When evaluating competitive proposals for federal contracts, Contracting Officers consider price, technical evaluations, and past performance, among other factors. Up until now, many small businesses faced a significant hurdle when it came to past performance. Often small businesses could not compete with more established large businesses because they lacked the minimum relevant past performance required by the solicitation, or their competitiveness was limited by a “neutral” past performance rating in the absence of relevant past performance.

On July 22, 2022, the U.S. Small Business Administration (“SBA”) published a final rule expanding the ways small business government contractors can obtain past performance ratings. Under the new rule, small businesses may rely on two new types of past performance ratings when submitting bids for prime contracts: joint venture participation and first-tier subcontracting.

The new past performance ratings will be evaluated as part of future proposals in accordance with FAR 15.305(a)(2). The Contracting Officer will consider the context of the ratings, including the currency and relevance of the information, source of the information, context of the data, and general trends in performance.

The rule became effective on August 22, 2022.

Joint Venture Participation

A small business that is part of a joint venture may now use the past performance of that joint venture as its own, as long as it carried out duties and responsibilities related to the joint venture’s contract. For a contracting officer to consider the past performance of the joint venture in evaluating the past performance of a member small business, the small business must:

1. Identify the joint venture of which it was a member;
2. Specify the contract(s) that it elects to use; and
3. Inform the contracting officer of the duties and responsibilities it carried out as part of the joint venture. The SBA noted that involvement can be as limited as taking on risk and liability, but a small business cannot claim credit for work performed exclusively by other partners to the joint venture.

First-Tier Subcontracting

A small business may now use past performance obtained as a first-tier subcontractor on a prime contract that had a subcontracting plan. The rule dictates that a small business must submit a request for a past performance rating to its prime contractor within 30 calendar days of the completion of the prime contractor’s period of performance on the contract. However, the parties may negotiate for a limitations period longer than 30 days. The subcontractor may request a rating before it completes its own performance.

The rule also imposes a new obligation on prime contractors, who must now provide past performance ratings to a first-tier small business subcontractor within 15 calendar days of the request by the small business. The obligation applies only to prime contractors on contracts with subcontracting plans, but a contractor may choose to provide a past performance rating even where the prime contract did not include a subcontracting plan. Agencies have discretion over whether to consider ratings resulting from non-subcontracting plan contracts.

Subcontractors should notify the contracting officer if a prime contractor fails to submit the requested rating during the 15-day period. Because the requirement to provide past performance ratings will be mandatory in future subcontracting plans, the consequences for a prime contractor failing to comply include: contract remedies such as termination for default or the withholding of award fees; a lower past performance rating under the subcontracting element (FAR 42.1502(g)(1) and 42.1503(b)(2)(v)); liquidated damages for failing to make a good faith effort to comply with a subcontracting plan (FAR 19.705-7); and possible debarment for failures found to be willful or repeated (FAR 9.406-2(b)(1)(i)).

Evaluation Factors (13 CFR 125.3)

A first-tier subcontractor’s past performance under this rule will be evaluated by the prime contractor using, at minimum, the CPARS factors listed in FAR 42.1503(b): technical (quality of product or service); cost control; schedule/timeliness; management or business relations; small business subcontracting; and other. The rule does not preclude prime contractors from using additional evaluation factors.

The past performance ratings assigned by the prime contractor must follow the standardized five-scale system found in FAR 42.1503(b)(4): Exceptional, Very Good, Satisfactory, Marginal, and Unsatisfactory.

Time Limitations on New Ratings

The past-performance ratings contemplated are not limited to a three or six-year relevance period like that in FAR 42.1503(g). Instead, agencies have discretion to determine whether past performance is relevant and may choose to consider past performance older than six years.

Subcontractor Appeals

The rule does not provide for a rebuttal or appeal system for subcontractors that are unsatisfied with their past performance ratings from prime contractors. The parties may negotiate an appeals procedure as part of their subcontract.

If you have any questions or would like more information regarding this new rule, please contact Jennifer Harris or Nick Hoogstraten.