A little over a week ago I had the privilege of speaking at the Associated General Contractors of America’s national convention in Las Vegas. I was asked by the Director of the Heavy Highway and Federal Division to address a number of “hot topics” in the world of federal contracting. Over the next several weeks, I will share these “hot topics” with you. The first involves the National Defense Authorization Act of 2014 (“NDAA of 2014”).

On December 19, 2013, the Senate passed the NDAA of 2014, which included several important reforms that affect the SBA’s small business programs. One of the most important changes was the amendment of Section 8(d) of the Small Business Act (15 U.S.C. § 637(d)) (“Section 8(d)”). This amendment will eventually allow prime contractors to count lower-tier small business contractors towards their small business goals where subcontracting plans are required.

Under Section 8(d) of the Small Business Act, there are times when prime contractors must establish “subcontracting plans” consistent with the SBA’s goal of providing “small business concerns, small business concerns owned and controlled by veterans, small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women . . . the maximum practicable opportunity to participate in the performance of contracts let by any Federal agency.” The “subcontracting plan” must include “percentage goals for the utilization as subcontractors of small business concerns, small business concerns owned and controlled by veterans, small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women.” Under the current version of Section 8(d), these “percentage goals” can be reached by counting first-tier subcontractors only. Section 1614 of the NDAA of 2014 changes this.

Under the new law, for purposes of determining whether or not a federal prime contractor has attained the percentage goals set forth in a “subcontracting plan,” one must consider the following:

“(i) if the subcontracting goals pertain only to a single contract with the executive agency, the prime contractor shall receive credit for small business concerns performing as first tier subcontractors or subcontractors at any tier pursuant to the subcontracting plans required under paragraph (6)(D) in an amount equal to the dollar value of work awarded to such small business concerns; and

(ii) if the subcontracting goals pertain to more than one contract with one or more executive agencies, or to one contract with more than one executive agency, the prime contractor may only count first tier subcontractors that are small business concerns.”

Based upon the new law, contractors will be able to count not only their first-tier subcontractors, but any tier subcontractor, toward their total small business percentage goals to determine compliance with most “subcontracting plans.” Prime contractors will still need to make a good faith effort to issue subcontracts to small, and small disadvantaged, businesses at the first-tier level. However, the change in the law will make compliance much easier.

This reform will not go into effect until the fiscal year after the SBA issues final regulations to implement the law, so it will be a while before we see any real change, but change is coming. We will keep you posted on any new developments.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.