FAR 19.705-7—Compliance with the subcontracting plan.
Plain-English Summary
FAR 19.705-7 explains how the Government evaluates and enforces compliance with a subcontracting plan after award. It covers the national policy favoring maximum practicable use of small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns; the standard for determining whether a contractor made a good faith effort; examples of actions that support or undermine that finding; how the contracting officer documents the record when goals are missed; and the notice process when a failure to make a good faith effort is found. In practice, this section matters because missing subcontracting goals alone is not automatically a violation, but poor planning, weak outreach, bad recordkeeping, or failure to follow the plan can trigger a formal finding of noncompliance. The section also ties directly to liquidated damages under statute when a contractor does not make a good faith effort. For contractors, it is a roadmap for what compliance looks like in day-to-day subcontracting management; for contracting officers, it is the framework for evaluating performance fairly and consistently.
Key Rules
National policy and damages
The Government treats maximum practicable use of the listed small business categories as a matter of national interest. If a contractor fails to make a good faith effort to comply with its subcontracting plan, the statute directs that liquidated damages be paid.
Missed goals are not automatic failure
A contractor’s failure to meet subcontracting goals, by itself, does not prove a lack of good faith effort. The contracting officer must look at the totality of the contractor’s actions and whether they are consistent with the assurances and commitments in the subcontracting plan.
Good faith indicators
Actions that may show good faith include breaking out work into economically feasible units, conducting broad market research, soliciting early, giving timely information to small businesses, negotiating in good faith, referring firms to SBA, helping with bonding or financing issues, using small business support organizations, participating in mentor-protégé programs, exceeding goals in other socioeconomic categories, and otherwise fulfilling the plan.
Failure indicators
Indicators of a lack of good faith include failing to search for or solicit small businesses through reasonable means, not designating a responsible company official, failing to submit required ISR or SSR reports, not keeping records or enforcing flowdown requirements, adopting policies that frustrate the plan, not paying small business subcontractors on time under the prime contract terms, ignoring compliance review findings or training, failing to explain why required purchases or work were not obtained as described in the plan, and falsifying subcontract award records.
Documentation when goals are missed
If the contractor fails to comply with the subcontracting plan at the end of the basic contract, an option period, or the applicable fiscal year for a commercial plan, the contracting officer must review all available information to see whether there is any indication of a lack of good faith effort. If none is found, the file must be documented to that effect.
Notice process for noncompliance
If the contracting officer concludes that the contractor failed to make a good faith effort, the contracting officer must follow the notice process in paragraph (d), which begins the formal enforcement path and can lead to liquidated damages.
Responsibilities
Contracting Officer
Evaluate subcontracting compliance using the totality of the contractor’s actions, not just whether goals were met. Review available information at the end of the contract, option, or fiscal year; document the file if no lack of good faith is indicated; and, if a lack of good faith is found, issue the required notice and proceed with enforcement under the subcontracting plan and applicable law.
Contractor
Make a good faith effort to comply with the subcontracting plan, including outreach, solicitation, negotiation, recordkeeping, reporting, flowdown compliance, and payment practices. Maintain a responsible company official for the program, correct compliance issues, provide explanations when required, and avoid any conduct that frustrates the plan or falsifies records.
Small Business Liaison / Company Official
Administer the subcontracting program, monitor performance against goals, maintain records, enforce subcontracting flowdown requirements, coordinate outreach and assistance efforts, and help ensure reports and corrective actions are completed on time.
Agency / Government
Provide the compliance framework, receive and review subcontracting reports and compliance information, support training and review activities, and enforce statutory and regulatory remedies when a contractor fails to make a good faith effort.
SBA and Small Business Support Resources
Provide assistance, matchmaking, outreach, and other support services that contractors may use to identify, develop, and help small business subcontractors participate in federal contracting.
Practical Implications
Contractors should not assume that missing a goal automatically means they are in trouble; what matters is whether they can show real, documented effort consistent with the plan.
The biggest compliance failures are usually process failures: weak market research, late outreach, poor documentation, missing reports, and no accountable company official.
Contracting officers need a fact-based record. If goals were missed but the contractor’s efforts were reasonable, the file should reflect that no lack of good faith was found.
Falsified records, ignored compliance findings, and failure to pay small business subcontractors are especially serious and can strongly support a noncompliance finding.
A strong subcontracting plan is only as good as its execution; contractors should treat reporting, flowdowns, and outreach as ongoing obligations, not end-of-year paperwork.
Official Regulatory Text
(a) General. Maximum practicable utilization of small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns as subcontractors in Government contracts is a matter of national interest with both social and economic benefits. When a contractor fails to make a good faith effort to comply with a subcontracting plan, these objectives are not achieved, and 15 U.S.C. 637(d)(4)(F) directs that liquidated damages shall be paid by the contractor. (b) Determination of good faith effort. (1) In determining whether a contractor failed to make a good faith effort to comply with its subcontracting plan, a contracting officer must look to the totality of the contractor's actions, consistent with the information and assurances provided in its plan. The fact that the contractor failed to meet its subcontracting goals does not, in and of itself, constitute a failure to make a good faith effort (see 19.701 ). For example, notwithstanding a contractor's diligent effort to identify and solicit offers from any of the small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns, factors such as unavailability of anticipated sources or unreasonable prices may frustrate achievement of the contractor's subcontracting goals. The contracting officer may consider any of the following, though not all inclusive, to be indicators of a good faith effort: (i) Breaking out work to be subcontracted into economically feasible units, as appropriate, to facilitate small business participation. (ii) Conducting market research to identify potential small business subcontractors through all reasonable means, such as searching SAM, posting notices or solicitations on SBA's SUBNet, participating in business matchmaking events, and attending preproposal conferences. (iii) Soliciting small business concerns as early in the acquisition process as practicable to allow them sufficient time to submit a timely offer for the subcontract. (iv) Providing interested small businesses with adequate and timely information about plans, specifications, and requirements for performance of the prime contract to assist them in submitting a timely offer for the subcontract. (v) Negotiating in good faith with interested small businesses. (vi) Directing small businesses that need additional assistance to SBA. (vii) Assisting interested small businesses in obtaining bonding, lines of credit, required insurance, necessary equipment, supplies, materials, or services. (viii) Utilizing the available services of small business associations; local, state, and Federal small business assistance offices; and other organizations. (ix) Participating in a formal mentor-protégé program with one or more small business protégés that results in developmental assistance to the protégés. (x) Although failing to meet the subcontracting goal in one socioeconomic category, exceeding the goal by an equal or greater amount in one or more of the other categories. (xi) Fulfilling all of the requirements of the subcontracting plan. (2) When considered in the context of the contractor's total effort in accordance with its plan, the contracting officer may consider any of the following, though not all inclusive, to be indicators of a failure to make a good faith effort: (i) Failure to attempt through market research to identify, contact, solicit, or consider for contract award small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, or women-owned small business concerns, through all reasonable means including outreach, industry days, or the use of Federal systems such as SBA's Dynamic Small Business Search or SUBNet systems. (ii) Failure to designate and maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan. (iii) Failure to submit an acceptable ISR, or the SSR, using the eSRS, or as provided in agency regulations, by the report due dates specified in 52.219-9 , Small Business Subcontracting Plan. (iv) Failure to maintain records or otherwise demonstrate procedures adopted to comply with the plan including subcontracting flowdown requirements. (v) Adoption of company policies or documented procedures that have as their objectives the frustration of the objectives of the plan. (vi) Failure to pay small business subcontractors in accordance with the terms of the contract with the prime contractor. (vii) Failure to correct substantiated findings from Federal subcontracting compliance reviews or participate in subcontracting plan management training offered by the Government. (viii) Failure to provide the contracting officer with a written explanation if the contractor fails to acquire articles, equipment, supplies, services, or materials or obtain the performance of construction work as described in 19.704 (a)(12). (ix) Falsifying records of subcontract awards to small business concerns. (c) Documentation of good faith effort. If, at completion of the basic contract or any option, or in the case of a commercial plan, at the close of the fiscal year for which the plan is applicable, a contractor has failed to comply with the requirements of its subcontracting plan, which includes meeting its subcontracting goals, the contracting officer shall review all available information for an indication that the contractor has not made a good faith effort to comply with the plan. If no such indication is found, the contracting officer shall document the file accordingly. (d) Notice of failure to make a good faith effort. If the contracting officer decides in accordance with paragraph (b) of this section that the contractor failed to make a good faith effort to comply with its subcontracting plan, the contracting officer shall give the contractor written notice in accordance with 52.219-16 , Liquidated Damages—Subcontracting Plan, specifying the material breach, which may be included in the contractor's past performance information, advising the contractor of the possibility that the contractor may have to pay to the Government liquidated damages, and providing a period of 15 working days (or longer period as necessary) within which to respond. The notice shall give the contractor an opportunity to demonstrate what good faith efforts have been made before the contracting officer issues the final decision and shall further state that failure of the contractor to respond may be taken as an admission that no valid explanation exists. (e) Payment of liquidated damages. (1) If, after consideration of all the pertinent data, the contracting officer finds that the contractor failed to make a good faith effort to comply with its subcontracting plan, the contracting officer shall issue a final decision to the contractor to that effect and require the payment of liquidated damages in an amount stated. The contracting officer's final decision shall state that the contractor has the right to appeal under the clause in the contract entitled Disputes. Calculations and procedures shall be in accordance with 52.219-16 , Liquidated Damages—Subcontracting Plan. (2) The amount of damages attributable to the contractor's failure to comply shall be an amount equal to the actual dollar amount by which the contractor failed to achieve each subcontracting goal. For calculations for commercial plans see paragraph (f) of this section. (3) Liquidated damages shall be in addition to any other remedies that the Government may have. (f) Commercial plans. With respect to commercial plans approved under the clause at 52.219-9 , Small Business Subcontracting Plan, the contracting officer that approved the plan shall- (1) Perform the functions of the contracting officer under this subsection on behalf of all agencies with contracts covered by the commercial plan; (2) Determine whether or not the goals in the commercial plan were achieved and, if they were not achieved, review all available information for an indication that the contractor has not made a good faith effort to comply with the plan, and document the results of the review; (3) If a determination is made to assess liquidated damages, in order to calculate and assess the amount of damages, the contracting officer shall ask the contractor to provide- (i) Contract numbers for the Government contracts subject to the plan; (ii) The total Government sales during the contractor’s fiscal year; and (iii) The amount of payments made under the Government contracts subject to that plan that contributed to the contractor’s total sales during the contractor’s fiscal year; and (4) When appropriate, assess liquidated damages on the Government’s behalf, based on the pro rata share of subcontracting attributable to the Government contracts. For example: The contractor’s total actual sales were $50 million and its actual subcontracting was $20 million. The Government’s total payments under contracts subject to the plan contributing to the contractor’s total sales were $5 million, which accounted for 10 percent of the contractor’s total sales. Therefore, the pro rata share of subcontracting attributable to the Government contracts would be 10 percent of $20 million, or $2 million. To continue the example, if the contractor failed to achieve its small business goal by 1 percent, the liquidated damages would be calculated as 1 percent of $2 million, or $20,000. The contracting officer shall make similar calculations for each category of small business where the contractor failed to achieve its goal and the sum of the dollars for all of the categories equals the amount of the liquidated damages to be assessed. A copy of the contracting officer’s final decision assessing liquidated damages shall be provided to other contracting officers with contracts subject to the commercial plan. (5) Every contracting officer with a contract that is subject to a commercial plan shall include in the contract file a copy of the approved plan and a copy of the final decision assessing liquidating damages, if applicable.