[Federal Register Volume 68, Number 202 (Monday, October 20, 2003)]
[Rules and Regulations]
[Pages 60006-60014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26514]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 125
RIN 3245-AF07
Small Business Government Contracting Programs
AGENCY: Small Business Administration.
ACTION: Final rule.
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SUMMARY: This final rule amends the U.S. Small Business Administration
(SBA) regulations governing small business prime contracting
assistance. Specifically, this final rule: revises the definition of
contract bundling to expressly include multiple award contract vehicles
and task and delivery orders under such contracting vehicles; mandates
that procuring activities coordinate with the Small Business Specialist
(SBS) on proposed acquisition strategies or plans contemplating awards
above specified dollar thresholds, and that the SBS notify the agency's
Office of Small and Disadvantaged Business Utilization (OSDBU) when
those strategies include contract bundling that is unnecessary or
unjustified; revises the threshold and documentation required for
substantial bundling; and requires the agency's OSDBU to perform
certain oversight functions. These amendments are intended to implement
a number of the recommendations included in the October 2002 Office of
Management and Budget (OMB) report entitled ``Contract Bundling: A
Strategy for Increasing Federal Contracting Opportunities for Small
Business.''
DATES: This rule is effective November 19, 2003.
FOR FURTHER INFORMATION CONTACT: Dean Koppel, Assistant Administrator,
Office of Policy and Research, (202) 401-8150 or [email protected].
SUPPLEMENTARY INFORMATION:
[[Page 60007]]
A. Background
On January 31, 2003, SBA published a proposed rule in the Federal
Register, 68 FR 5134, to solicit comments on its proposal to implement
several recommendations included in OMB's October 2002 report, entitled
``Contract Bundling: A Strategy for Increasing Federal Contracting
Opportunities for Small Business.'' See http://www.acqnet.gov/Notes/contractbundlingreport.pdf or http://www.acqnet.gov/.
Contract bundling is defined in the Small Business Act as the
consolidation of two or more requirements for goods and services into a
single procurement that is ``unlikely to be suitable for award to a
small business concern.'' 15 U.S.C. 632(o). The dramatic increase in
the size of contracts in recent years has resulted in a significant
reduction in the number of Federal contracting opportunities for small
businesses. As a result, the President's Small Business Agenda directed
OMB to develop a strategy for unbundling contracts as a means of
expanding small business access to Federal procurements.
In response, the Office of Federal Procurement Policy (OFPP),
within OMB, issued the October 2002 bundling report, providing a nine-
point action plan to hold agencies accountable for eliminating
unnecessary contract bundling and for mitigating the effects of
necessary contract bundling. Five of the nine action items specifically
called for regulatory implementation, while the remaining four
contemplated other administrative initiatives involving OMB, SBA and
agency OSDBUs. The specific action items necessitating regulatory
implementation are: Action Item 3, which requires a clarification of
the definition of contract bundling to require bundling reviews of task
and delivery orders under multiple award contract vehicles; Action Item
4, which dictates bundling reviews of agency acquisitions above
specific dollar thresholds; Action Item 5, which mandates the
identification of alternative acquisition strategies and justification
for bundled procurements above established thresholds; Action Item 6;
which requires measures to strengthen compliance with subcontracting
plans of large business prime contractors; and Action Item 7, which
demands measures to facilitate small business teaming arrangements.
SBA's proposed rule published on January 31, 2003 (68 FR 5134)
detailed the changes to the SBA's regulations that would implement the
five action items requiring regulatory amendments. In particular, the
rule proposed to:
(1) Revise the definition of bundling to expressly include multiple
award contract vehicles and task and delivery orders under such
contracts; (2) require procuring activities to coordinate with their
SBS proposed acquisition strategies or plans contemplating awards above
specified dollar thresholds and require the SBS to notify the agency
OSDBU when those strategies include unnecessary and unjustified
contract bundling; (3) reduce the threshold and revise the
documentation required for substantial bundling; and (4) require the
agency's OSDBU to perform periodic oversight reviews of agency bundling
activities.
The proposed rule invited the public to submit comments on the
proposed amendments by April 1, 2003. By the end of the comment period,
SBA had received a total of 26 timely comment letters from a variety of
sources, consisting of one member of Congress; the Public Contract Law
Section of the American Bar Association; two national women's
organizations; five national trade organizations; six Federal agencies;
and 11 firms and individuals from numerous industries.
The overwhelming majority of the 26 commenters supported the
Administration's effort to address the problem of contract bundling.
Some of the commenters, however, complained that a few of the proposed
changes did not go far enough to curb contract bundling. Others, on the
other hand, criticized some of the proposed changes for going too far
to unbundle contracts.
SBA considered all of the comments and recommendations in
developing this final rule. The specific comments to each proposed
amendment and SBA's corresponding responses are set forth below.
B. Section-by-Section Analysis of Comments
1. Comments on Requirement for Bundling Reviews
SBA received six comments concerning its proposal to add a new
Sec. 125.2(b)(2), requiring bundling reviews of proposed acquisition
strategies or plans. As proposed, that section requires an agency to
coordinate its acquisition strategy or plan with its SBS whenever the
agency's contemplated strategy or plan exceeds the applicable agency
threshold established in the proposed Sec. 125.2(b)(2)(i) (discussed
below) and is not set-aside for small businesses. The proposed Sec.
125.2(b)(2) provides a minimum period of no later than 30 days before
the issuance of the solicitation, for the agency to coordinate its plan
with the SBS. In addition, under the proposed Sec. 125.2(b)(2), the
SBS is required to notify the agency OSDBU if the proposed acquisition
strategy or plan includes bundled requirements that the agency has not
identified as bundled or includes unnecessary or unjustified bundling
of requirements.
All six comments on the proposed Sec. 125.2(b)(2) expressed
support for the requirement for SBS bundling reviews. Three of those
six comments recommended allowing the SBS more time to complete the
bundling reviews. These three commenters believed that a notification
timeframe of no later than 30 days prior to the issuance of the
solicitation may be too late in the process for the SBS to influence
the structure of the acquisition and assist in identifying small
business sources. As an alternative, one of these three commenters
recommended official SBS notification at the time the contracting
officer is first notified of the requirement; the second suggested a
provision precluding the contracting officer from finalizing the
acquisition plan until the SBS completed the bundling review within a
``limited number of days''; and the third recommended a minimum 40-day
review period.
SBA has declined to adopt any of these recommendations because they
would unduly burden the procurement process. The requirement for
bundling reviews under the proposed Sec. 125.2(b)(2) implicitly
recognizes the need for SBS and OSDBU involvement in the acquisition
process to facilitate greater participation of small businesses in
Federal contracts. The necessity for their involvement in the process,
however, must be balanced against the practical imperative for an
operationally efficient Federal acquisition system. SBA does not
believe that mandating a specific time that SBSs must receive the
acquisition plan or strategy accommodates the unique planning processes
of individual agencies and procurements. The proposed language in Sec.
125.2(b)(2) for coordination ``as early in the planning process as
practicable, but no later than 30 days,'' affords the flexibility that
the process dictates and also emphasizes the agency's obligation for
early coordination.
The other commenters on the proposed Sec. 125.2(b)(2) urged for a
more stringent provision. Two commenters recommended that the section
authorize OSDBUs to stop an acquisition if the OSDBU determines that it
includes unnecessary or unjustified bundling. Still another commenter
urged for a provision precluding all contract
[[Page 60008]]
bundling, asserting that this was the only acquisition strategy that
would benefit small businesses.
Like the other suggestions concerning this section, SBA believes
that these recommendations also would unduly interfere with the
operational efficiencies of the procurement process. Both governing law
and OMB's October 2002 bundling report acknowledge that necessary and
justified contract bundling may serve a useful purpose. SBA therefore
has no authority to prohibit all bundled contracts, including those
that are determined to be both necessary and justified.
In addition, the comment that OSDBUs should have authority to block
an acquisition ignores existing regulations that would operate in
tandem with proposed Sec. 125.2(b)(2). Specifically, existing Sec.
125.2(b)(6) already provides a mechanism for resolving disagreements
with agencies concerning contract bundling and small business
participation in procurements. Section 125.2(b)(6) authorizes
Procurement Center Representatives (PCRs) to initiate an appeal to the
head of the contracting activity when there is a disagreement
concerning the bundling of a requirement or the suitability of an
acquisition to be set aside for small business competition. The
proposed rule, specifically Sec. 125.2(b)(8) and Sec.
125.2(d)(7)(ii), encouraged SBSs and OSDBUs to cooperate with PCRs in
reviewing procurements and in identifying possible small business
contracting opportunities. SBSs and OSDBUs therefore can work with PCRs
in using the PCR appeal mechanism to challenge unnecessary and
unjustified contract bundling.
Accordingly, SBA believes that the proposed Sec. 125.2(b)(2)
properly balances the need for SBS reviews of acquisition strategies,
with the need for operational efficiency in the procurement process. In
adopting Sec. 125.2(b)(2), SBA has made three minor revisions. The
first clarifies that the proposed strategies are for ``acquisitions''
that meet the applicable dollar threshold. The second revision adds
language to reinforce the SBS's responsibility to assist in identifying
alternative strategies when an acquisition plan involves substantial
bundling. The third revision adds a new Sec. 125.2(b)(2)(ii) to
explain the application of the dollar thresholds to multiple award
contracts and orders. The new Sec. 125.2(b)(2)(ii) indicates that the
thresholds provided in Sec. 125.2(b)(2)(i) apply to the cumulative
value of an acquisition strategy that contemplates multiple award
contracts or orders, including options.
2. Comments on Acquisition Dollar Thresholds
SBA specifically requested comments on the proposed Sec.
125.2(b)(2)(i). That section establishes three separate agency-specific
dollar thresholds that would trigger the bundling reviews required
under Sec. 125.2(b)(2) and the additional documentation and
justification required for substantial bundling under Sec.
125.2(d)(1)(v) (discussed below). The three-tier dollar threshold
proposed was $7 million or more for the Department of Defense (DOD); $5
million or more for the National Aeronautics and Space Administration
(NASA), the Department of Energy (DOE) and the General Services
Administration (GSA); and $2 million or more for all other agencies.
SBA received nine comments on this proposal. Only one of the nine
commenters objected to the adoption of any dollar threshold. That one
objecting commenter believed that the imposition of thresholds for SBS
bundling reviews would mean that contract bundling could occur below
the established thresholds without review. This commenter asserted that
focusing review on contracts above the threshold would somehow
eliminate bundling reviews of smaller contracts and thereby reduce
rather than increase contracting opportunities for small businesses.
This commenter misunderstands the purpose and application of the
proposed thresholds under Sec. 125.2(b)(2)(i). The proposed thresholds
are not intended to relieve procuring officials of their existing
responsibilities to justify contract bundling at any dollar threshold,
and to mitigate the effects of necessary bundling. The existing Sec.
125.2(b)(3), which implements 15 U.S.C. 644(a), requires procuring
activities to provide a copy of all proposed bundled procurements,
irrespective of amount, to the activity's PCR at least 30 days before
the solicitation is issued. The proposed Sec. 125.2(b)(2)(i) leaves
that requirement in place, and focuses additional resources instead on
reviewing higher-dollar valued procurements that will likely have an
even greater adverse impact by foreclosing small business prime
contract participation.
Proposed Sec. 125.2(b)(2)(i) is intended to supplement and not
replace current PCR reviews of procurement strategies. As a result,
instead of reducing small business contracting opportunities as the
objecting commenter asserts, proposed Sec. 125.2(b)(2)(i) and related
provisions will serve to expand small business access to Federal
contracts by providing more reviews of those bundled procurements that
possess the greatest potential to harm small businesses.
With the exception of that one objecting commenter, the remaining
eight commenters on Sec. 125.2(b)(2)(i) supported the adoption of
dollar thresholds for SBS reviews, but expressed diverse opinions as to
the appropriate structure and amount of the thresholds. One commented
that the proposed three-tier approach and dollar amounts are
reasonable, but further indicated that the Agency should be aware that
substantial bundling may occur at levels below the threshold.
Two commenters recommended that SBA reduce the dollar amounts--one
of these commenter failed to specify any alternative amount, while the
other recommended the adoption of thresholds between $1 and $2 million.
Two other commenters recommend increasing the thresholds to an
unspecified amount. Both of these commenters believed that higher
thresholds would better accommodate the limited agency resources
available to conduct bundling reviews and provide the additional
justifications required for substantial bundling.
Two additional commenters believed that adopting different
thresholds for different agencies would unnecessarily complicate the
acquisition process. They recommended that SBA adopt a single
government-wide threshold that would apply to all agencies equally. One
of these two commenters suggested that SBA establish the government-
wide threshold at $7 million. The other commenter urged that DOD be
subject to the same dollar threshold as the other agencies. This
commenter asserted that it is just as important for DOD to sustain its
small business industrial base as it is for civilian agencies. This
commenter further indicated that close monitoring of DOD's procurement
is essential to limiting the adverse impact of contract bundling on
small businesses.
Another commenter also believed that the three-tier approach is too
complicated. This commenter suggested that SBA adopt one threshold of
either $2 or $5 million for all agencies and a second threshold of
greater than $5 million to trigger ``additional requirements'' for all
agencies procurements above that amount.
As SBA explained in its preamble to the proposed rule published on
January 31, 2003, the proposed dollar amounts of the thresholds are
based on a comparative analysis of the number and size of the
contracting actions of the major procuring activities. The objective of
the tier approach is two-fold: (1) To target those contracting actions
for
[[Page 60009]]
individual agencies that would most likely involve contract bundling;
and (2) to minimize the extent to which the bundling reviews would
disrupt the procurement process of individual agencies.
SBA continues to believe that the proposed three-tier threshold
will best achieve those objectives. SBA therefore declines to adopt the
recommendations for a single government-wide threshold to trigger
bundling reviews and the additional documentation requirements for
substantial bundling (discussed below). SBA is instead adopting the
proposed threshold of $7 million for DOD, $5 million for NASA, DOE and
GSA, and $2 million for all other agencies. These agency-specific
levels will capture those procurements that would most likely involve
contract bundling for individual agencies, will minimize the disruption
to the procurement process, and will properly account for the limited
resources and contracting personnel to conduct the bundling reviews.
3. Comments on Compliance With Subcontracting Plans
The redesignated Sec. 125.2(b)(6)(iii)(C) under the proposed rule
clarifies the language of the former Sec. 125.2(b)(5)(iii)(C) to make
clear that as part of the responsibilities of PCRs to ensure that small
business participation is maximized through subcontracting
opportunities, PCRs may review an agency's oversight of its
subcontracting programs, including the agency's overall and individual
assessment of contractor compliance. The proposed Sec.
125.2(b)(6)(iii)(C) contemplates a systemic review of an agency's
general assessment of subcontracting plan compliance to facilitate
greater consistency in agency oversight in the future.
SBA received 11 comments on this proposed clarification. Although
the comments applauded the intent of proposed Sec.
125.2(b)(6)(iii)(C), the majority of the comments indicated that it is
insufficient to monitor and ensure compliance with subcontracting
plans. Three commenters recommended the imposition of penalties or
sanctions on large prime contractors for noncompliance with their small
business subcontracting plans. The Federal Acquisition Regulation (FAR)
already provides for liquidated damages for noncompliance with
subcontracting plans. Under FAR section 19.750-7, a prime contractor is
liable for such damages for failing to make a ``good faith effort'' to
comply with its subcontracting plans. Since governing regulations
already provide monetary consequences for noncompliance with
subcontracting plans, SBA is not adopting this recommendation.
Continuing on the issue of compliance with subcontracting plans,
one commenter suggested that SBA explore incentives that would reward
large prime contractors that achieve their subcontracting goals. Along
those lines, another commenter similarly recommended reinforcing prime
contractor compliance with subcontracting plans by requiring the
inclusion in all solicitations a past performance evaluation factor
assessing subcontracting plan compliance. This commenter believed that
such a mandatory source selection factor, in both bundled and non-
bundled acquisitions alike, would encourage greater small business
subcontracting awards. Additionally, because of the increase in task
and delivery orders under multiple award contracts, the commenter also
suggested that the regulations encourage the inclusion of a similar
evaluation source selection criterion for task and delivery order
awards.
Another commenter recommended that large businesses that are
awarded task and delivery orders under GSA's Federal Supply Schedule
(FSS) should be subject to the requirement for subcontracting plans
under section 8(d) of the Small Business Act, 15 U.S.C. 637(d).
SBA agrees that a subcontracting plan compliance evaluation factor
may serve as an effective incentive to encourage greater compliance
with the plans. SBA is therefore adopting the proposed Sec.
125.2(b)(6)(iii), with a new paragraph (D), recommending a separate
evaluation factor of ``significant weight'' for achievements of
subcontracting goals on previous contracts. SBA declines to make that
evaluation factor mandatory or to extend it to task and delivery order
awards at this time, since it has not yet determined the potential
impact of such requirements.
Also, regarding the issue of SBA's review of subcontracting
compliance, one commenter suggested that the regulations mandate that
PCRs share their compliance assessments with SBA's breakout PCRs, who
are assigned to major contracting centers. This commenter also
recommended that SBA develop a system to enable PCRs and breakout PCRs
to submit their assessments to the cognizant contracting officer.
Two commenters expressed the need for further guidance on
evaluating compliance with subcontracting plans and a contractor's
``good faith'' efforts to achieve its small business goals. One of
these two commenters further indicated that government agencies should
be required to ``evaluate large businesses on the same basis and
understanding of the small business subcontracting plan regulations.''
This commenter also complained that large businesses need additional
guidance in completing commercial plans, which cover a commercial
contractor's entire fiscal year and commercial production.
Two additional commenters recommended that in addition to goals,
subcontracting plans should include other information, such as a
description of the nature of the work to be subcontracted and the
efforts the offeror will make to ensure that small businesses have an
equitable opportunity to compete for subcontracts.
Likewise, another commenter suggested that prime contractor
subcontracting plans should be reviewed not only for the extent of
small business participation, but also for the extent to which they
generate ``reasonable profit margins'' for small businesses. This
commenter explained that review of the small business profit margins is
necessary because prime contractors often give the low margin, high
revenue producing products to small businesses, and thereby achieve
their percentage of participation but leave the small business with
little profit. This commenter also recommended the collection and
dissemination of best practices and strategies for maximizing small
business prime and subcontract opportunities.
SBA agrees that effective procedures to mitigate the effects of
contract bundling on small businesses necessitates more stringent
requirements for monitoring compliance with subcontracting plans to
ensure that small businesses receive the maximum practical opportunity
to participate as subcontractors in large Federal contracts. Many of
the commenters recommended amendments that require further
consideration to evaluate their likely effectiveness and impact on the
procurement process. As a result, SBA is proposing a separate rule,
published elsewhere in this issue of the Federal Register, to address
many of these comments and suggestions, including the suggestion for
more guidance in determining good faith compliance.
Although published separately, that proposed rule addressing the
comments on Sec. 125.2(b)(6)(iii)(C), remains part of the
Administration's initiative to implement OMB's October 2002 report on
contract bundling. However, because the rule proposes additional
changes to SBA's regulations that were not
[[Page 60010]]
published for public comment as part of SBA's earlier January 31, 2003,
proposed rule, SBA is publishing these proposed changes separately to
solicit public comment before they become final.
4. Comments on Requirement for PCR, SBS and OSDBU Cooperation
SBA received four comments addressing proposed Sec. 125.2(b)(8).
This section reiterates the requirement for PCRs to work with SBSs and
agency OSDBUs as early in the acquisition process as practicable, to
identify acquisitions involving bundling and to increase small business
prime contract participation. Several of the commenters requested
additional language and guidance for developing and monitoring the
utilization of small business teams.
Additionally, two of the commenters did not believe that the
amendment sufficiently referenced joint ventures, teaming and mentor-
prot[eacute]g[eacute] relationships as effective mechanisms for
increasing small business access to Federal procurements. One of these
commenters maintained that small business involvement in Federal
procurements through subcontracting should be the exception rather than
the rule. Another commenter suggested that small business teams should
be based on ``market driven strategies to develop the competitiveness
of small firms in non-traditional areas of weakness.''
SBA agrees that additional guidance on identifying and developing
small business teams is necessary. Nonetheless, proposed Sec.
125.2(b)(8) was not intended to provide such detailed guidance. The
efforts to develop additional guidance are part of a separate
administrative initiative to implement one of OMB's non-regulatory
recommendations under Action Item 8 of its October 2002 bundling
report. That item requires SBA to collect and disseminate best
practices for maximizing small business opportunities. In implementing
that recommendation, on January 23, 2003, SBA issued a memorandum to
Senior Procurement Executives and OSDBU Directors, requesting proven
strategies for increasing opportunities for small businesses. The
memorandum invited the officials to submit to SBA's Office of
Government Contracting no later than February 28, 2003, best practices
for maximizing small business opportunities.
Once SBA completes its review of the agency submissions, it will
publish a compilation of best practices, strategies and guidance for
maximizing prime and subcontracting opportunities for small businesses.
Since SBA will provide additional guidance on small business teams as
part of this separate initiative, it will not include such guidance in
this rulemaking action and is therefore adopting Sec. 125.2(b)(8) as
proposed.
5. Comments on Clarification of Bundling Definition
SBA received seven comments on its proposal to implement the OMB
bundling report recommendation to require bundling reviews for task and
delivery order awards under multiple award contract vehicles. The
proposed regulations add new Sec. 125.2(d)(1)(iii) to define a
``single contract'' to include: (1) an indefinite quantity contract
awarded to two or more sources under a single solicitation for the same
or similar supplies and services; and (2) an order under a FSS contract
or a task or delivery order contract awarded by another agency. The
proposed rule also adds new Sec. 125.2(d)(1)(iv) defining an ``order''
as an order placed under a FSS contract or a task or delivery order
contract awarded by another agency. The purpose of providing
definitions of a ``single contract'' and an ``order'' is to clarify
that task and delivery orders under multiple award contract vehicles
are subject to the applicable requirements for bundling reviews and
justifications.
The majority of the seven commenters expressed support for the
proposed clarification. One commenter suggested that SBA clarify that
the Sec. 125.2(d)(1)(iii) definition of ``single contract'' is ``for
purposes of this subpart 125.2 only.'' Section 125.2(d)(1)(iii) already
contains the qualifying statement ``as used in this definition.'' SBA
believes that language sufficiently clarifies that the definition of
``single contract'' is provided as part of the overall definition of
contracting bundling. There is therefore no need for further clarifying
language.
By far, the most common issue the commenters raised on the proposed
definition of ``single contract'' and ``order'' was the type of
multiple award contracts encompassed under the proposed definition. One
commenter complained that the definition did not fully implement OMB's
bundling recommendation to close the loophole of bundling task and
delivery order awards because it does not cover the orders an agency
issues against its own multiple award contracts. This commenter pointed
out that the new definition only covers the orders placed against GSA's
FSS, or against an indefinite quantity contract awarded by another
agency. This commenter urged that the definition of contract bundling
should include orders placed against indefinite quantity, multiple
award contracts awarded by any agency.
Also on this issue, two other commenters indicated that the
regulations should not exempt an agency's order against its own
multiple award contract, since agencies may also bundle requirements
when ordering against their own multiple award contracts.
SBA does not agree that an agency's orders against its own contract
should be subject to bundling reviews. The underlying multiple award
contract of an agency is subject to the requirements for SBS and PCR
review for contract bundling and small business participation. Unlike
FSS orders, theoretically, the SBS and PCR reviews of an agency's
proposed acquisition strategy or plan for its multiple award contract
should encompass that agency's anticipated orders under that contract.
Consequently, the agency's own orders presumably were part of the
underlying PCR and SBS review. It would therefore be duplicative to
require yet another bundling review of each individual order the agency
places against its already reviewed multiple award contract. As a
result, SBA is not adopting this recommendation, particularly in light
of the limited resources available to conduct the reviews.
Another commenter asserted that the proposed clarification under
Sec. Sec. 125.2(d)(1)(iii) and (iv) is ``vague as to whether task or
delivery orders added to existing contracts will be covered by the
definition and reviewed, or whether only task or delivery orders over
certain thresholds will be reviewed.'' Under the proposed definitions,
task and delivery order awards under any indefinite quantity contract
other than an agency's own multiple award contract, would be subject to
SBS review under Sec. 125.2(b)(2), if it is above the established
threshold, and would be subject to review by the cognizant PCR under
Sec. 125.2(b)(3), if it involves bundling.
In particular, since Sec. 125.2(b)(2) requires procuring
activities to submit acquisitions strategies above the established
threshold to SBSs, strategies that contemplate orders that are above
the threshold and that are not against an agency's own multiple award
contract, would be subject to SBS review for bundling. Second, Sec.
125.2(b)(3) requires a procuring activity to submit a copy of a
proposed acquisition strategy to the PCR, whenever that strategy
involves a bundled requirement. Because Sec. Sec. 125.2(d)(1)(iii) and
(iv) define a bundled requirement to include certain task and delivery
orders under another
[[Page 60011]]
agency's contract, agencies would be required to submit such orders to
PCRs for review, when the orders include bundling.
The final comment on proposed Sec. Sec. 125.2(d)(1)(iii) and (iv)
noted that the proposed definition of bundling is deficient because it
does not cover ``new work.'' Contrary to that commenter's assertion,
nothing in the regulations exempts a new requirement from falling
within the scope of the definition of contract bundling. The regulatory
definition of ``separate smaller contract'' is based on the definition
of that term under Section 3(o)(3) of the Small Business Act, 15 U.S.C.
632(o)(3). Like the statutory definition, Sec. 125.2(d)(1)(ii) defines
a ``separate smaller contract'' for purposes of a bundled contract, as
one that ``has previously been performed by one or more small business
concerns or was suitable for award to one or more small business
concerns.'' This definition does not mean that none of the individual
requirements comprising the bundled acquisition can qualify as ``new
work.'' Instead, it requires that some portion of the bundled
procurement must have been either performed or suitable for performance
by a small business.
After considering all of the comments on proposed Sec. Sec.
125.2(d)(1)(iii) and (iv), SBA believes that the amendment effectively
implements OMB's recommendation to compel bundling reviews of task and
delivery orders. SBA is therefore adopting the definition of ``single
contract'' as proposed in Sec. 125.2(d)(1)(iii), but is deleting the
proposed definition of ``order'' under Sec. 125.2(d)(1)(iv), as
unnecessary.
6. Comments on Amendments Concerning ``Substantial Bundling''
In an effort to streamline the requirements for reviewing and
justifying bundled requirements, this proposed rule provides new Sec.
125.2(d)(1)(v) to replace the existing Sec. 125.2(d)(1)(iii). This new
section defines ``substantial bundling'' as any bundling that meets the
dollar amounts specified in proposed Sec. 125.2(b)(2)(i). The proposed
rule also adds new Sec. 125.2(d)(7)(i)(E), requiring that in the event
of substantial bundling, the agency must identify the alternative
strategies that would reduce or minimize the scope of the bundling and
the rationale for not selecting those alternatives. The rule further
proposed new Sec. 125.2(d)(7)(ii), directing the procuring agency to
provide the PCR and agency OSDBU a copy of the proposed acquisition
strategy containing substantial bundling and the required analysis, at
least 30 days prior to the release of a solicitation.
SBA received one comment on this proposal. This commenter objected
to the amendments because the commenter believes that government
acquisition professionals need additional training and support and
because the change will increase the workload of contracting officers.
SBA recognizes that lowering the threshold for ``substantial
bundling'' would mean enlarging the number of procurements that would
require the additional written justification under Sec. 125.2(d)(7).
However, SBA continues to believe that this change will simplify the
application of Sec. 125.2(b)(2)(i) and Sec. 125.2(d)(7), by using the
same three-tier dollar threshold to trigger the bundling reviews and
the required supporting analysis for substantial bundling. Also, the
changes in the requirement for written justifications are consistent
with OMB's report recommendations relating to the identification of
alternative acquisition strategies. As a result, SBA is adopting these
proposed amendments with one change. SBA renumbered Sec.
125.2(d)(1)(v) as Sec. 125.2(d)(1)(iv).
7. Comments on Requirement for Contract Bundling Report
SBA received three comments on its proposal to add new Sec.
125.2(e) to impose a new OSDBU oversight function. The proposed Sec.
125.2(e) dictates that OSDBUs conduct periodic reviews to assess: (1)
The extent to which small businesses are receiving their fair share of
Federal procurements; (2) the adequacy of bundling documentation and
justification; and (3) the adequacy of actions taken to mitigate the
effects of necessary and justified contract bundling, including the
agency's oversight of compliance with subcontracting plans. OSDBUs also
would be required to submit a copy of their assessment to the Agency
Head and SBA Administrator.
One commenter recommended that this section be amended to require
that Federal agencies negotiate with SBA two-part goals for prime and
subcontract awards to the various types of small businesses and that
OSDBUs assess and track the awards to the various categories of small
business concerns.
SBA declines to adopt this recommendation because there is already
a process in place for negotiating small business goals. Section 15(j)
of the Small Business Act, 15 U.S.C. 644(j), charges SBA with
responsibility for negotiating small business goals with Federal
agencies. Pursuant to those responsibilities, the SBA has issued
Goaling Guidelines that provide policy direction for establishing
annual goals, reporting procurement activity and submitting corrective
action plans when the goals are not satisfied. See http://sba.gov/GC.
Most recently, on July 23, 2003, SBA published a notice in the Federal
Register, soliciting comments on proposed revisions to its Goaling
Guidelines. 68 FR 43566. The proposed revisions clarify SBA's goaling
policies and are designed to ensure that the process is transparent.
The proposed Goaling Guidelines are posted on SBA's Web site at http://www.sba.gov/GC/goals. Accordingly, there is no need for SBA to revise
Sec. 125.2(e) to address SBA procedures for negotiating and monitoring
goal achievements.
Another commenter suggested that SBA require annual OSDBU reviews
rather than ``periodic'' reviews. This commenter also suggested that
the OSDBU reviews encompass agency performance in the area of
contracting with women and minority-owned small businesses.
SBA agrees that a requirement for ``annual'' reviews is much
clearer than one for merely ``periodic'' reviews. Thus, SBA has
incorporated that suggestion. SBA is not, however, adopting the second
recommendation regarding the contents of the OSDBU reviews. The
proposed Sec. 125.2(e) already provides that the OSDBU review should
address the extent to which small businesses are receiving their fair
share of Federal procurement, which includes contracting with women and
minority-owned small businesses. There is, therefore, no need to single
out these two categories of small businesses in the section. For this
reason, SBA has adopted Sec. 125.2(e) as proposed, with the exception
of changing the requirement for periodic review to reviews on an annual
basis.
C. Compliance With Executive Orders 12866, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
OMB has determined that this final rule is a significant regulatory
action under Executive Order 12866. The rule implements the
recommendations of the OMB report entitled ``Contract Bundling: A
Strategy for Increasing Federal Contracting Opportunities for Small
Business.'' This rule is part of the President's initiative for small
business growth.
For purposes of Executive Order 12988, SBA has drafted this
proposed rule, to the extent practicable, in accordance with the
standards set forth in section 3 of that Order.
[[Page 60012]]
For purposes of Executive Order 13132, SBA has determined that this
proposed rule has no federalism implications warranting the preparation
of a Federalism Assessment.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
has determined that this proposed rule imposes no new reporting or
recordkeeping requirements.
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, et seq.,
requires that SBA publish a final regulatory flexibility analysis.
According to the RFA, the analysis must include: (1) A statement of
need for and objective of the rule; (2) a summary of significant issues
raised by public comments in response to SBA's Initial Regulatory
Flexibility Act (IRFA) and an assessment of issues and changes made as
a result; (3) a description of and estimate of the number of small
entities to which the rule applies; (4) a description of the reporting,
recordkeeping and other compliance requirements and an estimate of the
classes of small entities subject to the requirements and type of
professional skill necessary for the preparation of the report or
record; and (5) a description of the steps the agency has taken to
minimize the significant economic impact on small entities consistent
with the objectives of applicable statutes and of the reasons the
agency selected the alternative adopted in the rule.
1. Reason for and Objective of the Rule
The objective of this rule is to further the Administration's
commitment to create a government strategy for unbundling Federal
contracts to increase Federal contracting opportunities for small
business. The rule will: (1) Revise the definition of ``bundling'' to
apply to orders placed against Federal Supply Schedules, Government-
wide Acquisition Contracts, and Multi-agency Contracts when those
orders meet the definition; (2) require the SBS to coordinate agency
acquisition strategies at specified dollar thresholds and notify the
agency Office OSDBU when those strategies include unidentified or
unjustified bundling; (3) reduce the threshold and revise the
documentation required for ``substantial bundling;'' (4) require
contracting officers to provide bundling justification documentation to
the agency OSDBU when substantial bundling is involved; and (5) require
agency OSDBUs to conduct annual reviews of agency efforts to maximize
small business participation in procurements.
2. Summary of Public Comments in Response to IRFA
SBA received no comments on its IRFA.
3. Estimate of the Number of Small Entities To Which Rule Applies
This final rule will apply indirectly to all large and small
entities that seek award of Federal contracts. The rule is expected to
have a positive economic impact on small prime contractors and
subcontractors by providing more Federal contracting opportunities for
small businesses. In the SBA's 2001 State of Small Business Report
filed with the House and Senate Small Business Committees, SBA
identified only four material bundling cases with a total value of $60
million for the first three quarters of Fiscal Year (FY) 2001. This
represents 0.0004% of Federal contract dollar activity ($60 million
divided by $150 billion for the first three quarters of the fiscal
year). Based on FY 2001 data, the final rule will impact approximately
$3 billion in orders placed against FSS contracts, government-wide
acquisition contracts, and multi-agency contracts. Applying the
contract bundling estimate of 0.0004% to these un-reviewed orders, SBA
expects approximately $1 million will be identified as bundled. This
rule establishes a three-tier dollar threshold of $7 million for DOD,
$5 million for NASA, DOE and GSA, and $2 million for all other civilian
agencies. The dollar amount is based on a comparative analysis of the
number and size of the contracting actions of the major procuring
activities and is intended to target reviews of the contracting actions
that would most likely involve contract bundling, without undue
disruption to the acquisition process.
4. Description of Reporting and Other Compliance Requirements
This rule imposes no new reporting or recordkeeping requirements.
5. Summary of Efforts to Minimize Significant Economic Impact
In the preamble to this rule, SBA addressed the steps the Agency
has taken to minimize significant adverse economic impact on small
entities consistent with the objectives of applicable statutes and the
reasons the Agency selected the alternatives adopted in this rule.
List of Subjects in 13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small business, Technical assistance.
0
For the reasons set forth in the preamble, SBA amends 13 CFR part 125
as follows:
PART 125-GOVERNMENT CONTRACTING PROGRAMS
0
1. The authority citation for 13 CFR part 125 continues to read as
follows:
Authority: 15 U.S.C. 634(b)(6), 637 and 644; 31 U.S.C. 9701 and
9702.
0
2. Amend Sec. 125.2 as follows:
0
a. By revising the heading of paragraph (b);
0
b. By revising paragraph (b)(1);
0
c. By redesignating paragraphs (b)(2) through (b)(7) as paragraphs
(b)(3) through (b)(8);
0
d. By adding new paragraph (b)(2);
0
e. By revising redesignated paragraph (b)(3), introductory text,
(b)(6)(iii), and (b)(8);
0
f. By revising paragraphs (d)(1)(iii), (d)(2)(i) and (ii), (d)(5)(i)(A)
and (B) and (d)(7), and adding paragraph (d)(1)(iv); and
0
g. By adding paragraph (e).
The revisions and additions to Sec. 125.2 read as follows:
Sec. 125.2 Prime contracting assistance.
* * * * *
(b) Responsibilities in the acquisition planning process. (1) SBA
Procurement Center Representatives (PCRs) are generally located at
Federal agencies and buying activities which have major contracting
programs. PCRs are responsible for reviewing all acquisitions not set-
aside for small businesses to determine whether a set-aside is
appropriate and to identify alternative strategies to maximize the
participation of small businesses in the procurement.
(2) As early in the acquisition planning process as practicable,
but no later than 30 days before the issuance of a solicitation, or
prior to placing an order without a solicitation, the procuring
activity must coordinate with the procuring activity's Small Business
Specialist (SBS) when the acquisition strategy contemplates an
acquisition meeting the dollar amounts in paragraph (b)(2)(i) of this
section, unless the contract or order is entirely reserved or set-aside
for small business concerns as authorized under the Small Business Act.
The SBS must notify the agency Office of Small and Disadvantaged
Business Utilization (OSDBU) if the strategy or plan includes bundled
requirements that the agency has not identified as bundled or includes
unnecessary or unjustified bundling of requirements. If the strategy
involves substantial bundling, the SBS shall assist in identifying
alternative
[[Page 60013]]
strategies that would reduce or minimize the scope of the bundling.
(i) The procuring activity must coordinate the acquisition strategy
with the cognizant SBS in accordance with paragraph (b)(2) of this
section if the estimated acquisition, contract or order value is:
(A) $7 million or more for the Department of Defense;
(B) $5 million or more for the National Aeronautics and Space
Administration, the General Services Administration, and the Department
of Energy; and
(C) $2 million or more for all other agencies.
(ii) If the strategy contemplates multiple award contracts or
multiple award orders under the Federal Supply Schedule or a task or
delivery order contract awarded by another agency, the thresholds in
paragraph (b)(2)(i) of this section apply to the cumulative estimated
value of the multiple award contracts or orders, including options.
(3) A procuring activity must provide a copy of a proposed
acquisition strategy (e.g., Department of Defense Form 2579, or
equivalent) to the applicable PCR (or to the SBA Office of Government
Contracting Area Office serving the area in which the buying activity
is located if a PCR is not assigned to the procuring activity) at least
30 days prior to a solicitation's issuance whenever a proposed
acquisition strategy:
* * * * *
(6) * * *
(iii) The PCR will also work to ensure that small business
participation is maximized through teaming arrangements and
subcontracting opportunities. This may include:
(A) Recommending that the solicitation and resultant contract
specifically state the small business subcontracting goals, which are
expected of the contractor awardee;
(B) Recommending that the small business subcontracting goals be
based on total contract dollars instead of subcontract dollars;
(C) Reviewing an agency's oversight of its subcontracting program,
including its overall and individual assessment of a contractor's
compliance with its small business subcontracting plans. The PCR will
furnish a copy of the information to the SBA Commercial Market
Representative (CMR) servicing the contractor; and
(D) Recommending that a separate evaluation factor with significant
weight is established for the extent to which offerors attained their
subcontracting goals on previous contracts.
* * * * *
(8) PCRs will work with the cognizant SBS and agency OSDBU as early
in the acquisition process as practicable to identify proposed
solicitations that involve bundling, and with the agency acquisition
officials to revise the acquisition strategies for such proposed
solicitations, where appropriate, to increase the probability of
participation by small businesses, including small business contract
teams, as prime contractors. If small business participation as prime
contractors appears unlikely, the SBS and PCR will facilitate small
business participation as subcontractors or suppliers.
* * * * *
(d) * * *
(1) * * *
(iii) Single contract, as used in this definition, includes:
(A) Multiple awards of indefinite-quantity contracts under a single
solicitation for the same or similar supplies or services to two or
more sources; and
(B) An order placed against an indefinite quantity contract under a
Federal Supply Schedule contract or a task or delivery order contract
awarded by another agency (i.e., Government-wide acquisition contract
or multi-agency contract).
(iv) Substantial bundling means any bundling that meets the dollar
amounts specified in paragraph (b)(2)(i) of this section.
(2) * * *
(i) Structure procurement requirements to facilitate competition by
and among small business concerns, including small business concerns
owned and controlled by veterans, small business concerns owned and
controlled by service-disabled veterans, qualified HUBZone small
business concerns, small business concerns owned and controlled by
socially and economically disadvantaged individuals and small business
concerns owned and controlled by women; and
(ii) Avoid unnecessary and unjustified bundling of contract
requirements that inhibits or precludes small business participation in
procurements as prime contractors.
* * * * *
(5) * * *
(i) * * *
(A) Benefits equivalent to 10 percent of the contract or order
value (including options) where the contract or order value is $75
million or less; or
(B) Benefits equivalent to 5 percent of the contract or order value
(including options) or $7.5 million, whichever is greater, where the
contract or order value exceeds $75 million.
* * * * *
(7) Substantial bundling. (i) Where a proposed procurement strategy
involves a substantial bundling of contract requirements, the procuring
agency must, in the documentation of that strategy, include a
determination that the anticipated benefits of the proposed bundled
contract justify its use, and must include, at a minimum:
(A) The analysis for bundled requirements set forth in paragraph
(d)(5)(i) of this section;
(B) An assessment of the specific impediments to participation by
small business concerns as prime contractors that will result from the
substantial bundling;
(C) Actions designed to maximize small business participation as
prime contractors, including provisions that encourage small business
teaming for the substantially bundled requirement;
(D) Actions designed to maximize small business participation as
subcontractors (including suppliers) at any tier under the contract or
contracts that may be awarded to meet the requirements; and
(E) The identification of the alternative strategies that would
reduce or minimize the scope of the bundling, and the rationale for not
choosing those alternatives (i.e., consider the strategies under
paragraphs (b)(6) (i) and (d) of this section).
(ii) At least 30 days prior to the solicitation release, the
procuring activity shall provide the PCR and the agency OSDBU a copy of
the proposed acquisition, including the analysis required by paragraph
(d)(7) of this section, the acquisition plan, any bundling information
required under paragraph (b)(3) of this section, and any other relevant
information. The PCR and agency OSDBU or SBS, as applicable, shall work
together to develop alternative acquisition strategies identified in
paragraph (b)(6) of this section to enhance small business
participation.
* * * * *
(e) OSDBU Oversight Functions. The Agency OSDBU must:
(1) Conduct annual reviews to assess the:
(i) Extent to which small businesses are receiving their fair share
of Federal procurements, including contract opportunities under
programs administered under the Small Business Act;
(ii) Adequacy of the bundling documentation and justification; and
(iii) Adequacy of actions taken to mitigate the effects of
necessary and justified contract bundling on small businesses (e.g.,
review agency oversight
[[Page 60014]]
of prime contractor subcontracting plan compliance under the
subcontracting program).
(2) Provide a copy of the assessment under paragraph (e)(1) of this
section to the Agency Head and SBA Administrator.
Dated: October 3, 2003.
Hector V. Barreto,
Administrator.
[FR Doc. 03-26514 Filed 10-17-03; 8:45 am]
BILLING CODE 8025-01-P