FAR 19.702—Statutory requirements.
Plain-English Summary
FAR 19.702 implements the Small Business Act’s statutory subcontracting requirements and explains when contractors must provide small business subcontracting plans. It covers the policy that prime contractors on larger contracts must give small business concerns, veteran-owned small business (VOSB), service-disabled veteran-owned small business (SDVOSB), HUBZone small business, small disadvantaged business (SDB), and women-owned small business (WOSB) concerns the maximum practicable opportunity to participate in performance, and it also requires timely payment to those subcontractors. The section then sets out when subcontracting plans are required in negotiated acquisitions, sealed bidding, and contract modifications, including special rules for multiple-award contracts with more than one NAICS code. It identifies the main exceptions where plans are not required, such as for small business prime contractors, personal services contracts, work performed entirely outside the United States and its outlying areas, and certain in-scope modifications when the contract lacks the small business clause. The section also explains the consequences of noncompliance, including material breach and liquidated damages for failure to make a good-faith effort to comply with a subcontracting plan. Finally, it addresses limited crediting rules for mentor-protégé arrangements, including certain DoD mentor-protégé developmental assistance costs and SBA-approved mentor-protégé training costs that may count toward subcontracting goals under specified conditions.
Key Rules
Maximum practicable opportunity
Any contractor receiving a contract above the simplified acquisition threshold must agree that small business and socioeconomic small business concerns will have the maximum practicable opportunity to participate in contract performance, consistent with efficient performance. This is a mandatory contract commitment, not just a policy preference.
Timely subcontract payments
Prime contractors must establish procedures to ensure timely payment of amounts due under subcontracts with small business, VOSB, SDVOSB, HUBZone, SDB, and WOSB concerns. The rule is aimed at protecting small subcontractors from payment delays that can undermine performance and cash flow.
Subcontracting plans for large negotiated buys
For negotiated acquisitions expected to exceed $900,000, or $2 million for construction, and that have subcontracting possibilities, the solicitation must require the apparently successful offeror to submit an acceptable subcontracting plan. If the offeror cannot negotiate an acceptable plan within the contracting officer’s deadline, it is ineligible for award.
Subcontracting plans for sealed bidding
For sealed bidding acquisitions above the same dollar thresholds and with subcontracting possibilities, the invitation for bids must require the bidder selected for award to submit a subcontracting plan. Failure to submit an acceptable plan within the contracting officer’s deadline makes the bidder ineligible for award.
Plans required after certain modifications
A contract modification that causes a contract without a subcontracting plan to exceed the applicable threshold requires a subcontracting plan if the contracting officer determines subcontracting opportunities exist. This prevents contractors from avoiding plan requirements through later growth in contract value.
Multiple-award, multiple-NAICS flexibility
For multiple-award contracts with more than one NAICS code, the offeror or contractor may submit a plan for only the distinct portions or categories for which it is other than small, or for the entire proposal or contract, at its discretion. The contracting officer must consider the cumulative dollar value of the non-small portions when deciding whether a plan is required.
Exceptions to plan requirement
Subcontracting plans are not required from small business concerns, for personal services contracts, for work performed entirely outside the United States and its outlying areas, or for certain in-scope modifications when the contract does not include the small business utilization clause at FAR 52.219-8.
Noncompliance consequences
Failure by a contractor or subcontractor to comply in good faith with a subcontracting plan is a material breach of contract. The statute also authorizes liquidated damages when the contractor fails to make a good-faith effort to comply with plan requirements.
Mentor-protégé crediting
Certain developmental assistance costs under an approved DoD mentor-protégé agreement may be credited as if they were subcontract awards to the protégé for purposes of subcontracting plan goals. Separately, an SBA-approved mentor-protégé agreement may allow a mentor to count training costs provided to its protégé toward subcontracting plan goals if the protégé meets the statutory eligibility conditions.
Responsibilities
Contracting Officer
Determine whether the acquisition or modification exceeds the applicable threshold and whether subcontracting possibilities exist; include the required subcontracting plan clause or solicitation requirement; set the deadline for submission or negotiation of an acceptable plan; evaluate whether a plan is acceptable; decide whether a modification triggers a new plan requirement; and assess whether an exception applies.
Apparently Successful Offeror / Bidder
Submit an acceptable subcontracting plan when required by the solicitation or invitation for bids; negotiate plan terms within the contracting officer’s deadline; and, for multiple-NAICS contracts, decide whether to prepare a plan for the non-small portions or for the entire proposal or contract.
Prime Contractor
Provide small business, VOSB, SDVOSB, HUBZone, SDB, and WOSB concerns maximum practicable opportunity to participate in performance; establish procedures for timely payment to covered subcontractors; comply in good faith with the subcontracting plan; and maintain performance consistent with the plan’s goals and commitments.
Subcontractor
Perform under the subcontract and, where applicable, comply in good faith with any subcontracting-plan-related commitments that flow down or are incorporated into the subcontracting arrangement.
Agency / Government
Apply the statutory policy and enforce subcontracting-plan requirements, including evaluating compliance, pursuing remedies for material breach, and imposing liquidated damages when the contractor fails to make a good-faith effort to comply.
Mentor Firm
When relying on mentor-protégé crediting, ensure the mentor-protégé agreement is properly approved before claiming developmental assistance costs or training costs toward subcontracting plan goals; document the costs and eligibility basis for credit.
DoD Small Business Programs Director / Cognizant DoD Office
Approve mentor-protégé agreements before developmental assistance costs may be credited under the DoD rule and maintain the approved-agreement process referenced by the regulation.
Practical Implications
This section is a gatekeeper for award on many larger procurements: if a subcontracting plan is required and not submitted or accepted on time, the offeror or bidder can be ruled ineligible for award.
Contractors should identify subcontracting-plan obligations early, especially on acquisitions above $900,000 or $2 million for construction, because the requirement can arise at solicitation, award, or even after a modification increases contract value.
The exceptions are narrow and should be checked carefully; a contract being small business set-aside, personal services, overseas-only, or modified within scope does not automatically mean a plan is required or not required without reviewing the specific facts and clauses.
Good-faith compliance matters as much as plan submission: poor execution, weak procedures for timely payment, or failure to meet plan commitments can lead to material breach findings and liquidated damages.
For multiple-award, multiple-NAICS contracts, contractors and contracting officers must pay close attention to which portions are counted as non-small and whether the plan covers only those portions or the whole effort, because the dollar-value calculation drives the requirement.
Official Regulatory Text
Any contractor receiving a contract with a value greater than the simplified acquisition threshold must agree in the contract that small business, veteran-owned small business (VOSB), service-disabled veteran-owned small business (SDVOSB), HUBZone small business, small disadvantaged business (SDB), and women-owned small business (WOSB) concerns will have the maximum practicable opportunity to participate in contract performance consistent with its efficient performance. It is further the policy of the United States that its prime contractors establish procedures to ensure the timely payment of amounts due pursuant to the terms of their subcontracts with small business, VOSB concerns, SDVOSB concerns, HUBZone small business concerns, SDB concerns, and WOSB concerns. (a) (1) Except as stated in paragraph (b) of this section, section 8(d) of the Small Business Act ( 15 U.S.C. 637( d)) imposes the following requirements regarding subcontracting with small businesses and small business subcontracting plans: (i) In negotiated acquisitions, each solicitation of offers to perform a contract that is expected to exceed $900,000 ($2 million for construction) and that has subcontracting possibilities, shall require the apparently successful offeror to submit an acceptable subcontracting plan. If the apparently successful offeror fails to negotiate a subcontracting plan acceptable to the contracting officer within the time limit prescribed by the contracting officer, the offeror will be ineligible for award. For a multiple-award contract with more than one North American Industry Classification System (NAICS) code, see paragraph (a)(2)(i) of this section. (ii) In sealed bidding acquisitions, each invitation for bids to perform a contract that is expected to exceed $900,000 ($2 million for construction) and that has subcontracting possibilities, shall require the bidder selected for award to submit a subcontracting plan. If the selected bidder fails to submit a plan within the time limit prescribed by the contracting officer, the bidder will be ineligible for award. For a multiple-award contract with more than one NAICS code, see paragraph (a)(2)(i) of this section. (iii) Each contract modification that causes the value of a contract without a subcontracting plan to exceed $900,000 ($2 million for construction), shall require the contractor to submit a subcontracting plan for the contract, if the contracting officer determines that subcontracting opportunities exist. For a multiple-award contract with more than one NAICS code, see paragraph (a)(2)(ii) of this section. (2) (i) For a multiple-award contract with more than one NAICS code, the solicitation referenced in paragraphs (a)(1)(i) and (ii) of this section shall require the apparently successful offeror to submit an acceptable subcontracting plan for either the distinct portion(s) or category(ies) of their proposal for which the offeror is other than small or for the entirety of their proposal, at the offeror's discretion. When determining the need for a subcontracting plan, the contracting officer shall consider the cumulative dollar value of the portion(s) or category(ies) of the offeror's proposal for which the offeror is other than small. (ii) For a multiple-award contract with more than one NAICS code, the modification referenced in paragraph (a)(1)(iii) of this section shall require the contractor to submit an acceptable subcontracting plan for either the distinct portion(s) or category(ies) of the contract for which the contractor is other than small or for the entirety of their contract, at the contractor's discretion. When determining the need for a subcontracting plan, the contracting officer shall consider the cumulative dollar value of the portion(s) or category(ies) of the contract for which the contractor is other than small. (b) Subcontracting plans (see paragraphs (a)(1) and (2) of this section) are not required– (1) From small business concerns; (2) For personal services contracts; (3) For contracts or contract modifications that will be performed entirely outside of the United States and its outlying areas; or (4) For modifications that are within the scope of the contract and the contract does not contain the clause at 52.219-8 , Utilization of Small Business Concerns. (c) As stated in 15 U.S.C. 637(d)(9) , any contractor or subcontractor failing to comply in good faith with the requirements of the subcontracting plan is in material breach of its contract. Further, 15 U.S.C. 637(d)(4)(F) directs that a contractor’s failure to make a good faith effort to comply with the requirements of the subcontracting plan shall result in the imposition of liquidated damages. (d) As authorized by 15 U.S.C. 637(d)(12) , certain costs incurred by a mentor firm in providing developmental assistance to a protégé firm under the Department of Defense Mentor-Protégé Program, may be credited as if they were subcontract awards to a protégé firm for the purpose of determining whether the mentor firm attains the applicable goals under any subcontracting plan entered into with any executive agency. However, the mentor-protégé agreement must have been approved by the Director, Small Business Programs of the cognizant DoD military department or defense agency, before developmental assistance costs may be credited against subcontract goals. A list of approved agreements may be obtained at https://business.defense.gov/Programs/Mentor-Protege-Program/. (e) In accordance with 15 U.S.C. 657r(a) , a mentor with an SBA-approved mentor-protégé agreement (see 13 CFR 125.9 ) that provides a subcontract to its protégé may apply the costs incurred for training it provides to its protégé toward its subcontracting plan goals, provided that protégé is a covered territory business or that protégé has its principal office located in the Commonwealth of Puerto Rico.