This blog was originally published on 08/17/2016 and updated on 5/7/2020.
Are you bidding on a contract to supply the United States government? If so, be aware that depending on the size of the contract, you are required to subcontract with diverse business enterprises to be in compliance with government regulations.
Under the Small Business Subcontracting Program (FAR 19.7), the U.S. federal government requires any contractor whose contract for goods and services is expected to exceed $700,000 ($1.5 million for construction) to set and meet aggressive goals of subcontracting spend with underrepresented small businesses from specified categories.
These categories include:
- Ethnic-minority-owned, woman-owned
- Service-disabled veteran-owned businesses
Federal contractors are also required to “establish procedures to ensure the timely payment of amounts due pursuant to the terms of their subcontracts,” according to FAR 19.702.
Even companies that aren't directly supplying the public sector, such as Tier 2 suppliers that provide goods and services to Tier 1 suppliers rather than the public sector, may be required to adhere to these types of requirements if they supply other private-sector companies that are government contractors.
Reviewing and monitoring federal contracts for compliance is shared by the Small Business Administration (SBA) and the awarding agency. According to the SBA’s website, “Any prime contractor with a subcontracting plan can be selected for a subcontracting compliance review. The review confirms the prime is following relevant regulations, processes, procedures, and the subcontracting plan.”
Supplier diversity compliance requirements can be confusing or intimidating, especially for a company that is new to federal contracting. But the secret to compliance is really the secret to any successful supplier diversity program: Establish realistic goals and maintain accurate tracking of your diverse suppliers and your diverse spend.
In order to meet supplier diversity compliance requirements you must set spend goals, expressed as percentages of total planned subcontracting dollars, for subcontractors within the small-business categories noted above.
Exact percentages required are not published because they vary by department or agency, and vary based on industry, market, and availability. Set your goals to be as aggressive but realistic as you can.
Additionally, your subcontracting plan must include:
- Descriptions of how you developed these goals
- The principal types of supplies and services to be subcontracted
- Identification of types planned for subcontracting to small businesses
- The method used in order to identify potential sources for solicitation purposes
- A description of the types of records that will be maintained concerning procedures adopted to comply with the requirements and goals in the plan
- Assurances that you will pay small-business subcontractors on time and in accordance with the terms and conditions of the subcontract
As you can see, transparency is required when contracting with the federal government. Your supplier diversity program will benefit from the tools needed to meet these federal requirements as well. Work together with key stakeholders in order to develop short- and long-term goals that align with your organization's core business objectives. CVM’s Supplier Explorer tool satisfies several of the criteria listed above, including identifying potential diverse suppliers.
The Supplier Explorer tool provides accurate, up-to-date company and supplier contact information that allows you to search and filter by diversity category, certification source, commodity and area of expertise, geographical location, and more.
Finally, document the entire process in a clear, written subcontracting plan in order to set your company up for success as a federal contractor.
Track Diverse Spend
Report, track, and visualize diverse spend data with a software solution that allows you to create custom reports and analyze spend across multiple dimensions. Evaluate growth and measure against your goals in order to ensure that you are meeting federal requirements as well as your organization's corporate objectives.
You can also track Tier 2 spend in order to meet spend goals, ensure that your subcontractors are in compliance, and identify potential problems before they arise.
A Tier 2 initiative is an essential best practice for a mature supplier diversity program. It allows you to increase your diverse spend by partnering with diverse suppliers further down the supply chain, a necessity when many diverse business enterprises do not have the capability to be Tier 1 suppliers.
A robust, reliable tracking solution provides you with the data to file federal reports and meet compliance reviews and audits with confidence.
Track Diverse Suppliers
Supplier data is constantly changing. Mergers and acquisitions, ownership changes, and other factors can affect a supplier's diversity status. Data enrichment services can help you track certification or classification status in order to mitigate risk and maintain the integrity of your diverse spend when preparing government reports.
Contracting with the federal government can be an advantage for your company, propelling you toward your growth goals, but you must be prepared for supplier diversity compliance requirements. Choosing the right tools for your supplier diversity program will ensure that you meet—and exceed—those requirements.