Federal Small Business Subcontracting
Overview
A Small Business Subcontracting Plan is required by the sponsor for federal contracts and subcontracts that exceed $500,000 over the entire course of the contract. Certain percentages of the direct cost expenditures must be spent with suppliers in the small business categories. (See Federal Acquisition Regulation Parts 19 and 52 for detailed information on Small Business Plan requirements.)
The small business vendor categories and the federal prime contract general goals (%) are:
SMB or SBE Small Business Enterprise (23%)
SDB Small Disadvantaged Business (5%)
WOSB or WBE Woman-owned Small Business (5%)
HUBzone Historically Under-utilized Business Zone (3%)
VOSB Veteran-owned Small Business (3%)
SDVOSB Service-disabled Veteran-owned Small Business (3%)
Note: SDB, WBE, HUBZone, VOSB, and SDVOSB goals are subsets of SMB and are counted and reported in multiple categories, as appropriate.
It is critical that small business subcontracting goals are met. If the contractor (University of Michigan) fails to make good faith efforts to comply with the subcontracting goals, the sponsor may impose penalties, including partial or total reimbursement of funds. Failure to meet the subcontracting goals may also negatively affect future funding prospects for other University of Michigan applicants.
The Small Business Subcontracting Plan Process
There are 5 steps involved in creating the small business subcontracting plan. Usually the department’s Research Administrator or equivalent acts on the Principal Investigator’s behalf to complete the following steps:
1. Contact the Procurement Services Research Liaison (research.liaison@umich.edu) to request assistance with developing a small business plan.
2. Prepare the budget.
3. Identify suppliers to provide products and services.
4. Complete and return the Small Business Plan Toolkit.
5. Review and approve the Small Business Plan.
1. Contact the Procurement Services Research Liaison. It takes some time to develop the plan, so it is advised that you contact Procurement Services as far in advance of the proposal deadline as possible. The Research Liaison will send you via email the Small Business Plan Toolkit and a Subcontracting Budget Worksheet to help in the development of the small business plan.
2. Prepare the Budget. The budget must list with as much detail as possible the types of products and services you will need to purchase over the course of the project. Break down travel costs into airfare, ground travel, lodging, etc.
3. Identify Suppliers. Provide the Research Liaison a list of any suppliers you know can provide the products and services outlined in the budget. Include the supplier(s) name, address, phone and/or fax number, and the Research Liaison will determine their business status (Small, Large, Small Disadvantaged, Women-Owned, etc.). The Research Liaison can also assist in identifying other potential suppliers that are available for small business contracting. However, because of the technical nature of research studies, the Research Liaison will rely on the expertise of the Principal Investigator (PI) to determine whether a suggested supplier can provide the required product or service.
4. Complete and Return the Small Business Plan Toolkit. The Research Liaison will take the information provided in the completed toolkit and formulate a draft small business plan.
5. Review and approve the Small Business Plan. The PI and Research Administrator should review the draft small business plan to be sure that the goals outlined in the plan can and will be met over the course of the contract period. Written justifications are required to explain why certain purchases cannot be made with small businesses in each of the specified categories. The federal contracting officer who reviews the proposed small business plan may reject it and require further efforts be made to find suppliers in one or more of the small business categories.
Monitoring Small Business Spend and Reporting to the Sponsor
When the contract is awarded, DRDA sends a Project Award Notice to the PI and the Procurement Services Research Liaison with information regarding the contract. The Research Liaison is responsible for submitting semi-annual reports to the appropriate federal agency on the cumulative spend in each small business and large business category for the particular contract. The Research Liaison also sends a quarterly report for each contract to the PI and Research Administrator so that they can see how they are progressing toward meeting the small business goals. Remember that penalties may be imposed by the sponsor for not meeting the small business subcontracting goals.
Fig. 1. Reporting Frequency
Report |
Reporting Period |
Due Date |
Federal Semi-Annual |
Oct 1 – Mar 31 |
April 30 |
Quarterly |
Oct 1 – Dec 31 |
Jan 31 |
Federal Semi-Annual |
Apr 1 – Sep 30 |
Oct 30 |
Quarterly |
Apr 1 – Jun 30 |
Jul 31 |
If goals are not being met, the semi-annual report submitted to the sponsor must include a reason for non-achievement of goals and the steps being taken to meet the goals before the end of the contract. The Research Liaison will request such an explanation from the PI or Research Administrator to include with the semi-annual report.
Key Responsibilities of the Research Administrator
If you are the person responsible for managing the contract on behalf of the PI, you should be diligent in fulfilling the following requirements to ensure compliance:
- Review the draft small business plan thoroughly with the PI to be sure that you can comply with the spending goals and suppliers identified. Once the plan is accepted by the sponsor, the expectation is that the goals will be met.
- Be sure staff in your department, responsible for ordering products and services, are aware of the small business goals and suppliers to be used for purchases related to the contract. For example, staff may be accustomed to ordering lab supplies from one of the University’s Strategic Suppliers (e.g., Fisher Scientific), but the small business plan has identified a small business enterprise as the source for the products or services for the particular contract.
- When submitting an ePro requisition, inform the Procurement buyer handling the transaction that the purchase is associated with a small business plan. The buyer will follow all of the required procurement policies and procedures as they work with the identified supplier.
- Any potential or actual Conflict of Interest suppliers must be identified, and the University’s COI policy and procedures must be followed.
- Review the quarterly spend reports provided to you by the Research Liaison. The report includes the cumulative spend to date in each small business category, as well as a spreadsheet with the breakdown of the spend by procurement method (PO, Non-PO voucher, P-Card, SUB). Transactions with small business suppliers are identified in the breakdown data. You should notify the Research Liaison of any missed small business dollars so that the report to the federal sponsor can be corrected.
- Products and services from small business suppliers may be higher priced than what might be obtained through a large business or University Strategic Contract. This, however, is not an acceptable explanation for not purchasing through a small business enterprise, unless the cost difference is quite significant. Remember that when the PI commits to the spending goals and supplier sources identified in the small business plan, the spend should be placed with those suppliers, or suppliers within the same small business category(ies), regardless of possible savings elsewhere.
- Where possible, do not use a P-Card to purchase airline tickets. Federal sponsors will accept only “tier 1” dollars. Airfare cannot be counted as small business spend if a P-Card is used to purchase the airline ticket, regardless of whether the travel agency is identified as a small business. Rather, a Purchase Order (ePro Requisition) must be issued to the small business travel agency so that the full cost of the airfare can be counted toward the small business goals.
Things To Remember!
- The PI is ultimately responsible for ensuring the small business goals are met by the end of the contract.
- Penalties may be imposed by the sponsor if the small business subcontracting goals are not met. The penalty may be in the form of partial or total reimbursement of funds to the sponsor.
- Be diligent about monitoring the quarterly small business spend reports to be sure you are on track with meeting the small business goals.
Questions? Contact the Procurement Services Research Liaison (research.liaison@umich.edu).
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