Small Business Subcontracting Moves to Keep an Eye On

By Jacquie Spearman, GCAP Counselor (Charlotte)

It doesn’t matter if you are new or seasoned in government contracting, subcontracting is often the option for many companies who are involved in federal contracting. The U.S. Small Business Administration (SBA) announced last August that small business subcontracting had decreased by an estimated $7.9 billion since reaching $90 billion in FY2019.

In May 2022, congressmen from Minnesota and Maryland introduced legislation that would help more small businesses compete for federal contracts. On June 8, the Strengthening Subcontracting for Small Businesses Act of 2022 was passed by the U.S. House of Representatives.

When evaluating large businesses for federal contracts, the bill would amend the Small Business Act to require federal agencies to take into account the content of subcontracting plans and the performance of those plans. The bill should encourage large companies to subcontract more work to small companies.

Subcontracting plans are required for contracts with an estimated value over $750,000 (for the full contract term, including options) and over $1.5 million for construction. It also includes other requirements per the rule. In evaluating offers from large businesses, subcontracting plan requirements are listed in FAR 19.704 and include rate and past performance. The factors were only considered for bundled contracts where there would be a significant opportunity. The bill would improve the evaluation by making two significant changes:

1. Require that federal agencies consider more than just bundled contracts. 
2. Requires federal agencies to evaluate the description of how much small businesses are proposed to be used, at all tiers, in the offeror's subcontracting plans. 

As a result, the bill incentivizes large businesses to engage with small business subcontractors and to meet their small business objectives by making subcontracting plans and subcontracting plan performance significant evaluation factors.

Despite the fact that subcontracting allows small businesses to enter and grow in the federal marketplace, the decrease reported by the SBA illustrates that large companies don’t always achieve their small business goals. Subcontracting for small businesses would be much more transparent and regulated by this bill, as it puts emphasis on the subcontracting plan as a requirement, rather than just a hopeful goal.

If the bill passes the U.S. Senate, it may be an opportunity to reevaluate your subcontracting efforts in FY2023. Subcontracting is inherently different from commercial subcontracts, so small businesses should be aware of all requirements and expectations. Reach out to your local GCAP counselor to discuss and strategize on how to best prepare, sustain or innovate so that your subcontracting work grows.

GCAP Trivia

QUESTION: When will Veterans Affairs transfer management of its Center for Verification and Evaluation (CVE) to the Small Business Administration? 



See below for the answer to this month's trivia question.

NAICS Codes Updated in June

The North American Industry Classification System (NAICS) is a classification of business establishments by type of economic activity (process of production). It is used by government and business in Canada, Mexico, and the United States. It has largely replaced the older Standard Industrial Classification (SIC) system, except in some government agencies, such as the Securities and Exchange Commission (SEC).

An establishment is typically a single physical location, though administratively distinct operations at a single location may be treated as distinct establishments. Each establishment is classified to an industry according to the primary business activity taking place there. NAICS does not offer guidance on the classification of enterprises that are composed of multiple establishments.

Every five years, the codes are updated to adjust or add codes for products or services that have entered the government contracting sphere since the last list update or have undergone some sort of modification that would be better served with a new number reference.

The NAICS numbering system employs a five or six-digit code at the most detailed industry level. The first five digits are generally (although not always strictly) the same in all three countries. The first two digits designate the largest business sector, the third digit designates the subsector, the fourth digit designates the industry group, the fifth digit designates the NAICS industries, and the sixth digit designates the national industries.

Success Story:

QTS Group

By Jacquie Spearman, GCAP Counselor (Charlotte)

QTS Group is a woman-owned small business entity specializing in comprehensive environmental, health (industrial hygiene) and safety (EHS) consulting, and health and safety training. QTS Group serves pharmaceutical, petrochemical, specialty chemical, transportation, general manufacturing, utilities, and construction industries to introduce, enhance, and maintain safety culture. They tailor their offerings to the individual needs of each client with high quality EHS services. QTS Group combines exceptional customer service with site and industry-specific expertise to ensure safety and sustainable environment. QTS serves Alabama, Florida, Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia.

President/CEO Danaila Paspalanova is a Certified Hazardous Material Manager and holds a M.S. in Environmental Engineering and an Executive MBA from Washington State University. She has over 19 years of experience in the recognition, evaluation, and control of workplace hazards and toxic substances. Danaila hails from Bulgaria and has spent the majority of her career working for a consulting firm in New Jersey. After its acquisition, Danaila continued to pursue her entrepreneurial spirit and established QTS Group. She continues to serve her clients with passion, strong commitment, and dedication. Every day, the QTS team does their best to earn the trust of their valued customers, employees and communities through integrity, compliance, privacy, and security.

Danaila came to SBTDC under guidance from the Iowa PTAC program. As a highly sought out contractor, she wanted to make sure she had all her foundational requirements and systems in place prior to bidding in the federal space. In the short time working with Danaila, she has made rapid progress in marketing her company and services to multiple federal agencies and has been invited to numerous executive meetings based on her expertise. She has worked diligently on her pricing and understanding her market and value. She continues to engage and grow relationships with similar businesses to the point that she is contacted as an SME for their needs. Her tenacity, ability to strategize, and preparedness will serve her company and team well in future contracting goals.

The future looks bright for QTS Group as they compete to win government contracts with the technical assistance received from the SBTDC’s Government Contracting Assistance Program.

Trivia Answer

The CVE office, which manages the Service-Disabled Veteran-Owned Small Business (SDVOSB) certification process, will transfer from the VA to the SBA effective January 1, 2023.