[Federal Register: October 20, 2003 (Volume 68, Number 202)]
[Proposed Rules]
[Page 60015-60019]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20oc03-15]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 125
RIN 3245-AF12
Small Business Government Contracting Programs
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: This proposed rule amends the U.S. Small Business
Administration (SBA) regulations governing small business
subcontracting to address several comments received in response to
SBA's proposed rule on contract bundling. Specifically, this proposed
rule provides a list of factors to consider in evaluating prime
contractor's performance and good-faith efforts to achieve the
requirements in its subcontracting plan. The proposed 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 proposed rule implements statutory provisions and
other administrative procedures relating to subcontracting goals and
assistance. In particular, the proposed 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
proposed rule also supplies guidance on Subcontracting Orientation and
Assistance Reviews (SOAR), which CMRs perform to assist prime
contractors to understand and comply with the requirements governing
the small business subcontracting assistance program.
DATES: Comments must be received on or before December 19, 2003.
ADDRESSES: Send comments to Dean Koppel, Assistant Administrator,
Office of Policy and Research, 409 Third St., SW., Mail Code: 6500,
Washington, DC 20416, by e-mail to dean.koppel@sba.gov, or to
http://www.regulations.gov, or by facsimile to (202) 205-6390.
FOR FURTHER INFORMATION CONTACT: Dean Koppel, Assistant Administrator,
Office of Policy and Research, (202) 401-8150 or dean.koppel@sba.gov.
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 and efforts
to achieve subcontracting plans, including examples of what types of
conduct constitute “good-faith” efforts to comply with subcontracting
plans.
Under section 8(d)(4) of the Small Business Act (15 U.S.C.
637(d)(4)), large businesses awarded a Federal prime contract in excess
of $500,000, or $1,000,000 for construction of a public facility, must
submit a subcontracting plan to the contracting agency. The
subcontracting plan must include dollar and percentage goals that
reflect the maximum practicable utilization of small businesses in the
performance of the contract as subcontractors or suppliers. A prime
contractor that fails to make a good-faith effort to achieve the goals
in its subcontracting plan can be found in material breach of contract
and terminated for default or assessed liquidated damages. SBA and the
Defense Contract Management Agency (DCMA) also evaluate good-faith
efforts when they perform joint post-award compliance reviews of
Department of Defense contractors. Contracting officers also consider a
contractor's good-faith efforts to achieve its subcontracting goals as
an important factor in determining whether the contractor deserves an
acceptable past performance rating.
This proposed rule would provide more detailed guidance on
assessing good-faith efforts in performance of subcontracting plans. In
particular, the proposed rule provides specific examples of conduct
demonstrating that a prime contractor has made a good-faith effort to
comply with its subcontracting plan.
This proposed rule would also increase the dollar threshold above
which prime contractors must notify unsuccessful offerors from $10,000
to $100,000. The proposed dollar threshold will conform to the
Simplified Acquisition Threshold and will be in keeping with the
Administration's efforts to make Government regulations more practical
and less burdensome.
SBA is also proposing amendments to clarify the subcontracting
assistance program and incorporate existing statutory requirements and
administrative procedures currently used in administering the program.
Further, this proposed rule reorganizes Sec. 125.3 into identifiable
substantive areas with new subsection headings for ease of use and
clarity. None of these changes impose additional requirements or
responsibilities on small or large businesses. The proposed amendments
are simply intended to clarify existing responsibilities in carrying
out the statutory mandate for small businesses to have the maximum
practicable opportunity to participate in Federal contracting.
SBA invites comments on the proposed rule, particularly on the
provisions concerning the determination of good-faith efforts.
B. Section-by-Section Analysis
SBA proposes to amend Sec. 125.3(a) to clarify that the purpose of
the subcontracting assistance program is to provide maximum practicable
subcontracting opportunities to small business concerns. The proposed
Sec. 125.3(a) specifies the various categories of small businesses
that must be afforded the maximum practicable subcontracting
opportunities under section 8(d) of the Small Business Act (15 U.S.C.
637(d)), 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. The proposed Sec. 125.3(a) also makes clear that
the subcontracting assistance program implements the requirement that
large prime contractors provide subcontracting plans.
SBA proposes to amend Sec. 125.3(b) to clarify the
responsibilities of all prime contractors, as provided under section
8(d)(3) of the Small Business Act (15 U.S.C. 637(d)(3)). Section
8(d)(3) applies to “all contracts let by any Federal agency” that
exceed the simplified acquisition threshold, that do not include work
that will be performed entirely outside of the United States, and that
are for services that are personal in nature. It requires all awardees
of such prime contracts to carry out “the policy of the United States
that small business concerns” have the “maximum practicable
opportunity to participate” in the performance of contracts, including
subcontracts for subsystems, assemblies,
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components, and related services for major systems.
In implementing that existing statutory requirement, the proposed
Sec. 125.3(b)(1) expressly requires that all prime contractors,
including small business prime contractors, that receive the covered
Federal contracts ensure that small business concerns have the maximum
practicable opportunity to participate in the performance of the
contract as subcontractors and suppliers, consistent with the efficient
performance of the contract. SBA believes that the responsibility to
maximize subcontracting opportunities for small businesses applies
equally to all prime contractors that receive contracts above the
simplified acquisition threshold. This provision does not, however,
extend the requirement for subcontracting plans to small business
concerns. As indicated in the proposed Sec. 125.3(c), discussed below,
the requirement for subcontracting plans applies only to large
businesses that receive a contract or contract modification exceeding
$500,000, or $1,000,000 in the case of construction of a public
facility.
The proposed Sec. 125.3(b)(2) lists examples of actions prime
contractors may take to increase small business subcontracting
opportunities. Two comments submitted in response to SBA's proposed
bundling rule published in the Federal Register on January 31, 2003 (67
FR 47244), requested strategies for maximizing small business
subcontracting opportunities. In response to those comments, the
proposed Sec. 125.3(b)(2) provides specific guidance to prime
contractors on providing the maximum practicable subcontracting
opportunities to small businesses.
The proposed guidance in Sec. 125.3(b)(2) is not intended to
impose additional burdens or responsibilities on small businesses or to
operate as a basis for denying a small business a contract award.
Instead, SBA intends that the proposed guidance provide suggested
measures for ensuring small business subcontracting opportunities in
procurements. As discussed below in connection with the proposed Sec.
125.3(d), documentation that a large business performed the actions and
strategies outlined in the proposed Sec. 125.3(b)(2), may serve as
evidence that the large business prime contractor made a good-faith
effort to comply with its subcontracting plan.
SBA proposes to amend Sec. 125.3(c) to address the additional
responsibilities of large prime contractors 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. These
responsibilities include the existing requirements for submitting
subcontracting plans, providing timely subcontracting reports and for
cooperating in compliance reviews. The proposed Sec. 125.3(c)(1)(v),
sets forth the pre-award written notification currently included in the
existing Sec. 125.3(a) of SBA's regulations. The current provision
requires large prime contractors to provide pre-award written
notification to unsuccessful small business offerors on all
subcontracts over $10,000 for which a small business concern received a
preference. Unlike that provision, the proposed Sec. 125.3(c)(1)(v)
requires such pre-award notification on all subcontracts over $100,000.
This proposed increase in the dollar threshold from $10,000 to $100,000
conforms to the simplified acquisition threshold. It also is in keeping
with the Administration's efforts to make Government regulations more
practical and less burdensome on businesses.
The proposed Sec. 125.3(c)(2) addresses commercial plans. This
section makes clear that large prime contractors may use commercial
plans for services as well as for products, as long as the product or
service being procured meets the definition of a commercial item in 48
CFR 2.101.
SBA proposes to amend Sec. 125.3(d) to address good-faith effort
with respect to a large prime contractor's compliance with its
subcontracting plan. Under section 8(d)(4)(f) of the Small Business Act
(15 U.S.C. 637(d)(4)(f)), a contracting officer may assess liquidated
damages against a large business that failed to make a good-faith
effort to achieve the small business goals in its subcontracting plan.
Several commenters on the SBA's January 31, 2003, proposed bundling
rule requested guidance on evaluating a large prime contractor's good-
faith efforts to achieve its small business goals. The proposed Sec.
125.3(d) indicates that evidence of good-faith efforts includes
supporting documentation that the contractor performed the actions
described in the proposed Sec. 125.3(b). The proposed Sec. 125.3(d)
further provides that evidence of good faith may also include
supporting documentation that other contractors awarded contracts of
similar scope, size or dollar value did not achieve or exceed the goals
stated in their subcontracting plan, despite their good-faith efforts
to do so.
SBA proposes to add a new Sec. 125.3(e) to explain the role of
SBA's CMRs, who perform a number of different activities to further the
objectives of SBA's subcontracting assistance program. In 2002, the
General Accounting Office conducted a study (GAO-03-54) on the role of
the CMR. The Study, entitled “The Commercial Marketing Representatives
Role Needs To Be Strategically Planned and Assessed” concluded that
SBA should seek ways to strengthen the position of CMRs. One of the
most important functions of CMRs is to assist prime contractors to
understand and comply with the requirements of the subcontracting
assistance program. Over time, SBA has found that it is preferable to
familiarize a prime contractor with the requirements at the time it
receives its first contract requiring a subcontracting plan, than to
wait until the time of the compliance review. This avoids
misunderstandings and other problems that may result in marginal and
Unsatisfactory ratings.
SBA has developed the Subcontracting Orientation and Assistance
Review (SOAR) to implement this concept. This proposal incorporates the
SOAR into SBA's regulations. Section 125.3(e) describes the CMRs
responsibilities in conducting SOARS to assist prime contractors in
understanding and complying with the requirements under the
subcontracting assistance program.
SBA also proposes to add a new Sec. 125.3(f) to address SBA's
approach to conducting compliance reviews of prime contractors with
subcontracting plans. This section provides the procedures for
conducting on-site compliance reviews and follow-up reviews and
validation of the SF-295, Summary Subcontract Report, and SF-294,
Subcontracting Report for Individual Contracts. The proposed Sec.
125.3(f) further describes the existing rating process and the
different procedures for conducting compliance reviews of prime
contractors under a commercial plan. This section also indicates that
SBA is authorized to enter into agreements with other Federal agencies
and entities to conduct compliance reviews and otherwise further the
objectives of the subcontracting program. SBA has entered into one such
agreement with the Defense Contracts Management Agency under a
Memorandum of Understanding dated May 9, 2003.
Finally, in response to comments to SBA's proposed bundling rule
published on January 31, 2003 (68 FR 5134), SBA proposes to add a new
Sec. 125.3(g) to address the use of subcontracting plans as an
evaluation factor. Several commenters urged that SBA explore incentives
that would reward large prime contractors for their subcontracting
opportunities and
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achievements. In response to those comments, the proposed Sec.
125.3(g) authorizes contracting officials to use subcontracting plans
as an evaluation factor in the award of task orders and delivery orders
under Federal Supply Schedules, Government-wide acquisition contracts,
and multi-agency contracts. Specifically, the section allows
contracting officers to consider the proposed subcontracting goals for
the specific requirement and the contractor's past performance in
meeting its subcontracting goals in previous contracts.
C. Compliance With Executive Orders 12866, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act
OMB has determined that this rule is a significant regulatory
action under Executive Order 12866. The proposed rule revises the SBA
regulation governing small business subcontracting assistance to define
good-faith effort. 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. 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 determines that this proposed rule imposes no new
reporting or recordkeeping requirements.
SBA certifies that this proposed rule, if promulgated, would not
have a significant economic impact on a substantial number of small
entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C.
601-612. The proposed rule does not impose any new substantive
responsibilities, nor does it require any new reporting or
recordkeeping requirements. Instead, this proposed 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. Accordingly, the proposed rule is
primarily procedural in nature and therefore would not have a
significant economic impact on small entities. As a result, no initial
regulatory flexibility analysis 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.
For the reasons set forth in the preamble, SBA proposes to amend 13
CFR part 125 as follows:
PART 125--GOVERNMENT CONTRACTING PROGRAMS
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.
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, 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. The subcontracting assistance program
implements section 8(d) of the Small Business Act, which includes the
requirement that other-than-small firms 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 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 simplified acquisition threshold,
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) Efforts to provide the maximum practicable subcontracting
opportunities for small business concerns include:
(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 SBA's PRO-Net, posting Notices of
Sources Sought and/or Requests for Proposal on SBA's SUB-Net, 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; and
(viii) Utilizing the available services of small business
associations; local, state, and Federal small business assistance
offices; and other organizations.
(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 utilization of
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;
[[Page 60018]]
(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;
(iv) 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; and
(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.
(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
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;
(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;
or
(iv) The modification is to a contract that did not originally
contain the clause at 48 CFR 52.219-8, Utilization of Small Business
Concerns (or equivalent prior clauses).
(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 the actions described in paragraph (b)
of this section; or
(2) Other contractors awarded contracts of similar scope, size or
dollar value have not achieved or exceeded the goals stated in their
subcontracting plans, despite other evidence of their good-faith
efforts to comply. The determination of the subcontracting plan
compliance of other contractors may be based on available
subcontracting past performance records and other information.
(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 SBA's PRO-Net, SUB-Net, 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 (SOAR).
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 Government; and
(6) Conducting periodic reviews, including compliance reviews in
accordance with paragraph (f) of this section.
(f) Compliance reviews. (1) 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) 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.
(5) 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 or entering into a blanket
purchase agreement against a Federal Supply Schedule, government-wide
acquisition contract (GWAC), or multi-agency contract (MAC), the
ordering agency may evaluate subcontracting as an important factor in
its source selection process. This evaluation may include any of the
following:
(1) The subcontracting to be performed on the specific requirement;
[[Page 60019]]
(2) The goals negotiated in the commercial plan, if applicable; and
(3) The contractor's past performance in meeting subcontracting
goals in previous contracts.
Dated: October 8, 2003.
Hector V. Barreto,
Administrator.
[FR Doc. 03-26515 Filed 10-17-03; 8:45 am]
BILLING CODE 8025-01-P