[Federal Register Volume 69, Number 243 (Monday, December 20, 2004)]
[Rules and Regulations]
[Pages 75820-75826]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27765]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 125
RIN 3245-AF12
Small Business Government Contracting Programs; Subcontracting
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: This final rule amends the U.S. Small Business Administration
(SBA) regulations government small business subcontracting to address
comments received in response to SBA's proposed rule on subcontracting,
which was published in the Federal Register on October 20, 2003. The
final rule also addresses comments in response to SBA's earlier
proposed rule on contract bundling, which was published in the Federal
Register on January 31, 2003. Specifically, this final rule provides a
list of factors to consider in evaluating a prime contractor's
performance and good-faith efforts to achieve the requirements in its
subcontracting plan. The final rule also authorizes the use of goals in
subcontracting plans, and/or past performance in meeting such goals, as
a factor in source selection when placing orders against Federal Supply
Schedules, government-wide acquisition contracts, and multi-agency
contracts. In addition, this final rule implements statutory provisions
and other administrative procedures relating to subcontracting goals
and assistance. In particular, the final rule lists the various
categories of small businesses that must be afforded maximum
practicable subcontracting opportunities, and clarifies the
responsibilities of prime contractors and SBA's Commercial Market
Representatives (CMRs) under the subcontracting assistance program. The
final rule also supplies guidance on Subcontracting Orientation and
Assistance Reviews (SOARs), which CMRs perform to assist prime
contractors in their efforts to understand and comply with the
requirements governing the small business subcontracting assistance
program.
DATES: This rule is effective on December 20, 2004.
FOR FURTHER INFORMATION CONTACT: Dean Koppel, Assistant Administrator,
Office of Policy and Research, (202) 401-8150 or [email protected].
SUPPLEMENTARY INFORMATION:
A. Background
On January 31, 2003, SBA published a proposed rule in the Federal
Register, 67 FR 47244, to solicit comments on its proposal to implement
several recommendations included in the Office of Management and
Budget's October 2002 report, entitled ``Contract Bundling: A Strategy
for Increasing Federal Contracting Opportunities for Small Business.''
Several of the responding commenters identified the need for more
guidance on evaluating large prime contractor performance in awarding
subcontracts to small businesses and their efforts to achieve
subcontracting plans, including examples of what types of conduct
constitute ``good-faith'' efforts to comply with subcontracting plans.
SBA thought that this suggestion was valid; accordingly, on October 20,
2003, the agency published a proposed rule addressing these as well as
other major issues in subcontracting.
In response to the proposed rule published on October 20, 2003,
which had a 60-day public-comment period, SBA received 19 written
comments. The commenters included three members of Congress (two
letters, one signed by two members), three Federal agencies (including
SBA's own Office of Advocacy), two prime contractors, seven trade
associations or small-business advocacy groups, four small businesses,
and one private citizen
[[Page 75821]]
formerly employed by the Congress who is now working in academia. The
specific comments are addressed in the section-by-section analysis of
comments below. However, two of the commenters' responses may require
additional review through a different venue. One of these responses was
from a participant in the Department of Defense (DoD) Test Program for
Comprehensive Subcontracting Plans (DoD Test Program), and the other
was from a major U.S. corporation that currently operates under a
commercial subcontracting plan. In both cases, their concerns are
unique to their own situations and do not justify substantial changes
to this rule.
The comments received from the corporation with a commercial
subcontracting plan were far-reaching, and some of the suggestions
would result in radical changes to the subcontracting program. For
example, the commenter suggests a new formula for computing
subcontracting goals for companies with commercial subcontracting
plans. SBA did not adopt this suggestion because it is outside the
scope of this rule.
The two references to SBAS's PRO-Net in the proposed rule have been
changed to the Central Contractor Registration (CCR) in this final
rule, to reflect the fact that SBA's PRO-Net was folded into the CCR
effective January 1, 2004. In addition, the fourth exception to the
requirement for a subcontracting plan cited in the proposed rule at
Sec. 1225.3(c)(3)(iv) has been deleted in this final rule because this
exception applies primarily to contracts awarded prior to October 24,
1978, the date that Public law 95-507 was enacted by the Congress. That
exception involved modifications to contracts that did not originally
contain the clause at 48 CFR 52.219-8. It is SBA's conclusion that this
exception is no longer needed.
B. Section-by-Section Analysis of Comments
1. Comments on the General Requirement
SBA received two comments on Sec. 125.3(a), General. One commenter
suggested adding the phrase ``unless otherwise exempt'' before the
phrase ``other-than-small'' in the second sentence to clarify the fact
that there are some exceptions to the requirement that prime
contractors submit subcontracting plans for certain Federal contracts.
(The exceptions are listed in the regulation at the beginning of the
following paragraph, Sec. 125.3(b).) The same commenter also suggested
changing the word ``firms'' to ``business concerns'' and adding the
word ``appropriate'' before ``contracting agency'' in the same
sentence. SBA considers all of these suggestions to be constructive and
has revised the language accordingly. The other commenter expressed
concern that SBA was changing the phrase ``maximum utilization'' in the
current version of the regulation to ``maximum practicable
subcontracting opportunities'' and said that this change would convey a
dangerous message to those who are required to participate in the
Subcontracting Assistance Program. SBA reviewed the statute and found
that the Congress itself had used the phrase ``maximum practicable
opportunity'' in the legislation; therefore, SBA decided against making
this change.
2. Comments on the Responsibilities of Prime Contractors
SBA received ten comments on Sec. 125.3(b), Responsibilities of
prime contractors. All of these commenters misunderstood the proposed
rule to mean that SBA was either intending to require small businesses
to submit subcontracting plans and/or planning to impose new reporting
requirements on them. In fact, the Small Business Act specifically
excludes small business concerns from the requirement to submit a
subcontracting plan. Several commenters criticized SBA for its failure
to perform an Initial Regulatory Flexibility Analysis (IRFA). One
commenter suggested that SBA require subcontracting plans from small
businesses only when the small business intends to subcontract some of
the contract. In other words, if a small-business prime contractor
performs 100 percent of the contract with its own labor, a
subcontracting plan would not be required. This suggestion cannot be
implemented without an amendment to the legislation (15 U.S.C.
637(d)(4)), which currently prohibits the Government from requiring
small businesses to submit subcontracting plans under any
circumstances. Therefore, SBA cannot adopt this suggestion. Since SBA
does not intend to require subcontracting plans or reports from small
business, no IRFA is required.
It was never SBA's intent to require small businesses to submit
subcontracting plans or to impose new reporting requirements on them.
However, since the language in the proposed rule has apparently caused
some confusion, SBA has added language to Sec. 125.3(b) clarifying
that a small business cannot be required to submit a formal
subcontracting plan or a subcontracting report (see Sec. 125.3(b)(2)).
Since the clarifying language has been added as Sec. 125.3(b)(2),
Sec. 125.3(b)(2) in the proposed rule has been redesignated Sec.
125.3(b)(3) in the final rule.
It should be noted that, under Sec. 19.1202 of the Federal
Acquisition Regulation (FAR), 48 CFR 19.1202, all offerors, including
small business offerors, submit targets for small disadvantaged
business (SDB) participation, and the successful offeror must submit a
final report on SDB participation at contract completion. The
requirement to submit targets for SDB participation does not constitute
a subcontracting plan; in any case, that provision and related
reporting requirement are separate and apart from the subcontracting
plan requirements discussed in this regulation.
One commenter suggested revising Sec. 125.3(b)(1) in its entirety
to state: ``While a small businesses prime contractor is exempt from
the requirement to establish a subcontracting plan, it is encouraged to
provide maximum practicable opportunity for small businesses to
participate in the performance of the contract, consistent with the
efficient performance of the contract.'' SBA thinks that this
suggestion is excellent; however, we believe that the suggested wording
serves its purpose better under Sec. 125.3(b)(2), rather than under
Sec. 125.3(b)(1), and we have therefore added it as a second sentence
under Sec. 125.3(b)(2).
The same commenter suggested revising the proposed Sec.
125.3(b)(2) (Sec. 125.3(b)(3) in the final rule) to add the phrase
``as appropriate for the procurement.'' SBA agrees with this suggestion
and has made the change. SBA has also added the word ``may'' and ``one
or more of the following actions'' to the same sentence to clarify the
face that each of the items in the list (Sec. 125.3(b)(2)(i) through
(viii) of the proposed rule, Sec. 125.3(b)(3)(1) through (ix) of the
final rule) will not necessarily be applicable to every procurement. To
ensure consistency throughout the final rule, SBA also added similar
language to Sec. 125.3(d)(1).
One commenter questioned the omission of the mentor-
prot[eacute]g[eacute] program from the list at the proposed Sec.
125.3(b)(2). Under 15 U.S.C. Sec. 637(d)(11), prime contractors acting
as mentors are allowed to receive credit towards their subcontracting
goals for developmental assistance to their prot[eacute]g[eacute]s. It
is noted that many Federal agencies, such as the DoD, have Federal
Acquisition Regulation Supplements addressing their mentor-
prot[eacute]g[eacute] programs, and in fact SBA has a separate
regulation dealing with its own
[[Page 75822]]
mentor-prot[eacute]g[eacute]; program (13 CFR 124.520). However, SBA
agrees that adding a separate item to the list at the proposed Sec.
125.3(b)(2) strengthens this regulation, and we have made this change
by adding a new item as Sec. 125.3(b)(3)(ix).
Two commenters said that the provisions at the proposed Sec.
125.3(b)(2)(vii) (Sec. 124.3(b)(2)(vii) of the final rule), which
addresses assistance to small business in obtaining bonding, lines of
credit, required insurance, necessary equipment, supplies, materials,
or services, could lead to improper arrangements between large and
small businesses in terms of control, conflicts of interest, and fair
dealing. SBA has carefully considered this argument and concluded that,
where any impropriety in this regard is alleged, it should be referred
to the contracting officer for review under the procedures set forth in
Part 121 of this regulation or other applicable procedures. However,
when the assistance is properly structured so as to comply with
applicable legal authority, a large business may provide this type of
assistance without violating any laws or regulations. Therefore, SBA
has retained this provision as written.
3. Comments on the Additional Responsibilities of Large Prime
Contractors
One commenter took issue with the word ``utilization'' in the
phrase ``maximum practicable utilization'' at Sec. 125.3(c)(1)(i). SBA
agrees with this comment and has changed the phrase to read ``maximum
practicable opportunity,'' which, as noted above, is consistent with
the language in the statute.
Two commenters complimented SBA on changing the dollar threshold
for the mandatory pre-award written notification to unsuccessful
offerors from $10,000 to $100,000, which is the simplified acquisition
threshold. (Sec. 125.3(c)(1)(v)). Another commenter disagreed with
this proposed change, saying it would be harmful to small businesses.
Two other commenters disagreed with the requirement altogether, saying
that there is no rationale for such a rule. One of the commenters in
favor of the change suggested that the final rule could encourage prime
contractors, as a good business practice, to provide the same written
notification to unsuccessful offerors below this threshold. SBA agrees
with this suggestion and believes that it will address the concerns of
the commenter who said that this change would be harmful to small
businesses. SBA did not adopt the comments of the two commenters who
said that there is no rationale for such a rule. If unsuccessful
offerors are notified in advance of the proposed awardee, they may
protest or bring eligibility issues to the attention of the prime
contractor. In addition, this requirement is also applicable to
contracting officers in the Federal government (see 48 CFR 15.503(a)(2)
and SBA strives to make its prime and subcontracting programs
consistent where practical. SBA has added a provision at Sec.
125.3(c)(1)(vi) to encourage prime contractors, as a good business
practice, to provide written notification to unsuccessful offerors
below $100,000. Two commenters questioned SBA's reference to an
electronic database in Sec. 125.3(c)(1)(iii). In fact, as part of the
Integrated Acquisition Environment (IAE), the Government is working
aggressively to develop and implement such a database. Therefore, SBA
has made no change to Sec. 125.3(c)(1)(iii).
In response to Sec. 125.3(b)(2), which addresses commercial
subcontracting plans, one commenter pointed out that the plan template
required by the Federal government for contractors with commercial
subcontracting plans is based on the contractor's fiscal year (usually
the calendar year), but the reports are required for the Federal
government's fiscal year. SBA is aware of this problem and has
addressed it separately by means of a formal case submitted to the
Federal Acquisition Regulation (FAR Council). The electronic database
mentioned above is also being designed to correct this problem.
Another commenter questioned the policy set forth in Sec.
125.3(c)(2) that permits the contracting officer of the agency that
originally approved a commercial plan to exercise the functions of the
contracting officer on behalf of all agencies that award contracts
covered by the plan. This is a practical approach since a choice must
be made as to which agency administers the plan and the appropriate
choice is the agency that originally approved it. This policy has been
in effect for some time and no significant problems or issues have
arisen as a result. Moreover, an almost identical provision currently
exists in the Federal Acquisition Regulation (48 CFR) (see 48 CFR
19.705-7(f). For these reasons, SBA has not changed the wording of this
provision.
4. Comments on Determination of Good-Faith Efforts
At least eight commenters, including two members of Congress,
objected to the provision at Sec. 125.3(d)(2) that would include, in
the determination of good-faith efforts evidence that other contractors
awarded contracts of similar scope, size or dollar value had not
achieved or exceeded the goals stated in their subcontracting plans.
One commenter pointed out that the Federal government, using this
guidance, could penalize a company that is in complete compliance based
on a comparison to other companies that are performing better; or,
alternatively, the federal government could compare a company that is
barely complying to companies that are complete failures and conclude
that it is making a good-faith effort when it is not. SBA agrees with
these comments and has stricken this provision from the final rule.
One commenter pointed out that prime contractors are often
penalized for failing to achieve their goal in one socio-economic
category, even though they may have exceeded their goal in another
area. SBA believes that this is a valid concern, and we have replaced
the provision stricken from Sec. 125.3(d)(2), as noted above, with a
statement addressing this point. This subparagraph now reads, in part:
Evidence that a large business prime contractor has made a good-
faith effort to comply with its subcontracting plan or other
subcontracting responsibilities includes supporting documentation
that:
(1) The contractor performed one or more of the actions
described in paragraph (b) of this section, as appropriate for the
procurement; and
(2) Although the contractor may have failed to achieve its goal
in one socio-economic category, it exceeded its goal by an equal or
greater amount in one or more of the other categories.
One commenter from another Federal agency pointed out that the
Federal Acquisition Regulation (48 CFR) defines the failure to make a
good-faith effort to comply with a subcontracting plan as the ``willful
or intentional failure to perform in accordance with the requirements
of the subcontracting plan, or willful or intentional action to
frustrate the plan.'' This commenter recommends using this language in
the final rule. SBA has decided not to adopt this suggestion because it
believes that the language is too narrow and could be subject to
misinterpretation. For example, a prime contractor could argue that its
failure to make any effort to comply with its subcontracting plan was
not willful but merely negligent or unintentional. SBA believes that
the nine-item list of actions a prime contractor could take in order to
demonstrate good faith efforts provides sufficient guidance concerning
the meaning of this term.
[[Page 75823]]
5. Comments on CMR Responsibilities
SBA received only two comments on Sec. 125.3(e), CMR
Responsibilities, and the commenters were generally in favor of the
additional responsibilities. The commenters inquired about the
accountability and chain of command, and one commenter suggested that
the CMRs should report to either the SBA District Directors or to other
SBA managers at the same level. SBA did not make this change, as it is
outside the scope of this rule and an established reporting structure
is already in place.
A commenter that is a participant in the DoD Test Program asked how
SOARs would work for contractors participating in that program. The
memorandum of understanding (MOU) between the Defense Contract
Management Agency (DCMA) and SBA (see next section) does not prohibit
SBA's CMRs from conducting SOARs of contractors participating in the
DoD Test Program. Therefore a participant may request a SOAR visit at
any time. SBA sees no need to change the subject regulation in response
to this comment.
6. Comments on Compliance Reviews
SBA received few comments on Sec. 125.3(f), Compliance Reviews.
Most of these were favorable. One commenter said, ``We support the
inclusion of this new coverage in the regulations to aid in the
understanding of the elements of the compliance review, the ratings to
be evaluated, and the standards to be used. This coverage will also
help standardize the reviews across the covered contractor base.''
Another commenter pointed out that the regulation does not address what
corrective or punitive steps should be taken when a prime contractor
receives an unsatisfactory rating. SBA believes that this is addressed
adequately in other regulations (e.g., 48 CFR 19.705-7); however, we
have added two new subparagraphs, Sec. 125.3(f)(4) and (5), to address
this concern and clarify existing policy. We have renumbered the
remaining subparagraphs in this section.
One commenter suggested the need for subcontractor input into the
evaluation process. SBA believes that this idea may have some merit,
but it could not be accomplished without imposing a new reporting
requirement on industry, which SBA prefers not to do at this time.
The commenter that is a participant in the DoD Test Program
suggested that the regulation be clarified to state that the compliance
review would be for the entire company (or for the level of the company
participating in the DoD Test Program), not for a particular site or
location. This may be true in an individual case, but is not always
true. SBA believes that it is impractical to answer this question in a
broad regulation. Most, if not all, of the participants in the DoD Test
Program also have contracts with civilian agencies that do not fall
under that program. For those companies, SBA performance compliance
reviews on the divisions and sites/locations that have contracts
containing subcontracting plans, regardless of the corporate level
approved for the DoD Test Program. Since the division or level of the
company subject to the compliance review would vary depending on the
particular plan or plans the concern is operating under, it is not
possible to adopt this comment.
In response to the provision at Sec. 125.3(f)(5), which authorizes
SBA to enter into agreements with other agencies to conduct compliance
reviews, two commenters questioned why SBA has entered into a
memorandum of understanding (MOU) with the DCMA to assist SBA in
performing compliance reviews. These commenters said that SBA ``should
see how to reconfigure its work force to add more commercial marketing
representatives'' rather than delegate this function to other agencies.
SBA has chosen to enter into the MOU with DCMA because that agency has
more than two decades of experience conducting compliance reviews and
employs a strong cadre of experienced compliance specialists. Nothing
is lost by giving DCMA a role in the reviews since SBA is actively
involved and retains ultimate responsibility. Therefore, SBA has not
adopted this suggestion.
7. Comments on Subcontracting Consideration in Source Selection
SBA received several comments on this section reflecting widely
differing points of view. One commenter who supported the approach said
that Sec. 125.3(g)(1), (2) and (3) should be modified to make clear
that the contracting officer must disclose to all competitors which one
(or more) of the three elements will be evaluated as an important
source selection evaluation factor in any subsequent procurement
action. SBA agrees with this suggestion and has added it to Sec.
125.3(g).
Another commenter suggested that the word ``may'' in this paragraph
be changed to ``should,'' so that contracting officers would be
required to establish an evaluation factor for subcontracting as part
of the source selection criteria. SBA believes that this suggestion has
merit, except that such approach cannot be made mandatory without
providing specific guidance for measuring success in subcontracting,
particularly when offerors on the same order or agreement operate under
different types of subcontracting plans (commercial, individual or DoD
Test Program). Until SBA establishes specific guidance for evaluating a
business concern's goals and performance in this area, it is neither
practical nor fair to impose this requirement on Federal agencies.
However, SBA is working on establishing such guidance and will consider
imposing mandatory evaluation factors in future revisions to its
subcontracting regulations. We also note that in individual cases the
evaluation factor may be simple to utilize without additional guidance,
particularly in cases where all of the offerors operate under the same
type of subcontracting plan. Therefore, based on the above, SBA
believes that making the use of the evaluation optional until specific
guidance is provided is the best course at this time.
SBA has changed the word ``important'' to ``significant'' and made
other minor changes in this paragraph. The new language appears in
Sec. 125.3(g).
Another commenters said that it would be inappropriate for the
Federal government to use subcontracting plans in the source selection
for schedule purchases, Government-wide acquisition contracts, and
multi-agency contracts because the members that the commenter
represents ``are not sure how this appropriately could be
accomplished.'' SBA notes that contracting officers are already
required to establish an evaluation factor for subcontracting in
negotiated acquisitions involving bundling (48 CFR 15.304). This is
simply taking the concept one step further. SBA believes that the
potential advantage of this approach to the small business community
outweigh the concern expressed in this comment.
Another commenter pointed out that small businesses will be at a
disadvantage because they do not have a subcontracting plan or evidence
of subcontracting past performance; therefore, a small-business offeror
should receive ``full/exemplary'' credit in each of the relevant
categories. SBA agrees with this point and has added a similar
statement to Sec. 125.3(g).
Another commenter that is a participant in the DoD Test Program
argued that this would be a problem for participant in the DoD Test
Program, since they do not submit subcontracting goals for individual
contracts and do not have contract-specific past performance. The DoD
Test Program applies only to
[[Page 75824]]
contracts with the DoD. The vast majority of schedule contracts are
with the General Services Administration (GSA) and the Department of
Veterans Affairs. A participant in the DoD Test Program must provide
civilian agencies with individual or commercial subcontracting plans
and must then submit semi-annual or annual reports against these plans.
SBA sees no need to revise the regulation to address this concern.
Compliance With Executive Orders 13132, 12988 and 12866, the Regulatory
Flexibility Act (5 U.S.C. 601-612), and the Paperwork Reduction Act (44
U.S.C. Ch. 35)
This regulation will not have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, for the purposes of Executive
Order 13132, SBA determines that this final rule has no federalism
implications warranting preparation of a federalism assessment.
The Office of Management and Budget (OMB) has determined that this
rule constitutes a significant regulatory action under Executive Order
12866. the rule revises the SBA regulation governing small business
contracting assistance to define good faith effort.
This action meets applicable standards set forth in section 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
SBA has determined that this final rule does not impose additional
reporting or recordkeeping requirements under the Paperwork Reduction
Act, 44 U.S.C. Chapter 35.
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires
administrative agencies to consider the effect of their actions on
small entities, small non-profit enterprises, and small local
governments. Pursuant to the RFA, when an agency issues a rulemaking,
the agency must prepare a regulatory flexibility analysis which
describes the impact of the rule on small entities. However, section
605 of the RFA allows an agency to certify a rule, in lieu of preparing
an analysis, if the rulemaking is not expected to have a significant
economic impact on a substantial number of small entities. Therefore,
within the meaning of RFA, SBA certifies that this rule will not have a
significant economic impact on a substantial number of small entities.
The rule does not impose any new substantive responsibilities, nor
does it require any new reporting or recordkeeping requirements on
small business. Instead, this rule clarifies the existing statutory
responsibilities under the subcontracting assistance program, including
the responsibilities of prime contractors to maximize small business
subcontracting opportunities. It also provides guidance to government
officials in monitoring and determining the achievements of
subcontracting goals.
In fiscal year 2002, the most recent year for which the Government
has reliable subcontracting data, small business received nearly $34.4
billion in subcontract awards, representing more than 35 percent of all
subcontracts. As a result of this regulation, subcontracting
opportunities for small business should expand, and this figure may be
expected to increase in the year(s) following publication of the Final
Rule.
The Government does not maintain a database of small business
subcontractors, but the Central Contractor Registration (CCR)
maintained by the Department of Defense contains 175,209 small
businesses. All of these firms are, or wish to become, prime
contractors or subcontractors on Federal contracts. In most cases, a
firm in the CCR is willing to perform on Federal contracts in either
capacity--i.e., as a prime contractor or subcontractor. Accordingly,
this figure may be considered representative of the universe of small
business concerns impacted by this regulation. For the record, the
175,209 includes 9,752 small disadvantaged business concerns; 8,714
HUBZone small business concerns; 40,755 women-owned small business
concerns; 24,292 veteran-owned small business concerns (VOPSBs); and
4,416 service-disabled VOSBs.
From the foregoing discussion, it should be evident that the rule
is primarily procedural in nature and would not have a significant
economic impact on small entities. As a result, no further regulatory
flexibility analysis (other than that stated above) is required under 5
U.S.C. 605(b).
List of Subjects in 13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, and 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. Revise Sec. 125.3 to read as follows:
Sec. 125.3 Subcontracting assistance.
(a) General. The purpose of the subcontracting assistance program
is to provide the maximum practicable subcontracting opportunities for
small business concerns, including small business concerns owned and
controlled by veterans, small business concerns owned and controlled by
service-disabled veterans, certified HUBZone small business concerns,
certified small business concerns owned and controlled by socially and
economically disadvantaged individuals, and small business concerns
owned and controlled by women. The subcontracting assistance program
implements section 8(d) of the Small Business Act, which includes the
requirement that, unless otherwise exempt, other-than-small business
concerns awarded contracts that offer subcontracting possibilities by
the Federal Government in excess of $500,000, or in excess of
$1,000,000 for construction of a public facility, must submit a
subcontracting plan to the appropriate contracting agency. The Federal
Acquisition Regulation sets forth the requirements for subcontracting
plans in 48 CFR 19.7, and the clause at 48 CFR 52.219-9.
(b) Responsibilities of prime contractors. (1) Prime contractors
(including small business prime contractors) selected to receive a
Federal contract that exceeds the traditional simplified acquisition
threshold of $100,000, that will not be performed entirely outside of
any state, territory, or possession of the United States, the District
of Columbia, or the Commonwealth of Puerto Rico, and that is not for
services which are personal in nature, are responsible for ensuring
that small business concerns have the maximum practicable opportunity
to participate in the performance of the contract, including
subcontracts for subsystems, assemblies, components, and related
services for major systems, consistent with the efficient performance
of the contract.
(2) A small business cannot be required to submit a formal
subcontracting plan or be asked to submit a formal subcontracting plan,
a small-business prime contractor is encouraged to provide maximum
[[Page 75825]]
practicable opportunity to other small businesses to participate in the
performance of the contract, consistent with the efficient performance
of the contract.
(3) Efforts to provide the maximum practicable subcontracting
opportunities for small business concern may include, as appropriate
for the procurement, one or more of the following actions:
(i) Breaking out contract work items into economically feasible
units, as appropriate, to facilitate small business participation;
(ii) Conducting market research to identify small business
subcontractors and suppliers through all reasonable means, such as
performing on-line searches on the Central Contractor Registration
(NCR), posting Notices of Sources Sought and/or Requests for Proposal
on SBA's SUB-Net, participating in Business Matchmaking events, and
attending pre-bid conferences;
(iii) Soliciting small business concerns as early in the
acquisition process as practicable to allow them sufficient time to
submit a timely offer for the subcontract;
(iv) Providing interested small businesses with adequate and timely
information about the plans, specifications, and requirements for
performance of the prime contract to assist them in submitting a timely
offer for the subcontract;
(v) Negotiating in good faith with interested small businesses;
(vi) Directing small businesses that need additional assistance to
SBA;
(vii) Assisting interested small businesses in obtaining bonding,
lines of credit, required insurance, necessary equipment, supplies,
materials, or services;
(viii) Utilizing the available services of small business
associations; local, state, and Federal small business assistance
offices; and other organizations; and
(ix) Participating in a formal mentor-prot[eacute]g[eacute] program
with one or more small-business prot[eacute]g[eacute]s that results in
developmental assistance to the prot[eacute]g[eacute]s.
(c) Additional responsibilities of large prime contractors. (1) In
addition to the responsibilities provided in paragraph (b) of this
section, a prime contractor selected for award of a contract or
contract modification that exceeds $500,000, or $1,000,000 in the case
of construction of a public facility, is responsible for:
(i) Submitting and negotiating before award an acceptable
subcontracting plan that reflects maximum practicable opportunities for
small businesses in the performance of the contract as subcontractors
or suppliers. A prime contractor may submit a commercial plan,
described in paragraph (c)(2) of this section, instead of an individual
subcontracting plan, when the product or service being furnished to the
Government meets the definition of a commercial item under 48 CFR
2.101;
(ii) Making a good-faith effort to achieve the dollar and
percentage goals and other elements in its subcontracting plan;
(iii) Submitting a timely, accurate, and complete SF-294,
Subcontracting Report for Individual Contract, and SF-295, Summary
Subcontract Report; or entering the same information into an electronic
database approved by SBA;
(vi) Cooperating in the reviews of subcontracting plan compliance,
including providing requested information and supporting documentation
reflecting actual achievements and good-faith efforts to meet the goals
and other elements in the subcontracting plan;
(v) Providing pre-award written notification to unsuccessful small
business offerors on all subcontracts over $100,000 for which a small
business concern received a preference. The written notification must
include the name and location of the apparent successful offeror and if
the successful offeror is a small business, veteran-owned small
business, service-disabled veteran-owned small business, HUBZone small
business, small disadvantaged business, or women-owned small business;
and
(vi) As a best practice, providing the pre-award written
notification cited in paragraph (c)(1)(v) of this section to
unsuccessful and small business offerors on subcontracts at or below
$100,000 whenever it is practical to do so.
(2) A commercial plan, also referred to as an annual plan or
company-wide plan, is the preferred type of subcontracting plan for
contractors furnishing commercial items. A commercial plan covers the
offeror's fiscal year and applies to the entire production of
commercial items sold by either the entire company or a portion thereof
(e.g., division, plant, or product line). Once approved, the plan
remains in effect during the contractor's fiscal year for all Federal
government contracts in effect during that period. The contracting
officer of the agency that originally approved the commercial plan will
exercise the functions of the contracting officer on behalf of all
agencies that award contracts covered by the plan.
(3) The additional prime contractor responsibilities described in
paragraph (c)(1) of this section do not apply if:
(i) The prime contractor is a small business concern;
(ii) The prime contract or contract modification is a personal
services contract; or
(iii) The prime contract or contract modification will be performed
entirely outside of any state, territory, or possession of the United
States, the District of Columbia, or the Commonwealth of Puerto Rico.
(d) Determination of good-faith efforts. Evidence that a large
business prime contractor has made a good-faith effort to comply with
its subcontracting plan or other subcontracting responsibilities
includes supporting documentation that:
(1) The contractor performed one or more of the actions described
in paragraph (b) of this section, as appropriate for the procurement;
(2) Although the contractor may have failed to achieve its goal in
one socio-economic category, it over-achieved its goal by an equal or
greater amount in one or more of the other categories; or
(3) The contractor fulfilled all of the requirements of its
subcontracting plan.
(e) CMR Responsibilities. Commercial Market Representatives (CMRs)
are SBA's subcontracting specialists. CMRs are responsible for:
(1) Facilitating the matching of large prime contractors with small
business concerns;
(2) Counseling large prime contractors on their responsibilities to
maximize subcontracting opportunities for small business concerns;
(3) Instructing large prime contractors on identifying small
business concerns by means of the CCR, SUB-Net, Business Matchmaking
events, and other resources and tools;
(4) Counseling small business concerns on how to market themselves
to large prime contractors;
(5) Maintaining a portfolio of large prime contractors and
conducting Subcontracting Orientation and Assistance Reviews (SOARs).
SOARs are conducted for the purpose of assisting prime contractors in
understanding and complying with their small business subcontracting
responsibilities, including developing subcontracting goals that
reflect maximum practicable opportunity for small business; maintaining
acceptable books and records; and periodically submitting reports to
the Federal government; and
(6) Conducting periodic reviews, including compliance reviews in
[[Page 75826]]
accordance with paragraph (f) of this section.
(f) Compliance reviews. A prime contractor's performance under its
subcontracting plan is evaluated by means of on-site compliance reviews
and follow-up reviews. A compliance review is a surveillance review
that determines a contractor's achievements in meeting the goals and
other elements in its subcontracting plan for both open contracts and
contracts completed during the previous twelve months. A follow-up
review is done after a compliance review, generally within six to eight
months, to determine if the contractor has implemented SBA's
recommendations.
(2) All compliance reviews begin with a validation of the
contractor's most recent SF-295, Summary Subcontract Report, and SF-
294, Subcontracting Report for Individual Contracts, if applicable. The
validation includes a review of the contractor's methodology for
completing these reports and a sampling of specific documentation to
substantiate small business status.
(3) Upon completion of the review and evaluation of a contractor's
performance and efforts to achieve the requirements in its
subcontracting plans, the contractor's performance will be assigned one
of the following ratings: Outstanding, Highly Successful, Acceptable,
Marginal, or Unsatisfactory. The factors listed in paragraph (c) of
this section will be taken into consideration, where applicable, in
determining the contractor's rating. However, a contractor may be found
Unsatisfactory, regardless of other factors, if it cannot substantiate
the claimed achievements under its subcontracting plan.
(4) Any contractor that receives a marginal or unsatisfactory
rating must provide a written corrective action plan to SBA, or to both
SBA and the agency that conducted the compliance review if the agency
conducting the review has an agreement with SBA, within 30 days of its
receipt of the official compliance report.
(5) Any contractor that fails to comply with paragraph (f)(4) of
this section, or any contractor that fails to demonstrate a good-faith
effort, as set forth in paragraph (d) of this section, may be
considered for liquidated damages under the procedures in 48 CFR
19.705-7 and the clause at 52.219-16. This action shall be considered
by the contracting officer upon receipt of a written recommendation to
that effect from the CMR. The CMR's recommendation must include a copy
of the compliance report and any other relevant correspondence or
supporting documentation.
(6) Reviews and evaluations of contractors with commercial plans
are identical to reviews and evaluations of other contractors, except
that contractors with commercial subcontracting plans do not submit the
SF-294, Subcontracting Report for Individual Contracts. Instead, goal
achievement is determined by comparing the goals in the approved
commercial subcontracting plan against the cumulative achievements on
the SF-295, Summary Subcontract Report, for the same period. The same
ratings criteria set forth in paragraph (f)(3) of this section apply to
contractors with commercial plans.
(7) SBA is authorized to enter into agreements with other Federal
agencies or entities to conduct compliance reviews and otherwise
further the objectives of the subcontracting program. Copies of these
agreements will be published on http://www.sba.gov/GC. SBA is the lead
agency on all joint compliance reviews with other agencies.
(g) Subcontracting consideration in source selection. When an
ordering agency anticipates placing an order against a Federal Supply
Schedule, government-wide acquisition contract (GWAC), or multi-agency
contract (MAC), the ordering agency may evaluate subcontracting as a
significant factor in its source selection process. In addition, the
ordering agency may also evaluate subcontracting as a significant
factor in source selection when entering into a blanket purchase
agreement. At the time of contract award, the contracting officer must
disclose to all competitors which one (or more) of these three elements
will be evaluated as an important source selection evaluation factor in
any subsequent procurement action. A small-business offeror
automatically receives the maximum possible score or credit on this
evaluation factor without having to submit a subcontracting plan and
without having to demonstrate subcontracting past performance. The
factors that may be evaluated, individually or in combination, are:
(1) The subcontracting to be performed on the specific requirement;
(2) The goals negotiated in previous subcontracting plans; and
(3) The contractor's past performance in meeting the subcontracting
goals contained in previous subcontracting plans.
Dated: October 6, 2004.
Hector V. Barreto,
Administrator.
[FR Doc. 04-27765 Filed 12-17-04; 8:45 am]
BILLING CODE 8025-01-M