Skip to Content
Technical Excellence in Government Contracts
and Construction Matters Since 1893.
Oles Morrison

2014 NDAA to Permit Prime Contractors to Count Lower Tier Subcontractors towards their Small Business Subcontracting Goals

Section 1614 of the National Defense Authorization Act for Fiscal Year 2014 (NDAA) offers advantages to small business subcontractors as well as prime contractors, by allowing primes to count second tier small businesses subcontracts toward their small business subcontracting goals. Previously, primes could only count first tier small business subcontractors for their small business subcontracting plans. But under this new legislation, primes will also be able to count lower-tier small subcontractors toward their small business subcontracting goals.

This legislation will have a number of different impacts on small business subcontracting:

  1. Encourages prime contractors to promote small business business participation at every level of the contract.
  2. Increases availability of lower tier subcontracts to small businesses.
  3. Agencies negotiate small business subcontracting goals with prime contractors, and prime contractors pass down the requirements to use small businesses to their own large subcontractors.
  4. All first and second tier subcontracts are applied to the prime’s goal for subcontracted dollars to small businesses.
  5. By basing the goal on all tiers, the amendment allows for higher small business utilization goals in contracts.

It may still be some time before the true impact of this legislation is felt. The Small Business Administration (SBA) still needs to develop and adopt rules and regulations implementing Section 1614 of the NDAA, and that process may take another year to complete. However, a recent GAO decision has created some uncertainty as to whether the  legislation such as Section 1614 of the NDAA can take effect before changes to SBA regulations and/or the FAR are adopted. In Sealift, Inc., B-409001 (Jan. 6, 2014), GAO indicated that a provision in the 2013 NDAA, permitting small business prime contractors to count their “similarly situated” subcontractors toward the prime contractor’s self-performance requirements, took effect even though federal regulations had not yet been amended to implement that legislative provision. While the Sealift case does leave open the possibility that Section 1614 of the NDAA takes effect immediately before implementing regulations are issued, it would very risky for a prime contractors to start counting lower-tier subcontractors towards their small business goals until a more definitive ruling on this subject is issued.