Primes Met Just 64.4% of Individual Small Business Subcontracting Goals in FY 2023

Prime contractors operating under individual subcontracting plans met just 64.4% of their goals for subcontracting to small businesses in Fiscal Year 2023, according to a report issued by the U.S. Small Business Administration to Congress. Had primes met their goals, the report says, small businesses would have received more than $1.5 billion in additional subcontracting awards.

By way of very brief background, under FAR 19.7 and its implementing clauses, an “other-than-small” federal contractor that receives a prime contract in excess of $750,000 (or $1.5 million for construction) that has further subcontracting opportunities ordinarily is required to adopt a subcontracting plan including separate percentage goals for subcontracting to small businesses, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business and women-owned small businesses. The subcontracting plan must also include a statement of the total dollars planned to be subcontracted to each of these categories.?

So how are primes doing on meeting their subcontracting goals? The numbers for FY 2023 are in and they’re . . . not good. Not only did primes fail to meet more than 35% of their small business subcontracting goals, as I noted at the outset, primes also failed to meet their VOSB, SDVOSB, HUBZone, SDB and WOSB goals by even wider margins. In fact, primes achieved less than half of their subcontracting goals with respect to SDBs, HUBZones and SDVOSBs.

The SBA’s report includes the following table, which covers final Individual Subcontracting Plans for FY 2023:

The numbers above relate to completed contracts, meaning that the primes in question cannot make up their deficits with a flurry of subcontracting in the final months. The SBA’s report also provides subcontracting plan numbers from ongoing contracts—and those numbers are even worse:

As the table shows, for ongoing prime contracts with Individual Subcontracting Plans, primes are barely meeting half of their small business subcontracting goals and are failing mightily across all five subcategories. This doesn’t seem to bode well for the upcoming FY 2024 report on completed contracts.

The SBA report says that small businesses missed out on more than $1.5 billion because of primes’ failure to meet their subcontracting goals. Broken down by category, here’s what missed subcontracting goals cost small businesses:

Unfortunately, the grim numbers seen in the SBA’s FY 2023 subcontracting plan report aren’t an outlier. The SBA reported similar numbers for FY 2022 and FY 2021. The SBA’s reports make clear that, in the aggregate, primes have a pattern of overpromising and underdelivering—by a lot—when it comes to their small business subcontracting plans.

I don’t know about you, but where I went to school, 64% was a “D.” Every other number reflected in the SBA’s report would be a flat-out “F.” Applying a standard grading system, primes—again, in the aggregate—are literally failing when it comes to small business subcontracting. So, what can and should be done to reverse this terrible trend?

The SBA’s report, unfortunately, doesn’t include data about enforcement. According to the FAR and the SBA’s regulations, a prime’s failure to make a good faith effort to meet the goals established in its subcontracting plan can expose the contractor to liquidated damages, adverse past performance ratings, and additional sanctions. But how often are primes actually being subjected to liquidated damages? How often does a prime’s failure to meet its subcontracting goals result in a significant reduction in its past performance rating? How often do primes face other real, tangible consequences for failing to meet subcontracting goals? This data would be a starting point to help determine whether the answers lie in stricter enforcement of existing rules, regulatory changes, or both.

Obviously, in some cases, stuff happens, and a prime isn’t to blame for missing a subcontracting goal. But, as the SBA’s report shows, in the aggregate, primes’ achievement is so far divorced from their goals that I have a pretty hard time believing that primes are entirely blameless for $1.5 billion in missing small business subcontracting subcontracting. Here’s hoping that policymakers and small business advocates recognize the major problem these numbers represent and work to strengthen the integrity of the small business subcontracting program.

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Boring but important disclaimer: The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.