In a recent protest decision by the Government Accountability Office (GAO) it was determined that a 1099 Contractor  was not considered an employee of the firm and work performed by the contractor did not count toward a Small Businesses prime contractors performance.

1099 Contract Employees May Be Considered Subcontractors

MindPoint Group, LLC put in a bid for an EDWOSB set aside contract with the Department of Justice. In their bid MindPoint indicated that they would perform 53.3% of the work and subcontract the rest.One of their proposed labor categories included an employee titled “Systems Administrator MS”  and MindPoint’s proposal indicated that this person filing the System Administrator position is an independent consultant and 1099 contractor. The DOJ took this language to mean that the person filing the System Administrator position was not an employee of MindPoint and the contribution of this employee was discounted from the DOJ’s calculation of MindPoint’s self-performance and was added to their subcontractor performance. When the System Administrator’s portion was discounted, the total self-performance fell from 53.3% to 45%, disqualifying MindPoint from the set aside bid.

In the FAR’s limitations on subcontracting clause it indicates that contracts set-aside for small businesses must be 50% performed by the small business. For Service Contracts, 50% of the contract cost for personnel must be expended for employees of the small business and for Supply Contracts, the small business must perform work for at least 50% of the cost of manufacturing the supplies, not including the cost of materials. Because of MindPoint’s emphasis that the System Administrator was an independent 1099 consultant the DOJ determined that this consultant’s contribution would not be included in MindPoint’s self-performance which caused them to fall below this 50% threshold. Although MindPoint argued that the 1099 consultant would function like an employee, nothing in their bid indicated that this was the case and the GAO ultimately dismissed MindPoint’s protest for lack of standing.

This is something for Small Businesses to keep in mind when preparing a bid that falls under the FAR limitation on subcontracting clause. In the decision the GAO indicated: “since the protester’s own proposal repeatedly treated the systems administrator as an independent contractor or consultant rather than as an employee, there is no basis to question the agency’s conclusion that the individual is not an employee of MindPoint.”  Worked performed by independent 1099 contractors may not qualify toward your self-performance under the FAR’s limitations on subcontracting clause. If you are a small business bidding on a set aside, be sure you can clearly demonstrate that your business will be conducting at least 50% of the work.

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