New DFARS Regulation on Small Business Affiliate Past Performance

Nearly a year ago, the National Defense Authorization Act for Fiscal Year 2024 directed the Department of Defense (DOD) to amend the Defense Federal Acquisition Regulation Supplement (DFARS) no later than July 1, 2024, "to require that when small business concerns bid on Department of Defense contracts, the past performance evaluation and source selection processes shall consider, if relevant, the past performance information of affiliate companies of the small business concerns."

On November 15, 2024, DOD promulgated that long-awaited amendment, effective immediately, with no opportunity for public comment. Here is what DOD worked up over the course of the last year:

When evaluating the past performance of an offeror that is a small business concern in response to a competitive solicitation, contracting officers shall consider relevant past performance information provided for affiliates of the offeror.

DFARS 215.305(a)(2)(C). The new regulation is welcome news to some (those small business contractors that have affiliates and do business with DOD), but most offerors will not benefit from it. We have a few observations. The regulation also raises some important questions, which the lack of public comment has unfortunately left unresolved.

Observations

• This regulation applies only to DOD procurements. Non-DOD procurements continue to follow the ordinary rule that agencies may but are not required to consider affiliate past performance. In our experience, most agencies already do consider affiliate past performance for all offerors, subject to the usual condition that the affiliate must be proposed to have some meaningful involvement in performance.
• The new rule applies only to small business offerors. It does not require agencies to consider the past performance of affiliates of large business offerors, although agencies remain free to do so.
• Because the regulation is located in DFARS Part 215, we would not expect it to be mandatory for acquisitions that do not use FAR Part 15 procedures. Thus, for example, DOD agencies would continue to be free to consider or not consider affiliate past performance when making Federal Supply Schedule orders under FAR Subpart 8.4, because DFARS Part 215 is generally inapplicable to such orders. Whether the new regulation applies to task order competitions under FAR Subpart 16.5 likely depends on whether a particular acquisition otherwise uses FAR Part 15 procedures.
• The regulation is not limited to small business set-aside procurements. The rule applies when the offeror is a small business, even if it is bidding on a full and open opportunity.

Unresolved Questions

• Does the regulation apply to the evaluation of corporate experience? Although past performance and corporate experience are related, they aren't the same thing, and the rules governing past performance evaluations do not necessarily apply to corporate experience evaluations. It would be logical for an agency to apply this new rule to both, but the text of the regulation does not actually require that.
• Can an offeror receive affiliate past performance credit if its proposal does not propose meaningful involvement of the affiliate in contract performance? As we have detailed before, the ordinary rule is that agencies are prohibited from crediting an offeror with affiliate past performance if the offeror's proposal fails to identify some meaningful participation by the affiliate in contract performance. We would expect agencies to read the new regulation in harmony with this longstanding case law. After all, the success of a different legal entity that won't be involved in a new contract provides no "relevant" information about the offeror's ability to perform well. But the regulation itself does not explain how this will work.
• What does "consider" mean? The new rule requires DOD contracting officers to "consider" the past performance of small business offerors' affiliates. But does it require the contracting officers to give that past performance the same weight as offeror past performance? The rule does not say, but we would expect contracting officers to retain some degree of discretion in this regard.

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