Drop a Dime On Your Prime? Subcontractor Utilization Enhancement in the Senate Draft FY 2025 NDAA

This week’s post continues last week’s deep dive begun into a series of amendments proposed for the Senate draft FY 2025 National Defense Authorization Act (NDAA) (S.3290). Today, I’ll be taking a look at Section 5862 on Small Business Subcontracting Improvements. This section proposes some important changes to the Small Business Act that prime and subcontractors really should know.

Referred to in the Senate amendment as the Small Business Subcontractor Utilization Act of 2024, Section 5862 changes Section 8(d) of the Small Business Act to specify that contractors providing small business subcontracting reports must also provide contracting officers with a utilization report that identifies the following for each small business subcontractor working the contract:

• The service or product provided by the small business subcontractor to the prime contractor.
• The total contract dollars that are to be paid to the small business subcontractor.
• The total contract dollars that have been paid to the small business subcontractor to date.
• The estimated date range for the performance of the covered small business subcontractor on the contract.
• Any change to the contract, including changes to the services and products required or total contract dollars, that affects the ability of the prime contractor to utilize the covered small business subcontractor as anticipated during the bid and proposal process.

Section 5862 seems intended to support small businesses by demanding that prime contractors provide more detailed information on contract arrangements with small business subs.

To that end, Section 5862 also puts teeth into enforcement, stating, “A covered small business subcontractor is authorized to confidentially report to the contracting officer that the covered small business subcontractor is not being utilized in accordance with the subcontracting plan of the prime contractor. If reported, the contracting officer shall, in consultation with the Office of Small and Disadvantaged Business Utilization or the Office of Small Business Programs, determine whether the prime contractor made a good faith effort to utilize the covered small business subcontractor in accordance with the subcontracting plan.”

This clause is reinforced by authority given to contracting officers to determine if the prime contractor has “failed to make a good faith effort to utilize the covered small business subcontractor in accordance with the subcontracting plan.” If the prime has not made such an effort, “the contracting officer shall assess liquidated damages in accordance with paragraph (4)(F);” presumably of the Small Business Act.

If adopted, this section changes the prime contractor/subcontractor relationship by inserting contracting officers and agency small business officers between them. The motive behind the amendment appears straightforward – to ensure that primes live up to the details provided in their subcontracting plans. One wonders, however, if enabling small business subs to “drop a dime” on primes could not also lead to some awkward business situations. All contractors should therefore keep an eye on Section 5862 to see if it becomes part of the finalized FY 2025 NDAA because the prime/sub relationships in the future could become more complicated.