[Federal Register Volume 60, Number 186 (Tuesday, September 26, 1995)]
[Notices]
[Pages 49644-49648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23880]



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OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy; Policy Letter on 
Subcontracting Plans

AGENCY: Executive Office of the President, Office of Management and 
Budget (OMB), Office of Federal Procurement Policy (OFPP).

ACTION: OFPP is requesting comments on a proposed Policy Letter on 
Subcontracting Plans as required by section 8(d) of the Small Business 
Act and amended by the Federal Acquisition Streamlining Act of 1994 
(FASA).

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SUMMARY: It is a fundamental policy of the United States Government 
that a fair proportion of its contracts be placed with small business 
concerns, small business concerns owned and controlled by socially and 
economically disadvantaged individuals, and small businesses owned and 
controlled by women and that such businesses be provided the maximum 
practicable opportunity to participate as subcontractors in the 
performance of Government prime contracts consistent with their 
efficient performance.
    Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) requires 
that before award can be made of a contract that exceeds $500,000 ($1 
million in the case of construction of a public facility) to other than 
a small business concern, the apparent successful offeror must 
negotiate a subcontracting plan describing how it will provide 
subcontracting opportunities to small businesses.
    This Policy Letter, when issued in final, will supersede and cancel 
OFPP Policy Letter 80-1, ``Pubic Law 95-507, Section 211, 
SubContracting: Agency Coordination with the Small Business 
Administration Resident Procurement Center Representatives,'' dated 
January 24, 1980; OFPP Policy Letter 80-2, ``Regulatory Guidance on 
Section 211 of Public Law 95-507,'' dated April 29, 1980; Supplement 
No. 1 to Policy Letter 80-2, dated May 29, 1981; and OFPP Policy Letter 
80-4, ``Women's Business Enterprise Program,'' dated April 29, 1980. 
The Policy Letter consolidates previously issued guidance contained in 
the above Policy Letters; adds clarification on issues that have arisen 
since the issuance of the earlier Policy Letters; addresses the FASA 
concern about the burden of government-unique requirements for 
companies supplying commercial items by establishing a preference for 
commercial plans; and provides additional guidance on the 
administration and enforcement of subcontracting plans and liquidated 
damages.

COMMENT DATE: Comments must be received on or before November 27, 1995.

ADDRESSES: Comments should be submitted to Linda Mesaros, Deputy 
Associate Administrator, Office of Federal Procurement Policy, New 
Executive Office Building, Room 9001, 725 17th Street, NW, Washington, 
DC 20503.

FOR FURTHER INFORMATION CONTACT: Linda Mesaros at 202-395-4821.
Steven Kelman,
Administrator.

Policy Letter 94-X

To the Heads of Executive Departments and Establishments
Subject: Policy Regarding SubContracting Plans

    1. Purpose. This directive provides Executive Branch policies 
concerning subcontracting plans required by section 8(d) of the 
Small Business Act (15 U.S.C. 637(d)) as amended by the Federal 
Acquisition Streamlining Act of 1994 (FASA).
    2. Supersession Information. This Policy Letter supersedes and 
cancels OFPP Policy Letter 80-1, Public Law 95-507, Section 211, 
``Subcontracting: Agency Coordination with the Small Business 
Administration Resident Procurement Center Representatives,'' dated 
January 24, 1980; OFPP Policy Letter 80-2, ``Regulatory Guidance on 
Section 211 of Public Law 95-507,'' dated April 29, 1980; Supplement 
No. 1 to Policy Letter 80-2, dated May 29, 1981; and OFPP Policy 
Letter 80-4, ``Women's Business Enterprise Program,'' dated April 
29, 1980.
    3. Authority. This Policy Letter is issued pursuant to section 6 
of the Office of Federal Procurement Policy Act, as amended, 41 
U.S.C. 405.
    4. Definitions.
    a. Small business concern. Means a concern, including its 
affiliates, that is independently owned and operated, not dominant 
in the field of operation in which it is bidding on government 
contracts, and qualified as a small business under the criteria and 
size standards in 13 CFR Part 121.
    b. Small business subcontractor. Means a concern, including its 
affiliates, whose (1) number of employees does not exceed 500 
employees, provided the subcontract is $10,000 or less, or (2) 
number of employees or average annual receipts does not exceed the 
size standard under 13 CFR 121.601 when the value of the product or 
service it is providing on a subcontract exceeds $10,000.
    c. Small disadvantaged business concern. Normally means a small 
business concern that is at least 51 percent unconditionally owned 
by one or more individuals who are both socially and economically 
disadvantaged, or a publicly owned business that has at least 51 
percent of its stock unconditionally owned by one or more socially 
and economically disadvantaged individuals, and that has its 
management and daily business controlled by one or more such 
individuals. The term also means a small business concern that is at 
least 51 percent unconditionally owned by an economically 
disadvantaged Indian tribe or Native Hawaiian Organization, or a 
publicly owned business that has at least 51 percent of its stock 
unconditionally owned by one of these entities, that has its 
management and daily business controlled by members of an 
economically disadvantaged Indian tribe or Native Hawaiian 
Organization, and that meets the requirements of 13 CFR Part 124. 
This definition may not apply to all agencies when a different one 
is established by statute.
    d. Socially disadvantaged individuals. Means individuals who 
have been subjected to racial or ethnic prejudice or cultural bias 
because of their identity as a member of a group without regard to 
their qualities as individuals. Individuals who certify that they 
are members of these named groups, Black Americans, Hispanic 
Americans, Native Americans, Asian-Pacific Americans, and 
Subcontinent-Asian Americans, are considered to be socially 
disadvantaged.
    (1) Subcontinent-Asian Americans means United States citizens 
whose origins are in India, Pakistan, Bangladesh, Sri Lanka, Bhutan, 
Nepal, or the Maldive Islands.
    (2) Asian-Pacific Americans means United States citizens whose 
origins are in Japan, China, the Philippines, Vietnam, Korea, Samoa, 
Guam, the U.S. Trust Territory of the Pacific Islands (Republic of 
Palau), the Commonwealth of the Northern Mariana Islands, Laos, 
Kampuchea (Cambodia), Taiwan, Burma, Thailand, Malaysia, 

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Indonesia, Singapore, Brunei, Republic of the Marshall Islands, the 
Federated States of Micronesia, Macao, Hong Kong, Fiji, Tonga, 
Kiribati, Tuvalu, or Nauru.
    (3) Native Americans means American Indians, Eskimos, Aleuts, 
and Native Hawaiians.
    e. Economically disadvantaged individuals. Means a socially 
disadvantaged individual whose ability to compete in the free 
enterprise system is impaired due to diminished opportunities to 
obtain capital and credit as compared to others in the same line of 
business who are not socially disadvantaged (see 13 CFR Part 124).
    f. Small business concerns owned and controlled by women (women-
owned small business concerns). Means a small business concern (1) 
which is at least 51 percent owned by one or more women, or, in the 
case of any publicly owned business, at least 51 percent of the 
stock of which is owned by one or more women, and (2) whose 
management and daily business operations are controlled by one or 
more women.
    g. Subcontract. Means any agreement (other than one involving an 
employer-employee relationship) entered into by a Government prime 
contractor or subcontractor calling for supplies and/or services 
required for contract performance, contract modification, or 
subcontract. However, purchases from a corporation, company or 
division which are affiliates, as defined in 13 CFR 121.401, of a 
prime contractor are not considered ``subcontracts.''
    h. Individual contract plan. Means a subcontracting plan that 
covers the entire contract period (including option periods), 
applies to a specific contract, and has goals which are based on the 
offeror's planned subcontracting in support of the specific 
contract, except that indirect costs incurred for common or joint 
purposes may be allocated on a prorated basis to the contract.
    i. Master plan. Means a subcontracting plan that contains all of 
the required elements except goals and may be incorporated into an 
individual contract plan provided the master plan has been approved.
    j. Commercial plan. Means a subcontracting plan covering the 
offeror's fiscal year and which is applicable to the entire 
production of commercial items sold by either the entire company or 
portion thereof (e.g., division, plant, or product line). As used in 
this Policy Letter, the term ``commercial item'' is a product or 
service that satisfies the definition of commercial item in section 
8001 of FASA (41 U.S.C. 403).
    k. Failure to make a good faith effort to comply with the 
subcontracting plan. Means willful or intentional failure to perform 
in accordance with the requirements of the subcontracting plan, or 
willful or intentional action to frustrate the plan.
    5. Background
    a. It is a fundamental policy of the United States Government 
that a fair proportion of its contracts be placed with 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 that such 
businesses be provided the maximum practicable opportunity to 
participate as subcontractors in the performance of Government prime 
contracts consistent with their efficient performance. In 
furtherance of the policy for providing the maximum practicable 
opportunity to small business concerns to perform as subcontractors 
on Government contracts, the laws governing Federal procurement do 
not require contractors to subcontract specific percentages of the 
work on Government contracts to small, small disadvantaged, or 
women-owned small business concerns. The policy does require that to 
the extent a Government contractor does subcontract a portion of the 
work on the Government contract, it must provide the maximum 
practicable opportunity to small, small disadvantaged, and women-
owned small business concerns to perform the subcontracted portion 
of that contract.
    b. Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) 
requires that before award can be made of a contract that exceeds 
$500,000 ($1 million in the case of construction of a public 
facility) to other than a small business concern, the apparent 
successful offeror must negotiate a subcontracting plan describing 
how it will provide subcontracting opportunities to small 
businesses. This requirement does not apply if the contract offers 
no subcontracting opportunities. The subcontracting plan shall 
become a material part of the contract.
    c. Regulations implementing the policies of Section 8(d) of the 
Small Business Act have been implemented in Part 19 of the Federal 
Acquisition Regulation (FAR). This Policy Letter consolidates 
previously issued guidance contained in Policy Letters 80-1, 80-2 
and its Supplement No. 1, and 80-4; adds clarification on issues 
that have arisen since the issuance of the earlier Policy Letters; 
addresses the Congress' concern about the burden of government-
unique requirements for companies supplying commercial items by 
establishing a preference for commercial plans; and provides 
additional guidance on the use and administration of commercial 
plans.
    6. Solicitation and Subcontracting Plan Requirements
    a. The FAR shall prescribe a clause entitled ``Utilization of 
Small, Small Disadvantaged and Women-Owned Small Business Concerns'' 
to be inserted in solicitations and contracts when the acquisition 
is expected to exceed the simplified acquisition threshold, except 
when (1) A personal services contract is contemplated, or (2) the 
contract and all of its subcontracts will be performed and awarded 
entirely outside of the United States, its possessions, Puerto Rico, 
or the Trust Territory of the Pacific Islands. This clause shall 
express the policy of the United States for providing maximum 
practicable opportunity to small, small disadvantaged, and women-
owned small business concerns to participate in the performance of 
prime contracts let by the Federal Government and subcontracts. The 
clause also shall require prime contractors to establish procedures 
to ensure timely payment to such small business concerns performing 
as subcontractors and commit the prime contractor to carrying out 
these policies and cooperating with the Small Business 
Administration (SBA) in studies to determine the extent of the prime 
contractor's compliance. The requirements of the clause also shall 
apply to small business concerns.
    b. For each subcontract the prime contractor will award to a 
small business subcontractor, the prime contractor must obtain a 
written representation from the subcontractor that it qualifies 
under the size and ownership standards applicable for the 
subcontract (see 13 CFR 121.911 and the definition at subparagraph 
4.b. The contractor may rely on this written representation, unless 
it has reason to believe otherwise. Before including a firm on its 
source list, a contractor should obtain written acknowledgment that 
the potential subcontractor is aware of the adverse consequences for 
misrepresentation provided for in Section 16(d) of the Small 
Business Act (15 U.S.C. 645(d)).
    (1) Upon receipt of a formal protest, the Office of Government 
Contracting in the SBA has the final authority to determine the 
eligibility of a concern to be designated as a small business and to 
answer inquiries from prime contractors and others regarding such 
eligibility.
    (2) Similar authority to make determinations of the formally 
protested eligibility of small disadvantaged businesses has been 
given to the SBA's Office of Minority Enterprise Development.
    (3) Women-owned eligibility determinations will be made in 
accordance with regulations established by the SBA.
    c. The FAR shall prescribe a clause entitled ``Small, Small 
Disadvantaged and Women-Owned Small Business Subcontracting Plan'' 
in solicitations and contracts if the award is expected to exceed 
$500,000 ($1 million for construction of a public facility), unless 
the acquisition is reserved for small business concerns, offers no 
subcontracting opportunities, or unless the contract will be 
performed and awarded outside the United States, its possessions, 
Puerto Rico or the Trust Territory of the Pacific Islands. Other 
exceptions include contracts with Federal Prison Industries and 
contracts with workshops for the blind or severely disabled awarded 
under the provisions of the Javits-Wagner-O'Day Act. The clause 
shall apply to all other entities including large businesses, state 
and local governments, non-profit associations, public utilities, 
Historically Black Colleges and Universities, Minority Institutions, 
and foreign-owned firms that receive Federal contracts if any 
portion of that contract will be performed in the United States. 
There is an exemption to the clause for the Department of Defense 
(DOD), the Coast Guard, and National Aeronautics and Space 
Administration (NASA) in regard to Historically Black Colleges and 
Universities and Minority Institutions. The actual or estimated 
value of the contract for the entire term of the contract, including 
any option periods, determines whether the threshold is met. The 
clause shall require that the subcontracting plan include the 
following elements:
    (1) A statement of total dollars to be subcontracted and 
statements of total dollars to be subcontracted to small business, 
to small disadvantaged business, and to 

[[Page 49646]]
women-owned small business. Small disadvantaged and women-owned small 
business dollars are included in the small business category. This 
means, for example, that a small business owned by a minority woman 
is counted as a small business, a small disadvantaged business, and 
as a women-owned small business. An individual contract plan for a 
contract with options shall contain a separate statement for the 
basic contract and individual statements for each option.
    (2) Separate goals expressed as percentages of total planned 
subcontracting dollars for small, small disadvantaged, and women-
owned small business. Unless a commercial plan is involved, goals 
are stated separately for the basic contract and for any option 
periods or quantities.
    (3) A statement as to whether or not the offeror included 
indirect costs in establishing subcontracting goals and a 
description of the methods used to determine the proportionate share 
of indirect costs to be incurred with small, small disadvantaged, 
and women-owned small business concerns.
    (4) A description of the principal types of supplies and 
services to be subcontracted (to large, small, small disadvantaged, 
and women-owned small business concerns) and an identification of 
the specific types to be subcontracted to each small business 
category.
    (5) A description of the methods that were used in developing 
the subcontracting goals.
    (6) The name and a description of the duties of the individual 
employed by the offeror who will administer the offeror's 
subcontracting program.
    (7) A description of the methods used to identify potential 
sources for solicitation purposes. Offerors may rely on information 
contained in SBA's Procurement Automated Source System (PASS). The 
information included in PASS will be incorporated into the Federal 
Acquisition Computer Network (FACNET) Contractor Registration Data 
Base.
    (8) A description of the efforts the offeror will make to assure 
that small, small disadvantaged, and women-owned small business 
concerns have an equitable opportunity to compete for subcontracts.
    (9) Assurances that the offeror will include the Utilization of 
Small, Small Disadvantaged and Women-Owned Small Business Concerns 
clause in all subcontracts over the simplified opportunities.
    (10) Assurances that subcontractors (except small business 
concerns) who receive subcontracts in excess of $500,000 ($1 million 
for construction of a public facility) will adopt a plan similar to 
the plan agreed to by the offeror. For individual contract plans, 
offerors are required to describe their procedures for reviewing, 
approving, and monitoring their subcontractors' compliance with 
subcontracting plans. Copies of subcontractors' subcontracting plans 
must be retained by the prime contractor until completion of the 
subcontract. A ``certificate of compliance'' or statement from the 
subcontractor that it has a subcontracting plan does not satisfy 
this requirement.
    (11) Assurances that the offeror will cooperate in any studies 
or surveys that may be required; submit periodic reports so the 
Government can determine the extent of compliance by the offeror 
with the subcontracting plan; submit Standard Form (SF) 294, 
Subcontracting Report for Individual Contracts, and/or SF 295, 
Summary Subcontract Report, following the instructions on the form 
or as provided in agency regulations; and ensure that its 
subcontractors agree to submit SF 294s and 295s.
    (12) A description of the type of records that will be 
maintained concerning procedures that will ensure compliance with 
the plan and its goals.
    (13) A description of the efforts that will be made to locate 
and award subcontracts to small, small disadvantaged, and women-
owned small business concerns.
    d. A contractor's failure to make a good faith effort to comply 
with the subcontracting plan is a material breach of the contract. 
Section 8(d)(4)(F) of the Small Business Act requires that contracts 
that include the Utilization and Subcontracting Plan clauses also 
contain a clause requiring the payment of liquidated damages upon a 
finding that the contractor failed to make a good faith effort to 
comply with the requirements of these clauses. The FAR shall 
prescribe a clause entitled ``Liquidated Damages-Subcontracting 
Plan'' that shall describe the procedures for making such a 
determination.
    e. Nothing in this Policy Letter precludes an agency from 
establishing additional requirements regarding subcontracting plans.
    (1) The contracting officer may also use informational goals in 
solicitations to inform potential offerors of the Government's 
expectations concerning the goals in an acceptable subcontracting 
plan. Informational goals shall not be interpreted as minimal 
acceptable requirements.
    7. Instructions to Contracting Officers. Contracting officers 
are required to determine the acceptability of the subcontracting 
plan before awarding the contract. The following policy and 
procedural guidance is provided to contracting officers to assist 
them in making their determinations. This guidance is not intended 
to be all inclusive. Ultimately, there is no substitute for the 
reasoned and objective judgment of a contracting officer exercised 
on a case-by-case basis.
    a. Reviewing the Subcontracting Plan. Many factors warrant 
consideration in reviewing the adequacy of a subcontracting plan. 
Consequently, the contracting officer should be flexible and avoid 
establishing arbitrary criteria. Potential weaknesses in the plan 
should be identified and brought to the attention of the offeror. 
For example, by regulation, a zero goal is not acceptable. A 
positive goal is required to establish a gauge for measuring results 
and to provide an incentive for continuing efforts to increase the 
dollar value of subcontracts placed with small, small disadvantaged, 
and women-owned small business concerns. During the contract period, 
the contractor is expected to make continuing efforts to locate and 
identify new small, small disadvantaged, and women-owned small 
business concerns as potential subcontractors. Subcontracting goals 
should not be negotiated upward if they would significantly increase 
the Government's cost or seriously impede the attainment of the 
acquisition's objective. The contracting officer shall take the 
following actions:
    (1) Evaluate the anticipated potential for subcontracting to 
small, small disadvantaged, and women-owned small business concerns 
taking into consideration the make-or-buy policies or programs of 
the offeror, the nature of the products or services to be 
subcontracted and the known availability of small, small 
disadvantaged, and women-owned small business concerns in the 
geographical area where the work will be performed.
    (2) If informational goals are stated in the solicitation, 
require an offeror that proposes lower goals to explain why its 
subcontracting plan cannot achieve the stated goals.
    (3) If the proposed goals are questionable, advise the offeror 
of (a) the names of any known potential small, small disadvantaged, 
and women-owned small business subcontract sources and (b) the 
availability of the sources of information on potential small, small 
disadvantaged, and women-owned small business subcontractors. The 
contracting officer shall emphasize that one or more of the 
available sources of information concerning potential small, small 
disadvantaged, and women-owned small business subcontract sources 
should be considered in developing realistic and acceptable goals. 
Sources of information include:
    (i) Local SBA offices.
    (ii) The Department of Commerce, Minority Business Development 
Agency (MBDA). An offeror can ask for access to the MBDA's Profile 
System.
    (iii) State, county, and city government minority business 
offices.
    (iv) Small, minority, and women business associations.
    (v) Local chambers of commerce.
    (vi) The Commerce Business Daily (CDB), the FACNET Contractor 
Registration Data Base, newspapers, and other communication media. 
An offeror can synopsize in the CBD or advertise in trade newspapers 
or journals seeking competition for subcontracts and to increase 
participation by small, small disadvantaged, and women-owned small 
business concerns to meet subcontract goals.
    (4) Obtain advice and recommendations of the agency Small 
Business Specialist and the SBA Procurement Center Representative 
(SBA PCR) concerning the acceptability of the proposed plan. The FAR 
shall require that the contracting officer provide the SBA PCR a 
reasonable opportunity to review subcontracting plans and make 
recommendations, which are advisory in nature.
    (5) Consider the offeror's performance on other Government 
contracts that required subcontracting plans. The contracting 
officer should encourage the offeror to identify other contracts 
that had subcontracting plans and contact the contracting officers 
who administered those earlier plans to ascertain whether the 
objectives of those plans were realized and whether required reports 
were submitted in a timely manner. Overall compliance should be 
considered, not merely whether or not the goals established in the 
plan were met.

[[Page 49647]]

    (6) Incorporate by reference the terms of a master plan into an 
individual contract plan provided:
    (a) The master plan contained all the required elements;
    (b) The master plan has been approved within the last three 
years and the SBA PCR had an opportunity to comment on the master 
plan;
    (c) Subcontract goals for small, small disadvantaged, and women-
owned small business concerns are specifically set forth in each 
contract or modification over the threshold;
    (d) Any changes to the plan deemed necessary and required by the 
contracting officer in areas other than goals are specifically set 
forth in the contract or modification; and
    (e) The contracting officer has copies of the complete plan.
    (7) A preliminary subcontracting plan may be accepted for letter 
contracts and similar undefinitized instruments provided negotiation 
of the final plan is accomplished within 90 days after award or 
before definitization, whichever occurs first.

b. Award of Contract or Contract Modification

    (1) After award of a contract or contract modification 
containing a subcontracting plan, the contracting officer shall 
provide a copy of the award document to the SBA Area Director for 
Government Contracting in the Area where the contract will be 
performed. A copy of any subcontracting plan submitted pursuant to a 
sealed bid solicitation or the subcontracting plan incorporated into 
a negotiated contract or modification shall be provided to the SBA 
PCR.
    (2) The following policies apply to contract modifications other 
than options. The Small Business Act treats contracts and 
modifications separately. If a subcontracting plan is not required 
at the time of award because the value of the contract is below the 
threshold, a subcontracting plan will not be required even if a 
subsequent modification increases the value of the contract to an 
amount exceeding the threshold. The only exception to this rule is 
when the value of the modification itself exceeds $500,000 ($1 
million for construction of a public facility). Moreover, it is not 
necessary to obtain another subcontracting plan for a modification 
exceeding the applicable threshold if the contract already includes 
a subcontracting plan. However, the original plan must be modified 
to adjust goals accordingly for the new effort. If the value of the 
modification does not exceed the threshold, the original plan does 
not need to be modified.
    (3) The following policies apply to contractors and 
subcontractors that no longer meet the size or ownership status as a 
small, small disadvantaged, or women-owned small business concern 
during the period of contract performance as a result of growth, a 
buy-out, or a merger:
    (a) A subcontracting plan is not required of any former small 
business prime contractor that, during contract performance, no 
longer meets the definition of a small business concern. Similarly, 
the requirement to submit periodic reports does not apply. However, 
a subcontracting plan is required if the prime contractor 
erroneously considered itself small at the time of contract award. 
Under this circumstance, the contracting officer should request a 
subcontracting plan from the contractor and the responsibility to 
submit the periodic reports would apply.
    (b) If a prime contractor awards a subcontract to a small 
business, it may continue to report those subcontract dollars as a 
small business award for the duration of the subcontract, including 
all option years.

c. Contract Awards Involving Commercial Plans

    (1) A commercial plan is an annual subcontracting plan which is 
effective during the offeror's fiscal year and applies to all of the 
offeror's production of both commercial and noncommercial items. 
This type of plan is useful for companies that normally rely on 
their existing network of suppliers for all of their business and do 
not enter into specific subcontracts to fill Government contracts. 
The plan may apply to the production of the offeror's entire 
company, or it may be limited to a corporation, company, division, 
plant or product line. A commercial plan is approved by the first 
Federal agency awarding a contract for commercial products or 
services during the contractor's fiscal year, and is applicable to 
every additional Federal contract for those items awarded to that 
contractor during the contractor's same fiscal year. The cutoff date 
for applying a previously approved commercial plan to additional 
Federal contracts is the end of the company's fiscal year in which 
the commercial plan was approved. If a contract extends beyond the 
expiration date of the plan, a new plan must be obtained and 
approved by the contracting officer monitoring the plan. The new 
plan should be requested 30 days before the old plan expires.
    (2) Commercial plans are recognized as one way the burdens of 
government-unique requirements can be reduced for companies that 
provide commercial items on Government contracts and subcontracts.
    (a) It is the policy of the United States Government that 
commercial plans, when authorized under this Policy Letter, shall be 
the preferred method of compliance with the requirements of section 
8(d) of the Small Business Act. Commercial plans are only authorized 
for products or services that meet the definition of commercial item 
as provided in subparagraph 4j.
    (b) Agencies, in all solicitations expected to trigger the 
requirements for a subcontracting plan, shall inform prospective 
offerors of the opportunity for them and/or their subcontractors to 
develop commercial plans if they are supplying commercial items. 
Commercial plans are authorized for subcontractors that provide 
commercial items under a prime contract even when the prime 
contractor is not supplying a commercial item.
    (3) When a contractor has a commercial plan previously approved 
by another agency's contracting activity or another Federal agency 
for the company's fiscal year, the contracting officer shall obtain 
a copy of the plan and the approval document from the contractor. 
These documents shall be incorporated into the contract.
    (4) Since a commercial plan may be applicable to contracts 
awarded by more than one contracting activity or Federal agency, 
contracting officers must ensure that the commercial plan is not 
allowed to expire prior to the negotiation of a new commercial plan. 
This eventuality may occur when the contract of the contracting 
officer monitoring the plan is completed and no new contract is 
awarded to that contractor during the contractor's fiscal year. To 
prevent such an occurrence, 30 days prior to contract completion, 
the contracting officer monitoring the commercial plan shall obtain 
from the contractor the name of the contracting officer 
administering the contract with the latest completion date and 
arrange for the transfer of the monitoring responsibilities to that 
contracting officer.

d. Contract Administration of Subcontracting Plans

    (1) The contracting officer administering a contract with an 
individual contract plan is responsible for monitoring receipt of 
the SF 294 reports. The SF 294 is used to evaluate the contractor's 
progress toward meeting the subcontracting goals established in the 
individual contract plan. The contracting officer shall pay 
particular attention to reviewing the SF 294 required at contract 
completion. The SF 294 is not required for contracts with an 
approved commercial plan.
    (2) The SF 295 is used to evaluate the contractor's progress 
toward meeting the subcontracting goals in subcontracting plans. The 
contracting officer monitoring a subcontracting plan is responsible 
for ensuring receipt and review of the SF 295. The SF 295 report 
summarizes all subcontract awards under contracts with a particular 
federal agency and is due on or before October 30th of each year. 
Since this report measures progress during the Government's fiscal 
year and the commercial plan applies to the contractor's fiscal 
year, a second SF 295 will be required from contractors with 
commercial plans whose fiscal year is different from the 
Government's. This second SF 295 report shall enable the contracting 
officer monitoring the commercial plan to evaluate progress in 
meeting subcontracting goals by comparing the applicable report with 
the plan.
    (3) For contracts containing a commercial plan, the contracting 
officer monitoring the plan shall review the contractor's 
performance at the close of the fiscal year for which the plan is 
applicable in order to determine whether it is appropriate to assess 
liquidated damages under the FAR clause entitled ``Liquidated 
Damages-Subcontracting Plan.'' For contracts containing individual 
contract plans, the contracting officer should evaluate contract 
performances at the time of contract completion, unless the contract 
contains options for extending contract performance. In this case, a 
decision would be made upon completion of the initial period of 
performance and at the end of each option period.
    (4) In making a determination regarding the assessment of 
liquidated damages, the 

[[Page 49648]]
contracting officer should consider whether the contractor made a good 
faith effort to comply with the subcontracting plan. Failure by the 
contractor to meet the subcontracting goals established in the 
subcontracting plan does not, in and of itself, constitute a failure 
to make a good faith effort. The contracting officer shall consider 
the totality of the contractor's effort. If the contractor failed to 
make a good faith effort to comply, section 8(d) of the Small 
Business Act mandates that liquidated damages must be assessed. When 
considering whether a good faith effort has been made, the 
contracting officer should examine whether the contractor:
    (a) Submitted the periodic reports required by the 
subcontracting plan in a timely manner.
    (b) Failed to meet its subcontracting goals because of a lack of 
diligence. Factors such as unavailability of anticipated sources or 
unreasonable prices may impact on the achievement of the 
contractor's goals.
    (c) Made efforts to identify, contact, solicit and consider for 
award small, small disadvantaged, and women-owned small business 
concerns. Factors such as the contractor's efforts to request 
assistance from SBA or to reach out to other organizations, i.e., 
trade associations, business development associations, etc., in an 
effort to locate small, small disadvantaged, and women-owned small 
business concerns should be considered in evaluating the 
contractor's efforts.
    (d) Maintained records and established procedures to comply with 
the subcontracting plan. The contracting officer should look for 
documentation of efforts to contact organizations to locate small, 
small disadvantaged, and women-owned small business concerns, 
participation in business fairs, information on who was solicited 
for particular solicitations, and any documentation of reasons for 
not awarding to small, small disadvantaged, or women-owned business 
concerns.
    (e) Maintained a company official to administer the 
subcontracting program and monitor and enforce compliance.
    (f) Assisted small, small disadvantaged, and women-owned small 
business concerns in responding to solicitations issued by the 
contractor.
    (5) If the contracting officer's initial assessment is that the 
contractor did not make a good faith effort to comply with the 
subcontracting plan, the contracting officer must notify the 
contractor, in writing, calling the contractor's attention to the 
suspected failure. As part of the notification, the contractor must 
be given the opportunity to demonstrate that good faith efforts have 
been made. The contractor must be advised that failure to respond to 
the notice may be taken as an admission that no valid explanation 
exists.
    (6) Before making a final decision, the contracting officer 
shall consider the contractor's response, if any, along with any 
pertinent information available. The contracting officer's final 
decision shall be documented in a ``final decision'' which is 
appealable by the contractor under the ``Disputes'' clause of the 
contract. The contracting officer's final decision should include:
    (a) A description of the contractor's failure;
    (b) Reference to the appropriate contract terms;
    (c) A statement of the factual areas of agreement and 
disagreement;
    (d) A statement of the contracting officer's decision with 
supporting rationale;
    (e) A demand for liquidated damages; and
    (f) An explanation of the contractor's appeal rights.
    (7) For a contract containing an individual contract plan, the 
amount of liquidated damages to be assessed is the sum of the 
amounts by which the contractor failed to meet each subcontracting 
goal for small, and/or small disadvantaged, and/or women-owned small 
business concerns. For contracts containing a commercial plan, the 
amount of liquidated damages to be assessed is calculated based upon 
the total payments made under contracts subject to the commercial 
plan as a percentage of the contractor's total sales. For example, 
if the contractor's total sales are $50 million and the Government's 
total payments under contracts subject to the commercial plan are $5 
million, the Government accounts for 10 percent of the contractor's 
total sales. The commercial plan stated that the subcontracting 
dollars to support the sales would be $20 million. Therefore, the 
pro rata share of subcontracting attributable to the Government 
contracts would be 10 percent of the $20 million or $2 million. If 
the contractor failed to achieve its small business goal by 1 
percent, the liquidated damages would be calculated as 1 percent of 
the $2 million or $20,000. The contracting officer shall make 
similar calculations for each category of small business where the 
contractor failed to achieve its goal and the sum of the dollars for 
all of the categories equals the amount of the liquidated damages to 
be assessed. The contracting officer of the agency that originally 
approved the plan will exercise the functions of the contracting 
officer on behalf of all agencies that awarded contracts subject to 
the commercial plan.
    (8) Liquidated damages shall be in addition to any other 
remedies available to the Government by law or under the contract.
    8. Responsibilities. The Federal Acquisition Regulatory Council 
shall ensure that the policies established herein are incorporated 
in the FAR within 210 days from the date this Policy Letter is 
published final in the Federal Register. Promulgation of final 
regulations within that 210 day period shall be considered issuance 
in a ``timely manner'' as prescribed in 41 U.S.C. 405(b).
    9. Information Contact. Questions regarding this Policy Letter 
should be directed to Linda Mesaros, Deputy Associate Administrator, 
Office of Federal Procurement Policy, 725 17th Street, NW, 
Washington, DC 20503, telephone 202-395-3501, facsimile 202-395-
5105.
    10. Judicial Review. This Policy Letter is not intended to 
provide a constitutional or statutory interpretation of any kind and 
it is not intended, and should not be construed, to create any right 
or benefit, substantive or procedural, enforceable at law by a party 
against the United States, its agencies, its officers, or any 
persons. It is intended only to provide policy guidance to agencies 
in the exercise of their discretion concerning Federal contracting. 
Thus, this Policy Letter is not intended, and should not be 
construed, to create any substantive or procedural basis on which to 
challenge any agency action or inaction on the ground that such 
action or inaction was not in accordance with this policy letter.
    11. Effective Date. The Policy Letter is effective 30 days after 
the date of issuance.
Steven Kelman,
Administrator.
[FR Doc. 95-23880 Filed 9-25-95; 8:45 am]
BILLING CODE 3110-01-M