The Inapplicability of Limitations on Subcontracting to “Preference Contracts” for Small Businesses: Washington-Harris Group

Kate M. Manuel
Legislative Attorney

This report discusses Washington-Harris Group, a protest filed with the Government Accountability Office (GAO) alleging, among other things, that an agency improperly awarded a “preference contract” to a service-disabled veteran-owned small business that proposed to subcontract a greater percentage of work on the contract than allowed under the Small Business Administration’s limitations on subcontracting. GAO denied the protest, in part, because it found that limitations on subcontracting apply only to contracts “set aside” for small business, not to preference contracts. A preference contract is one awarded in an unrestricted competition in which firms’ small-business status is an evaluation factor, while a set-aside is a procurement in which only small businesses may compete. Limitations on subcontracting are statutory and regulatory provisions that require small businesses to perform certain percentages of the work on federal prime contracts themselves, rather than subcontract it to other firms. GAO’s decision appears to be a case of first impression and can arguably be construed to mean that existing limitations on subcontracting are inapplicable to non-disaster and non-emergency contracts awarded to any type of small business under the general contracting authorities. Commentators have suggested that the decision may result in increased use of preference contracts by federal agencies.

The federal government awarded $93.3 billion in prime contracts and subcontracts to small businesses in FY2008 through set-asides and other contracting vehicles. In part because of small businesses’ role in job creation, Members of the 111th Congress have enacted or introduced legislation that would increase government-wide and agency-specific goals for contracting and subcontracting with small businesses, or otherwise promote contracting with small businesses. This includes P.L. 111-5, P.L. 111-8, P.L. 111-88, P.L. 111-240, H.R. 915, H.R. 2200, H.R. 2299, H.R. 3371, H.R. 3619, H.R. 4253, H.R. 4842, H.R. 4929, H.R. 5136, H.R. 5590, S. 1451, S. 2971, S. 3429, S. 3444, S. 3458, and S. 3676.


Date of Report: October 6, 2010
Number of Pages: 11
Order Number: R40998
Price: $29.95

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