Wednesday, June 2nd, 2021
Five Things You Should Know: Past Performance of Subcontractors, Joint Venture Partners, and Affiliates
Posted on by Steven Koprince
The government’s hard shift away from lowest-price, technically acceptable evaluations has magnified the importance of past performance in many competitive acquisitions. For start-ups and other companies new to the federal marketplace, past performance requirements can present a significant barrier to success.
Oftentimes, companies with little or no past performance of their own can offer the past performance of another entity, such as a subcontractor or joint venture partner. But the rules surrounding the use of another entity’s past performance are often misunderstood–and recently, the rules have evolved quickly.
Here are five things you should know about using the past performance of a subcontractor, joint venture partner, or affiliate.
- The FAR Doesn’t Require It
I’m occasionally asked, “where in the FAR does it say that the government has to consider my subcontractor’s past performance?”
The answer (which nobody who has asked wanted to hear): nowhere.
For negotiated procurements, FAR 15.305 says:
The evaluation should take into account past performance information regarding predecessor companies, key personnel who have relevant experience, or subcontractors that will perform major or critical aspects of the requirement when such information is relevant to the instant acquisition.
The key word is “should,” which is not the same as “must.” The GAO has confirmed that FAR 15.305 “permits, but does not require, procuring agencies to consider the experience and past performance of these additional entities and personnel in evaluating an offeror’s past performance.”
Agencies often do consider the past performance of predecessor companies, key personnel, and subcontractors–but don’t assume; check the solicitation to be sure! (And if the agency seems iffy about considering the past performance of a subcontractor, a new SBA rule we’ll discuss a little later could save the day).
2. For Small Business Procurements, Agencies Must Consider the Past Performance of Joint Venture Members
Joint venturing is a very popular way to pursue small business set-aside contracts and contracts for the four major socioeconomic subcategories: 8(a), SDVOSB/VOSB, WOSB/EDWOSB, and HUBZone. When a joint venture pursues one of these contracts, SBA’s regulations require that the procuring agency consider the past performance of each joint venture member.
For instance, for small business set-asides, 13 C.F.R. 125.8(e) says:
Capabilities, past performance and experience. When evaluating the capabilities, past performance, experience, business systems and certifications of an entity submitting an offer for a contract set aside or reserved for small business as a joint venture established pursuant to this section, a procuring activity must consider work done and qualifications held individually by each partner to the joint venture as well as any work done by the joint venture itself previously. A procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally. The partners to the joint venture in the aggregate must demonstrate the past performance, experience, business systems and certifications necessary to perform the contract.
The SBA has similar regulations for each of the four major socioeconomic small business programs.
In my experience, because these SBA regulations are relatively recent and are not part of the FAR, some Contracting Officers are not aware of them. I have occasionally seen a solicitation indicating that the agency will not consider the past performance of joint venture members. If you come across something similar, it may be wise to raise the issue with the agency before the deadline for proposal submission–after that, a legal challenge may be untimely.
3. Coming Soon: Required Consideration of Past Performance Gained as Joint Venture Member (Sometimes)
The SBA’s rule discussed in #2 helps small businesses when they bid as joint ventures. But what about when the joint venture successfully performs a contract, and the small business–now bidding on its own for a different contract–wishes to use the joint venture’s past performance?
Currently, there is no requirement that a procuring agency consider past performance obtained as a member of a joint venture. Often, agencies do so, but not always–and the GAO has upheld agencies’ reasonable discretion in this regard.
But soon, agencies will be required to consider such past performance–sometimes, anyway. In the 2021 National Defense Authorization Act, Congress amended the underlying statute to provide:
With respect to evaluating an offer for a prime contract made by a small business concern that previously participated in a joint venture with another business concern (whether or not such other business concern was a small business concern), the Administrator shall establish regulations—
(A) allowing the small business concern to elect to use the past performance of the joint venture if the small business concern has no relevant past performance of its own;
(B) requiring the small business concern, when making an election under subparagraph (A)— (i) to identify to the contracting officer the joint venture of which the small business concern was a member; and (ii) to inform the contracting officer what duties and responsibilities the small business concern carried out as part of the joint venture; and
(C) requiring a contracting officer, if the small business concern makes an election under subparagraph (A), to consider the past performance of the joint venture when evaluating the past performance of the small business concern, giving due consideration to the information provided under subparagraph (B)(ii).
This rule isn’t effective yet. As you can see from the quoted section, Congress directed the Administrator (of the SBA) to write regulations implementing it. But once the SBA does so, small businesses without a record of relevant past performance will be able to elect to use past performance gained as a joint venturer–and Contracting Officers will be required to consider it.
We’ll see how the final SBA rule shakes out, but under the NDAA, the right to use a joint venture’s past performance is limited to cases in which the small business has no relevant past performance of its own. Assuming this carries through to the SBA regulation, a small business with some relevant past performance would not have the right to bolster its past performance by also including performance gained as a joint venturer–though, of course, the agency would retain reasonable discretion to consider such performance.
4. Contracting Officers Must Consider the Past Performance of Small Business Subcontractors (Sometimes)
What about subcontractors? As discussed in #1 the FAR says only that Contracting Officers “should” consider their past performance in appropriate cases. But the SBA’s regulations require procuring agencies to consider subcontractors’ past performance in limited cases.
The SBA’s regulation at 13 C.F.R. 125.2 says:
Capabilities, past performance, and experience. When an offer of a small business prime contractor includes a proposed team of small business subcontractors and specifically identifies the first-tier subcontractor(s) in the proposal, the head of the agency must consider the capabilities, past performance, and experience of each first tier subcontractor that is part of the team as the capabilities, past performance, and experience of the small business prime contractor if the capabilities, past performance, and experience of the small business prime does not independently demonstrate capabilities and past performance necessary for award.
As you can see, this regulation is rather limited. It applies only when four factors are met: (1) the prospective prime contractor is a small business; (2) the prospective prime does not independently demonstrate the past performance “necessary for award; (3) the subcontractor is a first-tier sub; and (4) the subcontractor is itself a small business.
Limited as it is, this regulation can be very helpful to small businesses in appropriate cases. Like the joint venture regulations we discussed in #2, Contracting Officers aren’t always aware of 13 C.F.R. 125.2(g), so small businesses should be prepared to raise the matter if necessary.
5. Affiliation, Alone, Is Insufficient to Use Another Entity’s Past Performance
Contractors often assume that they are entitled to use the past performance of corporate affiliates, such as parent companies, subsidiaries and sister companies. But FAR 15.305 doesn’t mention affiliates–and the GAO has held that mere affiliation does not allow a procuring agency to consider the affiliate’s past performance.
In one case addressing this topic, the GAO summarized the law as follows:
[W]here an agency observes apparent affiliation between companies but lacks evidence establishing the nature of the relationship in the procurement at issue, the potential for variations in the extent and nature of the relationship between two affiliated companies means that it is not reasonable for that agency simply to infer that the relationship will affect contract performance, or even to accept an offeror’s general representation that the performance of an affiliated company–positive or negative–should be attributed to that offeror. Before the agency can properly attribute the past performance of an affiliate to an offeror, it generally must have a factual basis showing the planned relationship between the companies on the contract at issue. Where, as here, the record before the agency does not indicate the involvement of the affiliate in performance of the contract, the agency cannot simply attribute the affiliate’s past performance to the offeror.
In other words, affiliation alone does not allow an offeror to use the affiliate’s past performance. Instead, the agency can only consider an affiliate’s past performance when the agency has evidence that the affiliate will be involved in the performance of the contract–such as a subcontractor.
Note that when an an affiliate will be involved in the contract, this doesn’t suddenly mean that the agency must consider the affiliate’s past performance. Instead, we’re back into territory often governed by FAR 15.305 and the SBA rules we have covered, which may allow the agency the discretion to decline to consider such past performance.
A Few Final Words
Contractors often assume that they are entitled to use the past performance of joint venture members, subcontractors, and affiliates. But the rules are actually much more complex. For contractors planning upcoming acquisition strategies, it’s very good to know when the agency must consider past performance, when the agency merely “should” consider it and when (in the case of mere affiliation), the agency cannot consider it.