calculation, but it’s actually a bit more complex. The criteria are laid out in a table in the Code of Federal Regulations (CFR), specifically 13 CFR 121.201. Take a moment to check out the table. You’ll see it’s organized by NAICS Codes, short for “North American Industrial Classification System.” These codes categorize small businesses based on their functions. Remember entering these codes during your SAM.gov registration? It’s crucial to have the correct NAICS Code in your SAM registration to benefit from subcontracting mandates outlined in FAR 19.702(a). NAICS determines your small business status.
Here are some examples from the CFR chart:
- 213111 Drilling Oil & Gas Wells – Must be smaller than 1000 employees, no revenue restriction.
- 311920 Coffee & Tea Manufacturing – Must be smaller than 1000 employees, no revenue restriction.
- 445132 Vending Machine Operators – Less than $21MM in revenue, no restriction on number of employees.
- 541511 Custom Computer Programming Services – Less than $34MM, no restriction on number of employees.
If your company fits neatly into the NAICS Code’s Small Business Guidelines, then you are a perfect candidate to be an in-demand Subcontractor.
Additionally, per FAR 19.702, if you are a business that falls into any of these classifications:
- Veteran-Owned Small Business (VOSB)
- Service-Disabled Veteran-Owned Small Business (SDVOSB)
- HUBZone Certified Small Business
- Small Disadvantaged Business (SDB)
- Woman-Owned Small Business (WOSB)
You will receive preferential treatment in Subcontracting Opportunities. Even if you took the time to self-certify as one of these when filling out your SAM registration, you’ll still need to get the SBA Certification. Select GCR has a department that focuses solely on these Certifications with a 97% first time, quick approval rating. Contact your SGCR Federal Business Development Representative for more information on how we can help with this.
Subcontracting is a terrific way to get your feet wet in Federal Contracting. Rather than reporting directly to a Contracting Officer, you can work directly with the Prime Contractor who may not be bound by the strict letter of the Regulatory Requirements.
Here are other benefits of starting off as a Subcontractor:
- Quick and Easy “Past Performance” additions to enhance your Capabilities Statement
- Prime Contractors – especially the larger ones like you would find in “Top Primes” in SGCR Pro – often have large national contracts that they struggle to fulfill internally based on geography.
- If your company is extremely specialized, you may struggle to find a Prime Contracting Opportunity for your specialization. By contrast, your specialized offering can often fill a gaping void in a Prime Contractor’s existing contracts.
- Prime Contractors based on our experience here at SGCR are, much more receptive to outreach than Contracting Officers are in general. [6]
Rules Governing Subcontracting
In this section, we will be sharing three main pieces of Regulation that govern the relationship between the United States Federal Government and those who wish to perform Contracting work, with an emphasis on the Subcontractor/Prime Contractor arrangement.
Code of Federal Regulations: Title 13 Chapter 1 Part 125 Section 125.3
The SBA’s Relationship to Subcontracting and Small Businesses who wish to perform it. This part of the CFR covers the assistance available for small businesses in regards to subcontracting. It also give the responsiblities of Primes Contractors, Subcontractors, and Contracting Officers.
Federal Acquisition Regulation: Subpart 19.7 – The Small Business Subcontracting Program
This subpart covers all the rules and regulations about the subcontracting program. The main headings through the subset are statutory requirements, eligibility requirements, subcontracting plan requirements, responsiblities of the contracting officer, awards involving subcontracting plans, post award responsiblities of contracting officer, etc.
Federal Acquisition Regulation: Part 44 – Subcontracting Policies and Procedures
The part of the FAR that covers everything from beginning to end when it comes to subcontracting. Subparts include consent to subcontract, contract’s purchasing systems reviews, and subcontracts for commercial products and comericial services.
Take the time to familiarize yourself with each of the regulatory passages above, as these are the main drivers of your experience in both seeking work as a subcontractor and performing the same.
Finding Primes Who Need Subcontractors
Select GCR Pro (SGCRP) is our primary vehicle for doing this. The video below will show you the best methods for finding other businesses to partner with for subcontracting needs in the future.
Finding Subcontracting Partners in SGCR Pro
The next tool available to you is the SBA’s SUBNET, which will help you locate specific subcontracting opportunities. SUBNET allows you to find prime contractors who currently have specific and immediate needs. Utilize our instructions on using SUBNET, click here.
Your Responsibilities as a Subcontractor
While Prime Contractors bear extensive responsibilities regarding subcontractor usage, as outlined in FAR 19.705-7 (which provides a detailed but not exhaustive list), subcontractors have fewer yet still important responsibilities under FAR 9.104-4. Prime Contractors primarily oversee the performance of subcontractors and communicate any necessary expectations. Often, Prime Contracts include “Flow-down Clauses” that apply not only to the Prime but also to all subcontractors listed in the contract. These clauses ensure consistent performance across all levels of the contract. For instance, a Flow-Down Clause might specify the origin point for materials. The Prime Contractor must communicate these clauses effectively. As a subcontractor, make sure you have clear documentation of all relevant Flow-Down Clauses for the contract.
One potential sticking point in your Subcontracting endeavors: 13 CFR 125.2(g) states:
“When a offeror of a small business prime contractor includes a proposed team of small business subcontractors and specifically identifies the first-tier subcontractor(s) in the proposal, the head of the agency must consider the capabilities, past performance, and experience of each first tier subcontractor that is part of the team as the capabilities, past performance, and experience of the small business prime contractor if the capabilities, past performance, and experience of the small business prime does not independently demonstrate capabilities and past performance necessary for award.”
In simpler terms, both the Prime Contractor and its subcontractors need to meet certain expectations regarding capabilities, past performance, and experience. If the Prime Contractor falls short in meeting these requirements, subcontractors must be capable of fulfilling them for their designated part of the contract. Conversely, if a subcontractor doesn’t meet the criteria but the Prime Contractor does for their part of the contract, the Prime’s qualifications will cover the requirements.
This situation is especially beneficial for subcontractors who may lack past performance but possess valuable skills or resources that the Prime Contractor needs. For instance, if you own a trucking company and subcontract with a large national carrier that meets the criteria, the Prime Contractor may still bring you aboard the contract. This is because you fulfill a need they have, such as overcoming geographic limitations, even if you don’t meet all the requirements.
Leveraging your OSDBUs
A valuable but often overlooked resource for small businesses is the Office of Small and Disadvantaged Business Utilization (OSDBUs) in each Federal Agency.
These liaisons exist solely to facilitate the interests of Small Businesses and Minority/Woman Owned Businesses in each agency’s contracting mission.
It is strongly recommended that you take the time to reach out to each of these contacts individually in the 15 major government agencies. Send them your Capabilities Statement, introducing your company and requesting a formal meeting. If subcontracting is something you’re interested in, make that clear to them. OSDBUs can be extremely helpful if you encounter obstacles while working with a specific agency.
We link them here with links for your easy reference:
- Department of Justice
- Department of Transportation
- Department of The Treasury
- Department of Energy
- Department of Housing & Urban Development
- Department of State
- Department of Education
- Department of Defense
- Department of Commerce
- Department of Health & Human Services
- Department of Homeland Security
- Department of Agriculture
- Department of Labor
- Department of Veterans Affairs
- Department of The Interior
Conclusion
If your business is new to government contracting, pursuing work as a Subcontractor is a great way to establish your reputation and strengthen your presentation in your Capabilities Statement.
Larger Businesses are highly motivated (both by rule and by self-interest) to Subcontract regularly and to as many Small Businesses as possible.
Unlike Prime Contractors, Subcontractors have less scrutiny directly from the Federal Government and often fill critical voids in large National Contracts. Subcontracting is especially beneficial if you have a very specialized skill, product, or geographic availability that is not widely available.
Be sure to acquaint yourself with your OSDBU contacts, leveraging their influence in all your Government Contracting Endeavors.
Links and References
1 – USAspending.gov
3 – Prime and subcontracting | U.S. Small Business Administration (sba.gov)
4 – Government Contractor vs. Subcontractor: What’s The Difference? (executivegov.com)
5 – Subpart 19.7 – The Small Business Subcontracting Program | Acquisition.GOV
6 –
* | Industry | State | Month/Yr | Sample | Interaction% | Primes/COs |
* | Logistics | OH | Jan/24 | 474 | 14% | Primes |
* | IT | IL | Jan/24 | 468 | 14% | Primes |
* | Lighting | RI | Jan/24 | 504 | 12% | Primes |
* | Embroidery | MA | Jan/24 | 498 | 1% | Contracting Officers |
* | Construction | NM | Jan/24 | 476 | 3% | Contracting Officers |
* | Consulting | FL | Jan/24 | 438 | 2% | Contracting Officers |