The Small Business Administration (SBA) has recently issued a final rule amending its regulations concerning lower-tier small business subcontracting credit. This significant development is intended to align with statutory changes introduced in the National Defense Authorization Act (NDAA) for Fiscal Year 2020. The aim of the rule change is to encourage larger contractors to utilize smaller businesses as lower-tier vendors.
The main focus of the revised rule is on the obtaining and calculation of subcontracting credit. Under previous regulations, prime contractors could only obtain credit for subcontracting at the first tier. The amendments now allow prime contractors to get credit for lower-tier subcontracts awarded to small businesses by first-tier subcontractors. The hope is that this change will incentivize larger contractors to promote small business participation at all tiers.
However, this amendment carries certain implications for large contractors. There could be potential increases in administrative cost and compliance risk, necessitating careful review and understanding of the updated regulations.
This final rule represents the most recent engagement by the SBA in its ongoing efforts to promote small businesses within major supply chains.
For more detailed information about this regulatory change, visit Morrison & Foerster LLP – Government Contracts at JDSupra.