FAR 19.705-1—General.
Plain-English Summary
FAR 19.705-1 explains how contracting officers may use subcontracting incentives and when subcontracting plans are required for indefinite-delivery contracting. It covers monetary incentives for increased subcontracting opportunities, including payments based on actual subcontracting achievement and award-fee approaches, and points to the Incentive Subcontracting Program clause at 52.219-10 and the related prescription in 19.708(c). It also sets limits on incentive provisions by requiring realistic goals and rewards that are proportional to the extra effort the contractor would not otherwise have made, and it says these incentives should normally be negotiated only after the subcontracting plan is finalized. In addition, it addresses subcontracting plan requirements for IDIQ contracts, including task and delivery order contracts, Federal Supply Schedule contracts, GWACs, and MACs, when the contract value meets the threshold and subcontracting opportunities exist, except where the contractor has a commercial plan. Finally, it clarifies that ordering contracting officers may set small business subcontracting goals for individual orders, but those goals cannot be turned into a new subcontracting plan because a contract may have only one plan.
Key Rules
Incentives Are Permitted
The contracting officer may encourage greater subcontracting through monetary incentives, such as payments tied to actual subcontracting performance or award-fee arrangements. These incentives are tied to the Incentive Subcontracting Program and must be used consistently with the applicable clause and prescription.
Goals Must Be Realistic
When an incentive rewards the contractor for exceeding subcontracting goals, the contracting officer must make sure the goals are achievable and grounded in the contract’s actual subcontracting potential. Unrealistic goals undermine the incentive structure and can distort performance expectations.
Rewards Must Match Extra Effort
Any monetary reward for exceeding subcontracting goals must be commensurate with the additional effort the contractor would not otherwise have expended. The incentive is meant to motivate behavior beyond baseline performance, not to pay for work the contractor would likely do anyway.
Negotiate Incentives After Plan
Incentive provisions should normally be negotiated only after the contracting officer and contractor have reached final agreement on the subcontracting plan. This sequencing helps ensure the incentive is based on an agreed subcontracting baseline.
IDIQ Plans May Be Required
For IDIQ contracts, including task or delivery order contracts, FSS, GWACs, and MACs, the contracting officer must require a subcontracting plan when the estimated contract value meets the threshold in 19.702(a) and small business subcontracting opportunities exist, unless the contractor has a commercial plan.
Order-Level Goals Are Allowed
Ordering contracting officers may establish small business subcontracting goals for individual orders, but those goals cannot be structured as a separate subcontracting plan. A contract may have only one subcontracting plan, so order-level goals must stay within that limit.
Responsibilities
Contracting Officer
May use monetary incentives to encourage subcontracting, but must ensure incentive goals are realistic and any rewards are proportional to the contractor’s extra effort. Must normally negotiate incentive provisions after finalizing the subcontracting plan, require subcontracting plans for covered IDIQ contracts when the threshold and opportunity conditions are met, and avoid creating more than one subcontracting plan for a contract.
Ordering Contracting Officer
May set small business subcontracting goals for individual orders under an IDIQ vehicle, but must not convert those goals into a separate subcontracting plan. Must keep order-level goals consistent with the single subcontracting plan already in place for the contract.
Contractor
Must develop and comply with the subcontracting plan when required, and may be eligible for monetary incentives if it exceeds agreed goals. If operating under a commercial plan, the contractor’s plan status affects whether a separate plan is required for the IDIQ contract.
Agency
Must support acquisition practices that encourage subcontracting opportunities and ensure contracting personnel apply the subcontracting plan and incentive rules consistently across covered contract types.
Practical Implications
This section is important when structuring subcontracting incentives because poorly designed goals or rewards can be unenforceable or ineffective. Contracting officers should document why the goals are realistic and how the incentive amount relates to incremental effort.
For IDIQ buys, the subcontracting plan decision cannot be deferred casually: if the threshold is met and small business opportunities exist, the plan requirement applies unless the contractor already has a commercial plan.
Ordering offices can set order-specific small business goals, but they must be careful not to treat those goals as a second subcontracting plan. That mistake can create compliance problems because the FAR allows only one plan per contract.
Contractors should expect that incentive provisions will be negotiated after the subcontracting plan is settled, so they should be prepared to support proposed goals with data and past performance.
A common pitfall is assuming that every IDIQ order needs its own subcontracting plan. The rule allows order-level goals, but not a new plan, so the distinction between goals and plans matters operationally and legally.
Official Regulatory Text
(a) The contracting officer may encourage the development of increased subcontracting opportunities in negotiated acquisition by providing monetary incentives such as payments based on actual subcontracting achievement or award-fee contracting (see the clause at 52.219-10 , Incentive Subcontracting Program, and 19.708 (c)). When using any contractual incentive provision based upon rewarding the contractor monetarily for exceeding goals in the subcontracting plan, the contracting officer must ensure that (a) the goals are realistic and (b) any rewards for exceeding the goals are commensurate with the efforts the contractor would not have otherwise expended. Incentive provisions should normally be negotiated after reaching final agreement with the contractor on the subcontracting plan. (b) (1) Except where a contractor has a commercial plan, the contracting officer shall require a subcontracting plan for each indefinite-delivery, indefinite-quantity contract (including task or delivery order contracts, FSS, GWACs, and MACs), when the estimated value of the contract meets the subcontracting plan thresholds at 19.702 (a) and small business subcontracting opportunities exist. (2) Contracting officers placing orders may establish small business subcontracting goals for each order. Establishing goals shall not be in the form of a new subcontracting plan as a contract may not have more than one plan ( 19.705-2 (e)).