Small Business Subcontracting


Per federal regulations, a small business subcontracting plan is required for federal contracts and subcontracts that exceed $750,000 over the course of the contract. Certain percentages of the direct cost expenditures must be spent with suppliers in small business categories. (See Federal Acquisition Regulation parts 19 and 52 for detailed information on small business plan requirements.)

The small business supplier categories and the federal prime contract percentage goals are:

  • Small Business Enterprise (SMB or SBE) - 23%
  • Small Disadvantaged Business (SDB) - 5%
  • Woman-owned Small Business (WOSB or WBE) - 5%
  • Historically Underutilized Business Zone (HUBZone) - 3%
  • Veteran-owned Small Business (VOSB) - 3%
  • Service-disabled Veteran-owned Small Business (SDVOSB) - 3% 

Note: SDB, WBE, HUBZone, VOSB, and SDVOSB goals are subsets of SMB and are counted and reported in multiple categories, as appropriate.

It is critical that small business subcontracting goals are met. If the contractor (the University of Michigan) fails to make good-faith efforts to comply with the subcontracting goals, the sponsor may impose penalties, including partial or total reimbursement of funds. Failure to meet the subcontracting goals may also negatively affect future funding prospects for other University of Michigan applicants.

Creating a small business subcontracting plan

There are four steps involved in creating the small business subcontracting plan. Typically, the department's research administrator (RA) or equivalent acts on the principal investigator's (PI) behalf to complete the following steps:

1. Contact the Procurement Services Research Liaison – Send a message to to request assistance with creating a small business plan.   We recommend that you contact Procurement Services as far in advance of the proposal deadline as possible. It may take up to two weeks to develop the plan.

What we need from you:

  • Name of PI
  • Name of RA
  • Solicitation number
  • Name of the project
  • Start and end date of the project
  • Budget justification
  • Is it a continuous project or are there option years?
  • Final budget
  • List of supplies and from whom they are being purchased from
  • When is the plan due?


2. Provide a Detailed Budget – The budget must list, with as much detail as possible, the types of products and services you will need to purchase over the course of the project. Break down travel costs into airfare, ground travel, lodging, etc.

3. Identify Suppliers – Provide the research liaison a list of any suppliers you know can provide the products and services outlined in the budget. Include the supplier(s) name, address, phone, email, and fax number. The research liaison will determine the supplier’s business status. Your procurement agent and the research liaison can assist in identifying other potential suppliers that are available for small business contracting. However, because of the technical nature of research studies, the research liaison will rely on the expertise of the PI to determine whether a suggested supplier can provide the required product or service.

4. Review and Approve the Small Business Plan – The PI and RA should review the draft plan to make sure that the goals outlined in the plan can and will be met over the course of the contract period. Written justification is required to explain why certain purchases cannot be made with small businesses in each of the specified categories. The federal contracting officer who reviews the proposed plan may require that further efforts be made to find suppliers in one or more of the small business categories.

Once the PI and RA confirm with the research liaison that they agree with the proposed spend goals, the research liaison will send them a signed copy of the plan. The PI and RA then submit the plan to the sponsor with their proposal.

Key unit responsibilities

After the small business subcontracting plan is accepted by the sponsor, the expectation is that the goals will be met. The unit is responsible for managing and tracking spend according to the plan. The PI is ultimately responsible for ensuring the small business goals are met by the end of the contract.

  • Ensure that staff in your department who order products and services are aware of the small business goals and the suppliers to be used for purchases related to the contract. For example, staff may be accustomed to ordering lab supplies from one of the university's strategic suppliers (e.g., Fisher Scientific), but the small business plan has identified a small business enterprise as the source for the products or services for the particular contract.
  • Review the quarterly small business spend reports to ensure you are on track with meeting the goals. The report also includes the cumulative spend to date in each small business category and the breakdown by procurement method (PO, Non-PO voucher, PCard, SUB). Transactions with small business suppliers are identified in the breakdown data. Notify the research liaison of any missed small business dollars so that the report to the federal sponsor can be corrected. See Monitoring Small Business Spend in Federal Reporting for more details.
  • Whenever a proposal to alter the contract is to be submitted, you should contact the research liaison to determine if a modified Small Business Subcontracting Plan is required. This could include adding an additional phase, extending the date, or increasing the contract dollar amount.

Things to consider

  • Penalties may be imposed by the sponsor if the small business subcontracting goals are not met. The penalty may be in the form of reimbursement of funds to the sponsor.
  • Products and services from small business suppliers may be priced higher than what might be obtained through a large-business or university strategic contract. This, however, is not an acceptable explanation for not purchasing through a small business enterprise unless the cost difference is significant. Remember that when the PI commits to the spending goals and supplier sources identified in the small business plan, the spend should be placed with those suppliers, or suppliers within the same small business category or categories, regardless of possible savings elsewhere.
  • When submitting an ePro requisition, inform the procurement agent handling the transaction that the purchase is associated with a small business plan. The procurement agents will follow all required procurement policies and procedures as they work with the identified supplier.
  • Any potential or actual conflict of interest (COI) suppliers must be identified, and the university's COI policy and procedures must be followed.