[Federal Register Volume 60, Number 186 (Tuesday, September 26, 1995)]
[Notices]
[Pages 49641-49644]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23881]



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OFFICE OF MANAGEMENT AND BUDGET


Office of Federal Procurement Policy; Policy Letter on 
Subcontracting Plans for Companies Supplying Commercial Items

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

ACTION: OFPP is issuing a Policy Letter on ``subcontracting Plans for 
Companies Supplying Commercial Items.''

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SUMMARY: Section 8(d) of the Small Business Act (15 U.S.C. 637(d) 
requires that each contract that exceeds $500,000 ($1 million in the 
case of construction), and that offers subcontracting opportunities, 
include a requirement that the apparent successful offeror negotiate a 
subcontracting plan which shall become a material part of the contract. 
These requirements have been implemented by prior OFPP Policy Letters 
and subsequent promulgation in the Federal Acquisition Regulation 
(FAR).
    Sections 8104 and 8203 of the Federal Acquisition Streamlining Act 
of 1994 (FASA), Public Law 103-355, establish a preference for the 
acquisition of commercial items. In establishing this preference, 
Congress expressed concern that implementing policies ease the burden 
of government-unique requirements for companies supplying commercial 
items. In response to this concern, the policy on subcontracting plans 
is being revised to reduce the burden of government-unique requirements 
on contractors that supply commercial items.
    This Policy Letter focuses on contracts and subcontracts for 
``commercial items'' as defined in section 8001 of FASA. Annual 
commercial subcontracting plans that relate to a company's commercial 
and noncommercial production are authorized for:
    (a) prime contracts for commercial items, or
    (b) subcontractors that provide commercial items under a prime 
contract, whether or not the prime contractor is supplying a commercial 
item.
    In addition, the Policy Letter states that commercial plans, when 
authorized under the Policy Letter, shall be the preferred method of 
compliance with the requirements of section 8(d) of the Small Business 
Act. The policy letter reinforces that these provisions for 
subcontracting plans for commercial item contractors do not in any way 
relieve contracting officers, prime contractors or subcontractors of 
their responsibilities for assuring that small, small disadvantaged, 
and women-owned small businesses have the maximum practicable 
opportunity to participate in contracts awarded by Federal agencies.

SUPPLEMENTARY INFORMATION: A proposed Policy Letter and request for 
comments was published in the February 7, 1995 Federal Register (60 FR 
7229). Forty-three comment letters were received in response to the 
Federal Register notice, of which, 28 were from the private sector. A 
summary of the more significant comments received and OFPP responses to 
them follows:

1. Standard From 294

    Many personnel from the private sector commented that this Policy 
Letter would eliminate the Standard Form 294, a report that they 
considered integral as an indication of a government contractor's 
compliance with federal mandated small business and small disadvantaged 
business subcontracting goals on a contract by contract basis. While 
there will be some reduction in the submission of Standard Form 294 as 
a result of this revised policy, it should be noted that there has been 
a policy in place since 1980 that allows prime contractors supplying 
commercial items to use commercial plans which eliminates the 
requirement to submit the Standard Form 294. This policy was introduced 
in OFPP Policy Letter 80-2, dated April 29, 1980. For the past fifteen 
years, prime contractors supplying commercial items have not been 
required to submit the Standard Form 294. The information has been 
reported in summary through the Standard Form 295 (Summary Subcontract 
Report). The new policy letter is drafted to reemphasize the FASA's 
preference for the acquisition of commercial items. The Conference 
Report (H.R. 103-712) recognized the specific authority already 
provided in policy and subsequent regulation for commercial (e.g., 
corporation, company, division, plant, or product line) rather than 
contract-by-contract subcontracting plans for subcontractors providing 
commercial items. The report also noted that traditional business 
practices by commercial manufacturers does not lend itself to unique 
government related orders. Under OFPP policy, all other contract awards 
not involving commercial items will require submission of 
subcontracting plans on a contract-by-contract basis and the submission 
of the Standard Form 294.

2. Liquidated Damages

    Many personnel from the private sector commented that the Policy 
Letter eliminates the liquidated damages penalty for government 
contractors that refuse to comply with subcontracting goals. OFPP has 
not eliminated the liquidated damages penalty; that language is 
contained in the FAR and various OFPP Policy Letters. Additional 
guidance on liquidated damages and the assessment of liquidated damages 
is contained in the draft Policy Letter on Subcontracting Plans that is 
being published concurrently with this Policy Letter.

3. Enforcement and Administration of Subcontracting Plans

    Some personnel from both the government and private sector stated 
that more guidance is needed on enforcement and administration of 
subcontracting plans. We agree that the government needs to more 
strongly administer and monitor subcontracting plans. In order to 
emphasize that policy, we are publishing a draft Policy Letter on 
Subcontracting Plans concurrently with this Policy Letter. The draft 
Policy Letter on Subcontracting Plans especially focuses on the 
contracting officer's responsibility to monitor the plan and list 
methods that the contracting officer can use in considering whether a 
good faith effort has been made.

4. Inconsistencies With Past Policy Letters

    A few commentors stated that the Policy Letter is inconsistent with 
past Policy Letters. We are adding language to this Policy Letter that 
states that it supersedes any provision inconsistent with prior policy 
letters. We are also publishing a draft Policy Letter on Subcontracting 
Plans concurrently with this Policy Letter that, when issued in final, 
will supersede and cancel 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.

5. Classification of Commercial Items

    Several commentors requested that OFPP develop a comprehensive list 
of commercial items with appropriate product and service codes in order 
to 

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avoid confusion regarding what purchases qualify for the designation of 
commercial items. OFPP feels that the definition of commercial items in 
FASA and the corresponding implementing regulations provides sufficient 
information on what constitutes a commercial item. The development of a 
comprehensive list to be used by agencies would be time consuming, 
inflexible, require constant updating, and impose micro-management.

DATES: The Policy Letter is effective 30 days from the date of 
issuance. It directs that governmentwide regulations be promulgated to 
implement the policies contained therein within 210 days from the date 
this Policy Letter is published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: William Coleman, Deputy Administrator, 
202-395-3503 or Linda Mesaros, Deputy Associate Administrator, 202-395-
4821. The address is Office of Federal Procurement Policy, 725 17th 
Street, NW, New Executive Office Building, Room 9001, Washington, DC 
20503. To obtain a copy of this Policy Letter, please call the 
Executive Office of the President's Publication Office at 202-395-7332.
Steven Kelman,
Administrator.

Policy Letter 95-1

To the Heads of Executive Departments and Establishments
Subject: Subcontracting Plans for Companies Supplying Commercial 
Items

    1. Purpose. The purpose of this Policy Letter is to establish 
policies on the requirement for subcontracting plans for companies 
supplying commercial items.
    2. 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.
    3. Definition. 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., corporation, company, division, 
plant, or product line). As used in this Policy Letter, the term 
``commercial item'' is a product of service that satisfies the 
definition of commercial item in section 8001 of FASA (41 U.S.C. 
403).
    4. Background. Section 8(d) of the Small Business Act (15 U.S.C. 
637(d)) requires that each contract that exceeds $500,000 ($1 
million in the case of construction), and that offers subcontracting 
opportunities, include a requirement that the apparently successful 
offeror negotiate a subcontracting plan which shall become a 
material part of the contract. The requirement for subcontracting 
plans does not apply to small businesses. The above requirements 
have been implemented by OFPP Policy Letter 80-2 ``Regulatory 
Guidance on Section 211 of Public Law 95-507'' dated April 29, 1980, 
and Supplement No. 1 dated May 29, 1981, and further implemented in 
Part 19 of the Federal Acquisition Regulation (FAR). OFPP Policy 
Letter 80-2 specifically authorized the use of an annual commercial 
subcontracting plan that relates to the contractor's commercial and 
noncommercial production when the government is acquiring a 
commercial item.
    Sections 8104 and 8203 of the Federal Acquisition Streamlining 
Act of 1994 (FASA), Public Law 103-355, establish a preference for 
the acquisition of commercial items by the Department of Defense and 
civilian agencies. In establishing this preference, Congress 
expressed concern that implementing policies ease the burden of 
government-unique requirements for companies supplying commercial 
items. The Conference Report (H.R. 103-712) recognizes the unique 
circumstance faced by commercial contractors and the specific 
authority already provided in regulation and policy for commercial 
plans rather than contract-by-contract plans.
    The report cites OFPP Policy Letter 80-2, FAR 52.219-9(g), and 
519.704(b) of the General Services Administration Acquisition 
Regulation which provide express authority for commercial plans. The 
Report states:
    ``Because contractors and subcontractors offering commercial 
items tend to rely on their existing network of suppliers rather 
than entering new subcontracts to fill government orders, the 
requirements applicable to the company-wide subcontracting plans of 
commercial companies differ from the requirements applicable to 
individual subcontracting plans of non-commercial companies. See 
e.g. sections 519.704(c)(2), 519.705-5 and 519.705-6(b) of the GSA 
FAR Supplement. For example, a single company-wide plan authorized 
by these regulations is likely to address subcontracting 
opportunities at both the prime contract and subcontract levels, 
obviating the need for the filing of individual contract-by-contract 
or subcontract-by-subcontract plans. Title VIII of the bill is not 
intended to require any changes to such practices.'' (emphasis 
added)
    In response to this concern, the policy on subcontracting plans 
is being revised to reduce the burden of government-unique 
requirements on prime contractors and subcontractors that supply 
commercial items.
    5. Policy. The following policy applies governmentwide to 
contracts and subcontracts for ``commercial items'' as defined in 
section 8001 of FASA and implementing regulations:
    (1) It is a fundamental policy of the Federal government that a 
fair proportion of its contracts be placed with small businesses, 
small businesses owned and controlled by socially and economically 
disadvantaged individuals, and small businesses owned and controlled 
by women and that such businesses participate in subcontracting 
under government prime contracts.
    (2) When the requirements for a subcontracting plan under 
section 8(d) of the Small Business Act apply, annual commercial 
subcontracting plans that relate to a company's commercial and 
noncommercial production are authorized for:
    (a) prime contracts for commercial items, or
    (b) subcontractors that provide commercial items under a prime 
contract, whether or not the prime contractor is supplying a 
commercial item.
    (3) Furthermore, 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. In all 
solicitations expected to offer subcontracting opportunities which 
trigger the requirements for a subcontracting plan, the Government 
shall inform prospective offerors of the opportunity for themselves 
and/or their subcontractors to develop commercial plans if they are 
supplying commercial items. This would apply whether or not the 
prime contractor is supplying a commercial item.
    (4) This policy is in addition to the existing policies cited in 
Section 3 of this Policy Letter. This Policy Letter supersedes any 
provisions inconsistent with prior OFPP Policy Letters.
    6. Contracting Officer Responsibilities. Contracting officers 
shall ensure that:
    (1) These provisions for subcontracting plans for commercial 
item contractors do not in any way relieve contracting officers, 
prime contractors or subcontractors of their responsibilities for 
assuring that small, small disadvantaged and women-owned small 
businesses have the maximum practicable opportunity to participate 
in contracts awarded by Federal agencies.
    (2) The use of a commercial subcontracting plan does not relieve 
a contractor of the requirement to make a good faith effort to 
comply with the requirements of the subcontracting plan.
    (3) Contracting officers should impose liquidated damages as 
applicable when contractors fail to comply with subcontracting 
plans.
    (4) 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.
    (5) 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 eventually 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.
    7. Regulatory Responsibilities. The Federal Acquisition 
Regulatory Council shall ensure that the policies established herein 
are 

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incorporated in the FAR within 210 days from the date this Policy 
Letter is published 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).
    8. Information Contact. Questions regarding this Policy Letter 
should be directed to William Coleman, Deputy Administrator, 202-
395-3505 or Linda Mesaros, Deputy Associate Administrator, 202-395-
4821, facsimile 202-395-5105. The address is Office of Federal 
Procurement Policy, 725 17th Street, NW, Washington, DC 20503.
    9. 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.
    10. Effective Date. This Policy Letter is effective 30 days 
after the date of issuance.
Steven Kelman,
Administrator.
[FR Doc. 95-23881 Filed 9-25-95; 8:45 am]
BILLING CODE 3110-01-M