[Federal Register Volume 60, Number 227 (Monday, November 27, 1995)]
[Proposed Rules]
[Pages 58276-58282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28515]



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SMALL BUSINESS ADMINISTRATION
13 CFR Part 125


Government Contracting Assistance

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: In response to President Clinton's Government-wide regulatory 
reform initiative, the Small Business Administration (SBA) has 
completed a page-by-page, line-by-line review of all of its existing 
regulations to determine which should be revised or eliminated. This 
proposed rule would eliminate seven sections which are currently 
contained in 13 CFR Part 125 pertaining to SBA's procurement assistance 
programs. The Part would be retitled Government Contracting Assistance.

DATES: Comments must be submitted on or before December 27, 1995.

ADDRESS: Written comments should be addressed to David R. Kohler, 
Regulatory Reform Team Leader, (125), Small Business Administration, 
409 3rd Street, S.W., Suite 13, Washington, D.C. 20416.

FOR FURTHER INFORMATION CONTACT: John W. Klein, Chief Counsel for 
Special Programs, at (202) 205-6645.

SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a 
Memorandum to Federal agencies, directing them to simplify their 
regulations. In response to this directive, SBA has completed a page-
by-page, line-by-line review of all of its existing regulations to 
determine which should be revised or eliminated. 13 CFR Part 125 is 
presently titled ``Procurement Assistance'' and consists 

[[Page 58277]]
of 12 sections. This proposed rule would change the title to 
``Government Contracting Assistance'' and would reduce the number of 
sections to six. SBA's regulatory review indicated that seven sections 
could be eliminated as unnecessary (repeating statutory provisions), 
obsolete, or inappropriate.

Section-by-Section Analysis

    The following is a section-by-section analysis of each provision of 
SBA's regulations that would be affected by this proposed rule:
    Current Sec. 125.1 is a statement of policy paraphrased from the 
Small Business Act (the Act). SBA proposes to eliminate this language 
as being unnecessary and duplicative and replace it with a brief 
description of the programs included in Part 125.
    Current Sec. 125.2 contains definitions such as ``Administrator,'' 
``SBA,'' and ``procurement.'' The proposed rule would eliminate these 
definitions as unnecessary. Revised regulations on the Prime 
Contracting Assistance program, now found at Sec. 125.6, would become 
Sec. 125.2. These regulations have been simplified to eliminate a 
lengthy list of duties performed by SBA procurement center 
representatives and breakout procurement center representatives, which 
are already contained in the Act and the Federal Acquisition Regulation 
(FAR). In addition, the set-aside and breakout appeals procedures have 
been shortened to incorporate the procedures already set forth in the 
FAR.
    Section 125.3 is presently an introduction. The proposed rule would 
eliminate this as unnecessary and replace it with revised regulations 
on the Subcontracting Assistance program now found at Sec. 125.9. The 
revised subcontracting assistance regulations have been clarified and 
rewritten in plain language for ease of use, but no substantive changes 
are proposed.
    Current Sec. 125.4 is a summary of statutory provisions contained 
in the Act. SBA proposes to eliminate this summary as being unnecessary 
and duplicative. Revised regulations on the Government Property Sales 
Assistance program, now found at Sec. 125.8, would become Sec. 125.4. 
These regulations have been clarified and rewritten in plain language 
for ease of use, but no substantive changes are proposed.
    The proposed rule would eliminate that portion of the current 
regulation which deals with size standards and rules for timber sales, 
since those rules are already set forth in Part 121 of this title.
    On August 21, 1992, SBA published in the Federal Register (57 FR 
37909) a proposed revision of 13 CFR Sec. 125.5, SBA's regulations on 
the Certificate of Competency (COC) program. Due to the passage of 
time, and after review of all previous comments, SBA is again proposing 
revised regulations for comment.
    The proposed rule would also make further technical changes to COC 
rules. It would eliminate referrals to SBA for eligibility 
determinations under the Walsh-Healey Public Contracts Act (WHPCA) 
(previously proposed Sec. 125.5(d)). Section 7201 of the Federal 
Acquisition Streamlining Act of 1994 (FASA) repealed the ``regular 
dealer'' or ``manufacturer'' eligibility requirements imposed by WHPCA 
for offerors on contracts subject to the Act.
    This proposed rule would change the $25,000 threshold (under which 
a contracting officer has no right to appeal an initial affirmative COC 
decision to SBA Headquarters) referenced in Sec. 125.5(b)(11) of the 
previously proposed COC regulation to dollar values that coincide with 
either contracting actions valued under $100,000, or the use of 
Simplified Acquisition Threshold (SAT) procedures implemented under 
FASA.
    The proposed rule would also make some minor technical edits to 
SBA's earlier proposed rule dealing with the COC program. The following 
substitutions have been made from the rule as originally proposed: (1) 
references to the Office of Procurement Assistance have been changed to 
the Office of Government Contracting; (2) references to the Associate 
Administrator for Procurement Assistance have been changed to the 
Associate Administrator for Government Contracting; (3) references to 
Regional Administrators have been deleted; (4) references to the 
Assistant Regional Administrator for Procurement Assistance have been 
changed to Area Director for Government Contracting.
    The proposed rule would also make several changes to the Prime 
Contractor Performance Requirements (Limitations on Subcontracting), 
which were earlier proposed as part of the COC regulatory package 
published for public comment on August 21, 1992 (57 FR 37909). This 
proposed rule would separate those provisions into a separate section 
125.6, since the provisions have applicability outside the COC process. 
The comments, however, relate back to the COC proposal as published on 
August 21, 1992.
    A commenter to that rule suggested that SBA make it clear that this 
section applies to both the DoD Small Disadvantaged Business (SDB) set 
aside program, including the SDB 10% evaluation preference, and SBA's 
MED (8(a)) program. SBA agrees and has revised the earlier proposed 
regulation accordingly.
    Another comment suggested clarification of the applicability of 
this requirement to sealed bidding situations. Since the ``limitations 
on subcontracting'' requirement applies to negotiated and formally 
advertised procurements as well as to procurements under the Simplified 
Acquisition Threshold, SBA considers it unnecessary to state this again 
in the regulation. In the case of a formally advertised procurement, 
compliance with the requirement will be determined after bid opening 
and before contract award through the procuring agency's preaward 
evaluation procedures. This requirement applies only to small business 
set-asides or that portion of a procurement set aside for small 
business.
    A comment suggested that the regulation address the need for SBA to 
evaluate compliance with this requirement for the base period and all 
option periods of a contract. SBA has not revised the regulation since 
a failure to comply with the requirement in the course of contract 
performance is considered to be a material breach of contract. 
Contracting officers already have remedies to assure compliance with 
the requirement.
    Another comment suggested that SBA clarify that the term 
``materials'' includes purchases made by a small business which are 
``normal commercial practices within the industry.'' SBA has revised 
the regulation to include normal commercial practices within the 
industry.
    Another comment suggested that SBA clarify whether Government-
specified sources referenced within a solicitation are included in the 
definition of ``cost of materials.'' SBA has not changed the regulation 
in response to this comment because the definition of 
``subcontracting'' in Sec. 125.5(c)(4)(vii) states that where the prime 
contractor has been directed by the Government to utilize a specific 
source, the costs associated with such a purchase will be considered as 
the cost of materials.
    One commenter suggested that a separate definition for ``off-the-
shelf'' items should be added to this section. SBA has adopted this 
suggestion.
    Finally, a commenter suggested that SBA clarify the use of ``part-
time'' employees in the definition of ``personnel'' in this section 
rather than reference Sec. 121.404 of this Title. SBA has not adopted 
this suggestion because the definition of ``employee'' in SBA's size 
regulations at part 121 includes part-time employees. 

[[Page 58278]]

    SBA proposes to eliminate in its entirety current Sec. 125.7 which 
deals with Defense Production Pools. Although such Pools continue to be 
authorized by statute, their formation is such a rare event that it is 
unnecessary to have a separate regulation on the subject when it can be 
adequately dealt with on a case-by-case basis.
    SBA also proposes to delete in its entirety current Sec. 125.10 
dealing with the Procurement Automated Source System (PASS). Since this 
computerized information data base on small business contractors is 
governed by contractual provisions, it is unnecessary to have a 
separate regulation on the topic.
    The proposed rule would eliminate Sec. 125.11 which describes the 
Technology Assistance Program. This program has been administratively 
discontinued and is no longer in operation.
    Current Sec. 125.12 describes the Natural Resources Development 
Program or ``tree-planting program.'' SBA would eliminate this section 
as obsolete since Congress no longer provides funds for this program.

Compliance With Executive Orders 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    SBA certifies that this proposed rule would not have a significant 
economic impact on a substantial number of small entities within the 
meaning of Executive Order 12866 or the Regulatory Flexibility Act, 5 
U. S. C. 601, et seq. This rule would eliminate seven sections of SBA's 
regulations that SBA has determined to be obsolete, unnecessary, or 
duplicative. The remaining regulations have been rewritten for clarity 
and ease of use. No contracting opportunities for small business would 
be affected by this proposed rule. Therefore, it is not likely to have 
an annual economic impact of $100 million or more, result in a major 
increase in costs or prices, or have a significant adverse effect on 
competition or the U.S. economy.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this proposed rule, if adopted in final form, would 
contain no new reporting or recordkeeping requirements.
    For purposes of Executive Order 12612, SBA certifies that this rule 
would not have any federalism implications warranting the preparation 
of a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 125

    Government contracts; Government procurement; Reporting and 
recordkeeping requirements; Small businesses; Technical assistance.
    For the reasons set forth above, SBA proposes to revise Part 125 of 
Title 13 of the Code of Federal Regulations as follows:

PART 125--GOVERNMENT CONTRACTING PROGRAMS

Sec.
125.1  Programs included.
125.2  Prime contracting assistance.
125.3  Subcontracting assistance.
125.4  Government property sales assistance.
125.5  Certificate of Competency program.
125.6  Prime contractor performance requirements (limitations on 
subcontracting).

    Authority: 15 U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 
9702.


Sec. 125.1  Programs included.

    The regulations in this part relate to the Government contracting 
assistance programs of SBA. There are four main programs: Prime 
contracting assistance; Subcontracting assistance; Government property 
sales assistance; and the Certificate of Competency program. The 
objective of the programs is to assist small businesses in obtaining a 
fair share of Federal Government contracts, subcontracts, and property 
sales.


Sec. 125.2  Prime contracting assistance.

    (a) Traditional PCR responsibilities. (1) SBA Procurement Center 
Representatives (PCRs) are located at Federal agencies and buying 
activities which have major contracting programs. PCRs review all 
acquisitions not set aside for small businesses to determine whether a 
set-aside would be appropriate. In cases where there is disagreement 
between a PCR and the contracting officer over the suitability of a 
particular acquisition for a small business set-aside, the PCR may 
initiate an appeal to the head of the contracting activity. If the head 
of the contracting activity agrees with the contracting officer, SBA 
may appeal to the secretary of the department or head of the agency. 
The procedures and time limits for such appeals are set forth in 
Sec. 19.505 of the Federal Acquisition Regulation (FAR). (48 CFR 
19.505).
    (2) PCRs review and evaluate the small business programs of Federal 
agencies and buying activities and make recommendations for 
improvement. They also recommend small business, small women-owned 
business, and small disadvantaged business sources for use by 
contracting activities and assist these businesses in obtaining Federal 
contracts and subcontracts. Other authorized duties of a PCR are set 
forth in the FAR in 48 CFR 19.402(c) and in the Small Business Act in 
Section 15(a) (15 U.S.C. 644(a)).
    (b) BPCR responsibilities. (1) SBA is required by section 403 of 
Public Law 98-577 to assign a breakout PCR (BPCR) to major contracting 
centers. A major contracting center is a center that, as determined by 
SBA, purchases substantial dollar amounts of other than commercial 
items, and which has the potential to achieve significant savings as a 
result of the assignment of a BPCR.
    (2) BPCRs advocate full and open competition in the Federal 
contracting process and recommend the breakout for competition of items 
and requirements which previously have not been competed. They may 
appeal the failure by the buying activity to act favorably on a 
recommendation in accord with the appeal procedures set forth in 
Sec. 19.505 of the FAR (48 CFR 19.505). BPCRs also review restrictions 
and obstacles to competition and make recommendations for improvement. 
Other authorized functions of a BPCR are set forth in 48 CFR 19.403(c) 
of the FAR and Section15(l) of the Small Business Act (15 U.S.C. 
644(l)).


Sec. 125.3  Subcontracting assistance.

    (a) The purpose of the subcontracting assistance program is to 
achieve maximum utilization of small business by major prime 
contractors. The Small Business Act requires other than small firms 
awarded contracts by the Federal Government in excess of $500,000, or 
$1 million for construction of a public facility, to submit a 
subcontracting plan to the contracting agency. The FAR sets forth the 
requirements for subcontracting plans in 48 CFR subpart 19.7 and 48 CFR 
52.219-9.
    (b) Upon determination of the successful subcontract offeror, but 
prior to award, the prime contractor must inform each unsuccessful 
subcontract offeror in writing of the name and location of the apparent 
successful offeror. This is applicable to all subcontracts over 
$10,000.
    (c) SBA Commercial Market Representatives (CMRs) facilitate the 
process of matching large prime contractors with small, small 
disadvantaged, and small women-owned subcontractors. CMRs identify, 
develop, and market small businesses to the prime contractors and 
assist the small firms in obtaining subcontracts.
    (d) Each CMR has a portfolio of prime contractors and conducts 
periodic 

[[Page 58279]]
compliance reviews and needs assessments of the companies in this 
portfolio. CMRs are also required to perform opportunity development 
and source identification. Opportunity development means assessing the 
current and future needs of the prime contractors. Source 
identification means identifying those small, small disadvantaged, and 
small women-owned firms which can fulfill the needs assessed from the 
opportunity development process.
    (e) CMRs offer additional assistance to small businesses: (1) 
Advice to representatives of small firms interested in obtaining 
subcontracts from Federal prime contractors;
    (2) Information and assistance on how to identify subcontract 
opportunities and what opportunities are currently available; and
    (3) Information and assistance on the qualifications required to 
become eligible for inclusion on potential source listings of large 
firms for future subcontract requirements.
    (f) CMRs also perform the following duties:
    (1) Assisting both Government agencies and prime contractors in the 
formulation of subcontracting plans and providing contractors with 
potential sources to help them comply with their plans;
    (2) Assisting PCRs, upon request, in reviewing subcontracting plans 
submitted by prime contractors prior to contract award;
    (3) Evaluating compliance by contractors with the contract clause 
entitled ``Utilization of Small, Small Disadvantaged and Women-Owned 
Small Business Concerns'';
    (4) Recommending small, small disadvantaged, and small women-owned 
firms to prime contractors and Government agencies for performance of 
subcontract requirements; and
    (5) Maintaining liaison and contact with prime contractors to 
assist in advance procurement planning and to foster increased 
utilization of small businesses.


Sec. 125.4  Government property sales assistance.

    (a) The purpose of SBA's Government property sales assistance 
program is to:
    (1) Insure that small businesses obtain their fair share of all 
Federal real and personal property qualifying for sale or other 
competitive disposal action; and
    (2) Assist small businesses in obtaining Federal property being 
processed for disposal, sale, or lease.
    (b) SBA property sales assistance primarily consists of two 
activities:
    (1) Obtaining small business set-asides when necessary to insure 
that a fair share of Government property sales are made to small 
businesses; and
    (2) Providing advice and assistance to small businesses on all 
matters pertaining to sale or lease of Government property.
    (c) The program is intended to cover the following categories of 
Government property:
    (1) Sales of timber and related forest products;
    (2) Sales of strategic material from national stockpiles;
    (3) Sales of royalty oil by the Department of Interior's Minerals 
Management Service;
    (4) Leases involving rights to minerals, petroleum, coal, and 
vegetation; and
    (5) Sales of surplus real and personal property.
    (d) SBA has established specific small business size standards and 
rules for the sale or lease of the different kinds of Government 
property. These provisions are contained in Secs. 121.501 through 
121.514 of this title.


Sec. 125.5  Certificate of Competency Program.

    (a) General. (1) The Certificate of Competency (COC) Program is 
authorized under section 8(b)(7) of the Small Business Act. A COC is a 
written instrument issued by SBA to a Government contracting officer, 
certifying that one or more named small business concerns possess the 
responsibility to perform a specific Government procurement (or sale) 
contract. The COC Program is applicable to all Government procurement 
actions.
    (2) A contracting officer must, upon determining a low responsive 
small business offeror to be nonresponsible, refer that small business 
to SBA for a possible COC, even if the next low responsive offeror is 
also a small business.
    (3) A small business offeror referred to SBA as nonresponsible may 
apply to SBA for a COC.
    (b) COC Eligibility. (1) The offeror seeking a COC has the burden 
of proof to demonstrate its eligibility for COC review. To be eligible 
for the COC program, a firm must meet the following criteria:
    (i) It must qualify as a ``small business concern'' under the size 
standard applicable to the procurement. Where the solicitation fails to 
specify a size standard or Standard Industrial Classification (SIC) 
code, SBA will assign the appropriate size standard to determine COC 
eligibility. SBA determines size eligibility as of the date described 
in Sec. 121.404 of this title.
    (ii) A manufacturing, service, or construction concern must 
demonstrate that it will perform a significant portion of the proposed 
contract with its own facilities, equipment, and personnel. The 
contract must be performed or the end item manufactured within the 
United States, its territories, possessions, or the Commonwealth of 
Puerto Rico.
    (iii) A non-manufacturer making an offer on a small business set-
aside contract for supplies must furnish end items that have been 
manufactured in the United States, its territories, possessions, or the 
Commonwealth of Puerto Rico by a small business. Non-manufacturing 
concerns may apply for a waiver of this requirement under 
Secs. 121.1301 through 121.1305 of this title for either the type of 
product being procured or the specific contract at issue.
    (iv) A non-manufacturer submitting an offer on a procurement 
utilizing simplified acquisition threshold procedures with a cost that 
does not exceed $25,000, or on any unrestricted procurement, must 
furnish end items manufactured in the United States, or its trust 
territories, possessions, or the Commonwealth of Puerto Rico. Any COC 
shall apply to the responsibility of the non-manufacturer, not to that 
of the manufacturer.
    (v) An offeror intending to provide a kit consisting of finished 
components or other components provided for a special purpose, is 
eligible if:
    (A) It meets the Size Standard for the SIC code assigned to the 
procurement; and
    (B) More than 50% of the total dollar value of the components of 
the kit were manufactured by small businesses under the size standard 
applicable to the component provided. The offeror need not itself be 
the manufacturer of any of the components of the kit. Each component 
comprising the kit must be produced or manufactured in the United 
States or its trust territories, possessions, or the Commonwealth of 
Puerto Rico. Where the Government has specified any item for the kit 
which is not manufactured by a small business, then such item shall be 
excluded from the determination of total value for the purposes of this 
section.
    (2) SBA will determine a concern ineligible for a COC if the 
concern, or any of its principals, appears in the ``Parties Excluded 
From Federal Procurement Programs'' section found in the U.S. General 
Services Administration Office of Acquisition Policy Publication: List 
of Parties Excluded From Federal Procurement or Nonprocurement 
Programs. If a principal is unable to presently control the applicant 
concern, and appears in 

[[Page 58280]]
the Procurement section of the list due to matters not directly related 
to the concern itself, responsibility will be determined in accordance 
with paragraph (c)(9) of this section.
    (3) An eligibility determination will be made on a case by case 
basis, where a concern or any of its principals appears in the 
Nonprocurement Section of the publication referred to in paragraph 
(b)(2) of this section.
    (c) Referral of nonresponsibility determination to SBA. (1) A 
contracting officer who determines that an apparently successful 
offeror that has certified itself to be a small business with respect 
to a specific Government contract lacks any element of responsibility 
(including competency, capability, capacity, credit, integrity or 
tenacity or perseverance) must refer the matter in writing to the SBA 
Government Contracting Area Office (Area Office) serving the area in 
which the headquarters of the offeror is located. The referral must 
include a copy of the following:
    (i) Solicitation;
    (ii) Offer submitted by the concern whose responsibility is at 
issue for the procurement (as of Best and Final Offers for a negotiated 
procurement, and as of bid opening for a sealed bid procurement);
    (iii) Abstract of Bids, where applicable, or the Contracting 
Officer's Price Negotiation Memorandum;
    (iv) Preaward survey, where applicable;
    (v) Contracting officer's written determination of non-
responsibility;
    (vi) Technical data package (including drawings, specifications, 
and Statement of Work); and
    (vii) Any other justification and documentation used to arrive at 
the nonresponsibility determination.
    (2) Contract award must be withheld by the contracting officer for 
a period of 15 working days (or longer if agreed to by SBA and the 
contracting officer) following receipt by the appropriate Area Office 
of a referral which includes all required documentation.
    (3) The COC referral must indicate that the offeror has been found 
responsive to the solicitation, but at the same time must identify the 
reasons for the nonresponsibility determination.
    (d) Application for COC. (1) Upon receipt of the contracting 
officer's referral, the SBA Area Office will inform the concern of the 
contracting officer's negative responsibility determination, and offer 
it the opportunity to apply to SBA for a COC by a specified date.
    (2) The COC application must include all information and 
documentation requested by SBA and any additional information which the 
firm believes will demonstrate its ability to perform on the proposed 
contract. The application should be returned as soon as possible, but 
no later than the date specified by SBA.
    (3) Upon receipt of a complete and acceptable application, SBA may 
elect to visit the applicant's facility to review its responsibility. 
Where a service or construction contract will be performed outside the 
United States or its trust territories, possessions, or the 
Commonwealth of Puerto Rico, SBA will rely solely on documentation and 
other relevant information obtained within the United States. SBA 
personnel may obtain clarification or confirmation of information 
provided by the applicant by directly contacting suppliers, financial 
institutions, and other third parties upon whom the applicant's 
responsibility depends.
    (e) Incomplete applications. If an application for a COC is 
materially incomplete or is not submitted by the date specified by SBA, 
SBA will close the case and so notify the contracting officer. The 
basis for its decision will be specified in a declination letter sent 
to both the concern and the contracting officer.
    (f) Reviewing an application. (1) The COC review process is not 
limited to the areas of nonresponsibility cited by the contracting 
officer. SBA may, at its discretion, independently evaluate the COC 
applicant for all elements of responsibility, but it may presume 
responsibility exists as to elements other than those cited as 
deficient. SBA may deny a COC for reasons of nonresponsibility not 
originally cited by the contracting officer.
    (2) A small business will be rebuttably presumed nonresponsible if 
any of the following circumstances are shown to exist:
    (i) Within three years before the application for a COC, the 
concern, or any of its principals, has been convicted of an offense or 
offenses that would constitute grounds for debarment or suspension 
under FAR subpart 9.4 (48 CFR Subpart 9.4), and the matter is still 
under the jurisdiction of a court (e.g., the principals of a concern 
are incarcerated, on probation or parole, or under a suspended 
sentence); or
    (ii) Within three years before the application for a COC, the 
concern or any of its principals has had a civil judgment entered 
against it or them for any reason that would constitute grounds for 
debarment or suspension under FAR subpart 9.4 (48 CFR Subpart 9.4).
    (g) Decision by Area Director. After reviewing the information 
submitted by the applicant and the information gathered by SBA, the 
Director will make a determination, either final or recommended as set 
forth in the following chart:

------------------------------------------------------------------------
                                 SBA official or         Finality of    
                                   office with        decision; options 
     Contracting actions        authority to make      for contracting  
                                    decision              agencies      
------------------------------------------------------------------------
$100,000 or less, or in       Director may approve  Final. The Director 
 accordance with Simplified    or deny.              will notify both   
 Acquisition Threshold                               the applicant and  
 procedures.                                         contracting agency 
                                                     in writing of the  
                                                     decision.          
Between $100,000 and $25      (1) Director may      (1) Final.          
 million..                     deny..               (2) Contracting     
                              (2) Director may       agency may proceed 
                               approve, subject to   under paragraph (h)
                               right of appeal and   or paragraph (1) of
                               other options.        this section.      
Exceeding $25 million.......  (1) Director may      (1) Final.          
                               deny.                (2) Contracting     
                              (2) Director must      agency may proceed 
                               refer to SBA          under paragraph (j)
                               Headquarters          of this section.   
                               recommendation for                       
                               approval.                                
------------------------------------------------------------------------

    (h) Notification of intent to issue on a contract with a value 
between $100,000 and $25 million. Where the Director determines that a 
COC is warranted, he or she will notify the contracting officer of the 
intent to issue a COC, and of the reasons for that decision, prior to 
issuing the COC. At the time of notification, SBA will give the 
contracting officer the following options:
    (1) Accept the Director's decision to issue the COC and award the 
contract to the concern (the issuance letter will 

[[Page 58281]]
include as an attachment a detailed rationale of the decision); or
    (2) Ask the Director to suspend the case:
    (i) for a specified period of time, and to forward a detailed 
rationale for the decision to the contracting officer; or
    (ii) to afford the contracting officer the opportunity to meet with 
the Area Office to review all documentation contained in the case file; 
or
    (iii) to submit any information which the contracting officer 
believes SBA has not considered (at which time, SBA will establish a 
new suspense date mutually agreeable to the contracting officer and 
SBA); or
    (iv) to permit resolution of an appeal by the contracting agency to 
SBA Headquarters under pargraph (i) of this section.
    (3) After any discussions under paragraph (h)(2) of this section, 
the Director will issue the determination.
    (i) Appeals of Area Director determinations. For COC actions with a 
value exceeding $100,000, contracting agencies may appeal a Director's 
decision to issue a COC to SBA Headquarters by filing an appeal with 
the Area Office processing the COC application. The Area Office must 
honor the request to appeal if the contracting officer agrees to 
withhold award until the appeal process is concluded. Without such an 
agreement from the contracting officer, the Director will issue the 
COC. When such an agreement has been obtained, the Area Office will 
immediately forward the case file to SBA Headquarters.
    (1) The intent of the appeal procedure is to allow the contracting 
agency the opportunity to submit to SBA Headquarters any documentation 
which the contracting officer believes the Area Office has not 
considered.
    (2) SBA Headquarters will furnish written notice to the Director, 
Office of Small and Disadvantaged Business Utilization (OSDBU) at the 
secretariat level of the procuring agency (with a copy to the 
contracting officer), that the case file has been received and that an 
appeal decision may be requested by an authorized official at that 
level. If the contracting agency decides to file an appeal, it must 
notify SBA Headquarters through its Director, OSDBU, within 10 working 
days (or a time period agreed upon by both agencies) of its receipt of 
the notice under paragraph (h) of this section. The appeal and any 
supporting documentation must be filed within 10 working days (or a 
different time period agreed to by both agencies) after SBA receives 
the request for a formal appeal. The SBA Associate Administrator for 
Government Contracting (AA/GC) will make a final determination, in 
writing, to issue or to deny the COC.
    (j) Decision by SBA Headquarters where contract value exceeds $25 
million. (1) Prior to taking final action, SBA Headquarters will 
contact the contracting agency at the secretariat level or agency 
equivalent and afford it the following options:
    (i) Ask SBA Headquarters to suspend the case so that the agency can 
meet with Headquarters personnel and review all documentation contained 
in the case file; or
    (ii) Submit to SBA Headquarters for evaluation any information 
which the contracting agency believes has not been considered.
    (2) After reviewing all available information, the AA/GC will make 
a final decision to either issue or deny the COC. If the AA/GC's 
decision is to deny the COC, the applicant and contracting agency will 
be informed in writing by the Area Office. If the decision is to issue 
the COC, a letter certifying the responsibility of the firm will be 
sent to the contracting agency by Headquarters and the applicant will 
be informed of such issuance by the Area Office. Except as set forth in 
paragraph (l) of this section, there can be no further appeal or 
reconsideration of the decision of the AA/GC.
    (k) Notification of denial of COC. The notification to an 
unsuccessful applicant following either an Area Director or a 
Headquarters denial of a COC will briefly state all reasons for denial 
and inform the applicant that a meeting may be requested with 
appropriate SBA personnel to discuss the denial. Upon receipt of a 
request for such a meeting, the appropriate SBA personnel will confer 
with the applicant and explain the reasons for SBA's action. The 
meeting does not constitute an opportunity to rebut the merits of the 
SBA's decision to deny the COC, and is for the sole purpose of giving 
the applicant the opportunity to correct deficiencies so as to improve 
its ability to obtain future contracts either directly or, if 
necessary, through the issuance of a COC.
    (l) Reconsideration of COC after issuance. (1) An approved COC may 
be reconsidered and possibly rescinded, at the sole discretion of SBA, 
in the following circumstances:
    (i) If, after issuance of a COC, but before award of any contract 
in reliance upon such COC, SBA discovers that:
    (A) the COC applicant submitted false or omitted material 
information; or
    (B) new materially adverse information has appeared relating to the 
current responsibility of the applicant concern; or
    (ii) Where the contract for which a COC has been issued has not 
been awarded within 60 days (in which case SBA may investigate the 
firm's current circumstances).
    (2) Where SBA reaffirms the COC, the procedures under paragraph (h) 
of this section do not apply.
    (m) Effect of COC Certification. By the terms of the Small Business 
Act, a COC is conclusive as to responsibility. Where SBA issues a COC 
on behalf of a small business with respect to a particular contract, 
contracting officers are required to award the contract without 
requiring the firm to meet any other requirement with respect to 
responsibility.
    (n) Non-Certification. Denial of a COC by SBA does not preclude a 
contracting officer from awarding a contract to the referred firm.
    (o) Monitoring performance. Once a COC has been issued and a 
contract awarded on that basis, SBA will monitor contractor 
performance.


Sec. 125.6  Prime contractor performance requirements (limitations on 
subcontracting).

    (a) In order to be awarded a small business set-aside, a partial 
set-aside, an 8(a) contract, or an unrestricted procurement where a 
concern has claimed a 10 percent SDB price evaluation preference, a 
small business concern must agree that:
    (1) In the case of a contract for services (except construction), 
the concern will perform at least 50 percent of the cost of the 
contract incurred for personnel with its own employees.
    (2) In the case of a contract for supplies or products (other than 
procurement from a regular dealer in such supplies or products), the 
concern will perform at least 50 percent of the cost of manufacturing 
the supplies or products (not including the costs of materials).
    (3) In the case of a contract for general construction, the concern 
will perform at least 15 percent of the cost of the contract with its 
own employees (not including the costs of materials).
    (4) In the case of a contract for construction by special trade 
contractors, the concern will perform at least 25 percent of the cost 
of the contract with its own employees (not including the cost of 
materials).
    (b) Definitions. The following definitions apply to this section:
    (1) Cost of the Contract. All allowable direct and indirect costs 
allocable to the contract, excluding profit or fees.
    (2) Cost of contract performance incurred for personnel. Direct 
labor costs and any overhead which has only 

[[Page 58282]]
direct labor as its base, plus the concern's General and Administrative 
rate multiplied by the labor cost.
    (3) Cost of manufacturing. Those costs incurred by the firm in the 
production of the end item being acquired. These are costs associated 
with the manufacturing process, including the direct costs of 
fabrication, assembly, or other production activities, and indirect 
costs which are allocable and allowable. The cost of materials, as well 
as the profit or fee from the contract, are excluded.
    (4) Cost of materials. Includes costs of the items purchased, 
handling and associated shipping costs for the purchased items (which 
includes raw materials), off-the-shelf items (and similar 
proportionately high-cost common supply items requiring additional 
manufacturing or incorporation to become end items), special tooling, 
special testing equipment, and construction equipment purchased for and 
required to perform on the contract. In the case of a supply contract, 
the acquisition of services or products from outside sources following 
normal commercial practices within the industry are also included. In 
addition, where the services of a public or private utility company are 
obtained for the lease and use of distribution facilities such as 
telecommunications circuits, petroleum or natural gas pipelines, or 
electric transmission lines in connection with the performance of a 
contract, the acquisition of those services will also be considered as 
cost of materials.
    (5) Off-the-shelf item. An item produced and placed in stock by a 
manufacturer, or stocked by a distributor, before orders or contracts 
are received for its sale. The item may be commercial or may be 
produced to military or Federal specifications or description. Off-the-
shelf items are also known as Nondevelopmental Items (NDI).
    (6) Personnel. Individuals who are ``employees'' under Sec. 121.106 
of this title.
    (7) Subcontracting. That portion of the contract performed by a 
firm, other than the concern awarded the contract, under a second 
contract, purchase order, or agreement for any parts, supplies, 
components, or subassemblies which are not available off-the-shelf, and 
which are manufactured in accordance with drawings, specifications, or 
designs furnished by the contractor, or by the government as a portion 
of the solicitation. Raw castings, forgings, and moldings are 
considered as materials, not as subcontracting costs. Where the prime 
contractor has been directed by the Government to use any specific 
source for parts, supplies, components subassemblies or services, the 
costs associated with those purchases will be considered as part of the 
cost of materials, not subcontracting costs.
    (c) SBA will determine compliance with the Prime Contractor 
Performance Requirements (Requirements) as of the following dates:
    (1) In a sealed bid procurement, as of the date the bid was 
submitted;
    (2) In a negotiated procurement, as of the date the concern submits 
its best and final offer. If a concern is determined not to be in 
compliance at the time it submits its best and final offer, it may not 
come into compliance later for that procurement by revising its 
subcontracting plan.
    (d) The Requirements will be considered an element of 
responsibility and not a component of size eligibility.
    (e) The base contract period (excluding any options) will be used 
to determine compliance with the Requirements.
    (f) Work to be performed by subsidiaries or other affiliates of a 
concern is not counted as being performed by the concern for purposes 
of determining whether the concern will perform the required percentage 
of work.
    (g) The procedures of Sec. 125.5 apply where the contracting 
officer determines non-compliance with the requirements applicable to 
small business set-aside or SDB-related procurements, and refers the 
matter to SBA for a COC determination.

    Dated: November 11, 1995.
Philip Lader,
Administrator.
[FR Doc. 95-28515 Filed 11-24-95; 8:45 am]
BILLING CODE 8025-01-P