Legal Middlemaning

Introduction

This tutorial provides a comprehensive guide on legal middlemaning in government contracting, focusing on how to navigate the regulations and avoid illegal practices. Understanding these concepts is crucial for any small business looking to secure contracts while complying with federal guidelines.

Step 1: Understand the Legal Framework

• The government sets certain contracts aside for small businesses, such as 8(a), HubZone, and woman-owned small businesses (WOSB).
• These programs aim to nurture the growth of eligible small businesses.
• Avoid engaging in pass-through schemes, which are illegal unless approached correctly.

Step 2: Recognize Illegal Pass-Through Schemes

• An illegal pass-through occurs when a non-qualifying business offers a small business a fee to take on a contract while doing all the work themselves.
• Example: A non-WOSB offers a WOSB $10,000 to handle a $200,000 contract, where the bulk of the work is done by the non-WOSB.
• This distorts the intended support for small businesses and is illegal.

Step 3: Learn Limitations on Subcontracting

• Limitations on subcontracting apply only to contracts set aside for small businesses, not to full and open or large contracts.
• For contracts valued above $250,000, at least 50% of the work must be done by the small business (50% for professional services and 15% for construction).
• Understand the implications of these regulations to avoid legal issues.

Step 4: Utilize Simplified Acquisition Procedures

• For contracts valued at $250,000 or under, simplified acquisition procedures (SAP) apply.
• These contracts are considered too small to matter, allowing for more flexibility in subcontracting arrangements.
• Familiarize yourself with this threshold to identify opportunities for legal middlemaning.

Step 5: Focus on Similarity in Small Business Programs

• If a small business has a contract over $250,000, they may subcontract to another business with the same small business certification (e.g., WOSB to WOSB).
• This maintains the flow of government funds to the intended recipients.
• Avoid trying to subcontract to businesses outside your small business category unless you have a valid exception.

Step 6: Explore Special Situations

• FAR Part 13.5 allows certain contracts over $250,000 to use simplified acquisition procedures, raising the bar to $7.5 million.
• If your contract references FAR Part 13.5, you can leverage this to legally subcontract without the usual restrictions, as these contracts are considered too small to matter under the raised threshold.

Conclusion

Legal middlemaning can be a lucrative opportunity for small businesses in government contracting, but understanding the regulations is paramount. Key points to remember include:

• Avoid illegal pass-through schemes by ensuring compliance with subcontracting limitations.
• Utilize simplified acquisition procedures for lower-value contracts.
• Collaborate with similarly situated entities when subcontracting for larger contracts.

For further exploration, consider reviewing related regulations and resources to deepen your understanding of government contracting.