For decades, small business prime contractors who received set-aside awards for services contracts were limited in the amount of work that they could subcontract – not more than 50 percent of the labor to be performed under the contract. This was and is known as the “limitation on subcontracting” or “LOS” rules. But Congress made changes to the LOS regime and acquisition rules are coming, finally, but not necessarily for the good of small businesses or the federal agencies.   

In 2013, Congress amended the Small Business Act to change two important elements of the LOS rules. First, the 50 percent subcontracting limitation was modified to cover the entire value of the awarded contract, not just the labor to be performed. Second, Congress created a new category of firms – called “similarly situated entities” – to whom a small business prime contractor could subcontract work and not have that subcontract work count against the 50 percent limitation. PSC raised concerns to the Hill about the shift to the total value of the contract, but to no avail.

It took SBA more than three years, until 2016, to issue its final rules implementing that 2013 law change. PSC also highlighted our concerns to SBA in their development of the rulemaking, but they made only minor adjustments in their final rule. In December 2018, SBA published a proposed rule to change its 2016 final rule, addressing several of the concerns PSC raised in our earlier comments.  Also in December 2018, the FAR Council published a proposed rule to implement SBA’s 2016 regulation, but without the revisions SBA had just proposed!  PSC filed comments on both the SBA and the Federal Acquisition Regulation (FAR) proposed rules; while we endorsed many components of the SBA revision, we offered further comments to simplify compliance and expand the exemptions introduced by SBA. We also urged the FAR Council to incorporate the update from the SBA proposed rule and make other necessary changes to the FAR.  

But as of April 2019, there is still no final FAR rule to implement the SBA 2016 rule. However, in advance of the close of the public comment period on the FAR and SBA regulations, in December 2018 DoD issued a class deviation to immediately (really?) implement SBA’s 2016 final rule in the Defense Federal Acquisition Regulation Supplement (DFARS). In April 2019, the Civilian Agencies Acquisition Council (CAAC) also authorized non-defense federal agencies to “immediately” implement SBA”s 2016 final rule. Neither the DFARS nor the CAAC actions address elements of SBA’s December proposed revisions to its own 2016 LOS regulations.  

Leading up to December actions, PSC held numerous working sessions with our members and had discussions with agencies’ policy and procurement officials to highlight our concerns and to share the comments received from our members. We believe that the immediate regulatory implementation of even SBA’s original 2016 rule, without any training for agency contracting officers and small business advocates, or for small businesses, will create confusion, uncertainty and real risks of consequential non-compliance for small business contractors. 

PSC will continue our advocacy in favor of fair and executable LOS regulations for small business. 


This article was published in the Spring 2019 Service Contractor Magazine. Click here to view a PDF of this article.