Ensuring Efficiency and Fairness in Federal Subcontracting Act of 2024
📝 TL;DR
This bill creates enforceable requirements for prime federal contractors to actually use the small business subcontractors they promise in their proposals, including mandatory status updates, formal complaint processes, and loss of performance bonuses for underutilization. It also mandates multiple studies to identify additional reforms needed and requires improved government outreach to small businesses seeking subcontracting opportunities.
Plain English Explanation
The Ensuring Efficiency and Fairness in Federal Subcontracting Act of 2024 is a comprehensive reform bill aimed at strengthening oversight and accountability in federal contracting, particularly regarding the utilization of small businesses as subcontractors. Introduced by Rep. Lee of Pennsylvania on December 31, 2024, the bill addresses longstanding concerns that prime contractors on large federal contracts are not adequately involving small businesses despite making commitments to do so in their subcontracting plans. The legislation establishes new reporting requirements, enforcement mechanisms, and penalties to ensure that small business subcontracting goals are met rather than merely promised. The bill comes at a time when federal agencies spend hundreds of billions annually on contracts, and small business participation in this market is a key policy priority for promoting economic opportunity and competition.
Detailed Analysis
The bill operates through a multi-faceted approach combining immediate regulatory changes, comprehensive studies, and systemic improvements to federal contracting oversight. At its core, Section 4 requires the Federal Acquisition Regulatory Council to revise procurement rules within 18 months, mandating that prime contractors provide status updates to subcontractors within 30 days of request and establishing a formal complaint process through contracting officers. This addresses a common problem where small businesses are included in proposals to win contracts but then ignored during performance. The legislation also establishes significant financial consequences through Section 7, which allows agencies to withhold performance-based incentive fees from prime contractors who fall below specified small business utilization thresholds—specifically, complete loss of incentive fees for utilization below 50% of planned levels and warning letters for utilization below 75%. This represents a substantial shift from the current system, which relies primarily on monitoring rather than meaningful penalties. The bill simultaneously calls for multiple studies by the Government Accountability Office and Attorney General to examine current practices and identify additional reforms needed. Section 3 focuses on monitoring challenges with large, complex contract vehicles like Indefinite Delivery/Indefinite Quantity (IDIQ) contracts, while Section 6 examines whether the Contractor Performance Assessment Reporting System (CPARS) effectively captures and responds to subcontractor relationship problems. The legislation also addresses systemic capacity issues, requiring the General Services Administration to develop a modernization plan for the Electronic Subcontracting Reporting System (eSRS) and mandating improved outreach to various categories of small businesses. This comprehensive approach suggests the bill's sponsors recognize that effective reform requires both immediate rule changes and longer-term infrastructure improvements.
🎯 Key Provisions
Mandatory Prime Contractor Status Notifications: Requires prime contractors to notify subcontractors named in subcontracting plans about contract status within 30 days of request, including whether task orders have been received or work executed. Creates formal complaint process through contracting officers. (Section 4(1)-(3) - requires prime contractors to 'provide to a subcontractor named in a subcontracting plan...notification of the status of the contract' and establishes reporting mechanism for non-responsive contractors)
Financial Penalties for Underutilization: Allows agencies to withhold performance-based incentive fees from prime contractors who achieve less than 50% of their small business utilization goals, with warning letters issued at 75% thresholds. (Section 7 - 'if the rate of small business utilization for the contract is less than 50 percent of the utilization level prescribed in the subcontracting plan, the prime contractor shall not be eligible to receive a performance-based incentive fee')
Enhanced Small Business Outreach Requirements: Mandates federal agencies conduct at least two general small business outreach sessions annually plus specific sessions for veteran-owned, HUBZone, disadvantaged, and women-owned small businesses. (Section 8 - requires 'hosting at least two general outreach sessions per year for potential small business contractors and one outreach session per year for each of the following groups' including various small business categories)
GAO Study on Large Contract Monitoring: Requires comprehensive Government Accountability Office analysis of small business utilization monitoring on the largest federal contracts, including IDIQ and Government-wide Acquisition Contracts. (Section 3 - mandates study 'on how small business utilization by prime contractors can be better monitored on the largest and longest Federal contracts, including Indefinite Delivery, Indefinite Quantity (IDIQ) contracts')
Electronic Subcontracting System Modernization: Requires General Services Administration to develop modernization plan for the Electronic Subcontracting Reporting System including cost estimates, capacity assessments, and resource requirements. (Section 9 - mandates plan including 'steps that the General Services Administration intends to make toward updating and modernizing eSRS' and 'estimated cost and sources of funding required')
Attorney General Enforcement Study: Directs comprehensive study of enforcement mechanisms for subcontracting plan compliance, including exploration of alternative complaint routes for aggrieved subcontractors. (Section 5 - requires study 'on ways to strengthen enforcement mechanisms for compliance with subcontracting plans' including 'alternative complaint route for subcontractors that have experienced serious issues')
👥 Impact Analysis
Direct Effects If enacted, this bill would immediately create new legal obligations for prime contractors on federal contracts, requiring them to maintain regular communication with planned subcontractors and face potential financial penalties for failing to meet small business utilization commitments. The 30-day notification requirement would give subcontractors unprecedented visibility into contract performance and create paper trails for potential enforcement actions. The incentive fee restrictions could represent substantial financial consequences—federal contracts often include significant performance bonuses, and losing eligibility for these fees could impact contractor profitability and competitiveness. Federal contracting officers would gain new tools and responsibilities, including formal documentation requirements for subcontractor complaints and consideration of small business utilization in performance assessments. Within 180 days, multiple comprehensive studies would begin examining current system weaknesses, potentially laying groundwork for additional reforms.
Indirect Effects The legislation could fundamentally alter the dynamics between prime contractors and small business subcontractors by shifting bargaining power and creating enforceable expectations around subcontracting commitments. Prime contractors may need to invest in new compliance systems and dedicate additional staff to subcontractor relationship management, potentially increasing their operational costs. The threat of losing incentive fees could make prime contractors more selective about the small business utilization levels they commit to in proposals, potentially leading to more realistic but possibly lower initial commitments. Federal agencies may need to expand their contracting officer training and oversight capabilities to handle the new complaint processes and enforcement requirements.
Affected Groups - Small business subcontractors - Prime federal contractors - Federal contracting officers - Federal procurement agencies - Veteran-owned small businesses - Women-owned small businesses - HUBZone small businesses - Socially and economically disadvantaged small businesses - General Services Administration
Fiscal Impact The bill does not specify direct appropriations or funding mechanisms for most of its requirements, suggesting implementation costs would come from existing agency budgets. However, Section 9 explicitly requires cost estimates for modernizing the Electronic Subcontracting Reporting System, acknowledging that technological improvements will require dedicated funding. The GAO studies mandated in Sections 3 and 6 would consume analyst resources but fall within GAO's normal oversight functions. Federal agencies would face administrative costs for enhanced outreach programs, contracting officer training, and complaint processing systems. The Attorney General study in Section 5 would require coordination across multiple agencies, potentially creating additional administrative expenses. For contractors, the financial impact could be significant through lost incentive fees, though the bill frames this as enforcement rather than new costs.
📋 Latest Action
12/31/2024
Referred to the Committee on Oversight and Accountability, and in addition to the Committee on Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.