[Federal Register Volume 61, Number 21 (Wednesday, January 31, 1996)]
[Rules and Regulations]
[Pages 3310-3316]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1157]



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SMALL BUSINESS ADMINISTRATION
13 CFR Part 125


Government Contracting Assistance

AGENCY: Small Business Administration.

ACTION: Final 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 
rule would eliminate seven sections which are currently contained in 13 
CFR Part 125 pertaining to SBA's procurement assistance programs. The 
Part will be retitled Government Contracting Assistance.

EFFECTIVE DATE: This rule is effective on March 1, 1996.

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

SUPPLEMENTARY INFORMATION: Part 125 of chapter I of title 13 of the 
Code of Federal Regulations sets forth the policies and procedures by 
which SBA regulates Government contracting. On November 27, 1995 (60 FR 
58276), SBA published a proposed rule in the Federal Register to 
reorganize part 125, eliminating seven sections and streamlining other 
sections. SBA proposed minor, but substantive, rule changes--notably, 
removing Walsh-Healey determinations from the Certificate of Competency 
process; increasing the threshold over which a contracting officer 
could appeal the award of a Certificate of Competency to Headquarters 
from $25,000 to $100,000, and clarifying that prospective limitations 
on subcontracting applied to base year contracts, irrespective of 
option years.
    SBA received sixteen timely comments to this proposed revision. 
Eleven of the comments were directed at proposed Sec. 125.4, which 
concerns Government property sale assistance. One was directed at the 
proposed elimination of Sec. 125.10, the Procurement Automated Source 
System (PASS). The remainder raised objections to proposed Sec. 125.6, 
dealing with subcontracting limitations.
    SBA proposed a streamlined section on government property sales at 
Sec. 125.4. The proposed section described the purpose of the 
Government property sales assistance program; described what the 
program does; described what sorts of economic activities are covered 
by the program; and referred the reader to the appropriate sections in 
Part 121 to obtain the size standards for the program. This section 
replaces present Sec. 125.8, which recites the size standards in 
detail, describes who in SBA is responsible for administering the 
program, sets forth what interagency agreements SBA has concerning the 
program and with whom, sets forth the form number of the applicable 
certification, describes penalties for contract breach, and sets forth 
the program's ``emphasis'', not only in the present but in the past as 
well.
    Eight of the eleven comments discussing this section expressed the 
mistaken belief that the proposed revision would eliminate all 
references to the Government property sales assistance program. All 
eleven of the comments expressed concern that in the absence of the 
current detailed regulation, the general public, the timber industry 
and employees of the Federal Government would lack sufficient 
information to properly utilize the program. Some of these commenters 
expressed concern that in the absence of the particulars of present 
Sec. 125.8, other agencies having interagency agreements with the SBA 
would be unaware of their responsibilities under those agreements. 
Conversely, other commenters were concerned that the proposed revision 
would somehow ``signal'' those other agencies that they were no longer 
bound by their agreements. Some commenters were concerned that without 
a regulation which assigns specific duties to specific SBA employees, 
SBA would soon eliminate those employees. Finally, one commenter claims 
that were SBA not to designate in the Code of Federal Regulations which 
employees were to carry out which responsibilities under the Government 
property sales assistance program, SBA would be in violation of the 
Freedom of Information Act (5 U.S.C. 552).
    SBA has considered all of these comments, but believes that 
Sec. 125.4 as proposed is an appropriate regulation. Current Sec. 125.8 
has little useful information for either interested small businesses or 
for federal agencies conducting sales under the program. The statutory 
language replicated in current Sec. 125.8 is among the most general in 
the entire Small Business Act, guaranteeing only that a ``fair'' 
proportion of sales and leases be given to small businesses. The bare 
recitation of which agencies have Interagency Agreements with SBA which 
relate to the Government Property Sales Assistance Program provides no 
useful information to the interested small business. The contents of 
those agreements, which may be obtained from the Small Business 
Administration upon request, may be of help, but they are not printed 
in the present regulation, and to include them in the Code of Federal 
Regulations would be impractical. The agencies themselves, of course, 
know what the agreements require them to do, and a regulation is not 
needed to create enforceability.
    SBA's own obligations under the Government Property Sales 
Assistance Program remain unaffected by removing specific references to 
which SBA employee performs which task. Descriptions of duties of 
employees and other internal management matters need not be contained 
in regulations.
    The size standards relevant to the timber set-aside program will be 
restated, with more clarity, in new Secs. 121.506-121.508 of this 
chapter. A proposed rule revising Part 121 of these regulations was 
published on November 24, 1995, and will become final when this rule 
becomes effective. There is no substantive change to the size standard.
    SBA disagrees with the contention that the Freedom of Information 
Act requires that SBA set forth in regulation the responsibilities of 
the property sales industrial representative, as the current regulation 
does. FOIA merely requires that agencies publish descriptions of their 
organization, not that they publish specific responsibilities for 
specific staff. Moreover, FOIA merely requires that this publication be 
in the Federal Register, not in regulations.
    One commenter urges that Sec. 125.10 be retained if its deletion 
``in any way diminishes the quality, availability, or emphasis for this 
program.'' The 

[[Page 3311]]
deletion of this regulation will have none of these adverse effects.
    Three of the commenters objected to proposed Sec. 125.6(e), which 
would measure a small business offeror's compliance with subcontracting 
limitation percentages on the basis of the work it will perform during 
the base contract period only, regardless of the work it does during 
contract option years.
    The commenters argued that SBA's proposed regulation was contrary 
to the legislative intent behind the statute, which was to apply the 
subcontracting limitations to the anticipated length of the contract, 
rather than to individual task orders. One of the commenters also 
argued that such a regulation would make it particularly difficult for 
small businesses to bid in high-tech fields, where the common practice 
of the industry is to subcontract large portions of the contract at the 
beginning phases and to gradually perform more and more of the work in-
house. Another commenter also pointed out that the proposed rule was 
inconsistent with Sec. 17.206(a) of the Federal Acquisition Regulation 
(48 CFR Sec. 17.206(a)), which requires purchasing agencies to evaluate 
proposals over their full length, rather than simply the base year.
    Unfortunately, the mere existence of option years in a contract is 
not necessarily dispositive of the question of the anticipated length 
of that contract. Some agencies offer contracts with short base periods 
and many option years as the best way to protect the agency's 
interests, without any real expectation that the awardee will perform 
the contract for the full period. It would defeat the purpose of 
Sec. 644(o) to permit, for example, an award to a concern which ends up 
subcontracting most of the performance during the actual period of 
performance on the basis of its promise to perform with its own 
personnel during option years which are never awarded.
    However, SBA agrees that where the purchasing activity awards the 
contract on the basis of an evaluation of more than the base period, 
SBA should accept this evaluation as evidence of the anticipated length 
of the contract. Accordingly, SBA has modified new Sec. 125.6(e) so 
that where a proposal is evaluated on the basis of more than the base 
year, the contract awardee must perform the statutory minimum over the 
period of time upon which the evaluation is made. In all other 
instances, the contract awardee must perform the statutory minimum over 
the base period.
    Another commenter objected to the language of Sec. 125.6(a), which 
sets forth the subcontracting limitations, where applicable, for each 
type of procurement. This commenter contended that the language of 
present Sec. 124.314, which sets forth subcontracting limitations on 
8(a) concerns, is more clear. SBA disagrees. SBA believes the wording 
of Sec. 125.6 merely eliminates unnecessary wording. No substantive 
difference is intended.
    One commenter asked why proposed Sec. 125.6(a)(2), which 
establishes a 50% performance of work requirement for contractors for 
supplies (other than procurement from a regular dealer in such 
supplies) establishes no performance or work requirement for regular 
dealers. SBA believes that the statute imposes no requirement on 
regular dealers to perform any percentage of the work.
    A commenter noted that the language of proposed Sec. 125.6(b), 
which establishes the definition of certain accounting terms for 
purposes of complying with the limitations on subcontracting, may be 
too burdensome for small business offerors who normally have less 
formal accounting procedures. SBA does not consider it unduly 
burdensome for small business offerors to employ these terms. The terms 
need defining in a consistent way and the definitions are not overly 
complex.
    Two commenters noted that in many instances small business offerors 
have not made at the time of their offer the decisions they need to 
make in order to determine how much of the contract they intend to 
subcontract. SBA must respect the need of federal agencies to determine 
the eligibility of small business bidders by a date certain. In the 
instance of a sealed bid, the contracting officer must be able to 
determine whether a bidder is responsible at the time of bid opening 
and, if it is not, must be able to move on to the next bidder. 
Similarly, in the instance of a negotiated procurement, the small 
business offeror will have substantially completed its subcontracting 
intentions by the time it makes its best and final offer, and must be 
able to commit to compliance with statutory limitations on 
subcontracting at that point.
    A commenter noted proposed Sec. 125.6(d) treated subcontracting 
limitations as a responsibility, rather than a size, issue and stated 
that this decision would raise questions as to whether the proposed 
regulation was a renunciation of the ostensible subcontractor rule 
found in Sec. 121.401(l)(4). SBA has decided to treat limitations on 
subcontracting as a responsibility matter because it relates to how a 
contractor intends to perform a specific contract and is analogous to 
traditional responsibility issues such as capacity and credit. 
Moreover, treating the issue in this way places the obligation to 
question compliance with the contracting officer, and insures that the 
contracting agency will be consulted before a negative determination is 
overruled by SBA. This new rule will not affect the ostensible 
subcontractor rule, which is being restated in new Sec. 121.103(f)(3). 
Size protests will continue to be processed where the protester alleges 
an anticipated awardee exceeds the applicable size standard due to a 
joint venture relationship with a purported subcontractor, regardless 
of whether the limitations on subcontracting percentages will be met by 
the awardee.
    Another comment was an objection to the provision of Sec. 125.6(f), 
which provides that work which a concern intends to subcontract to 
subsidiaries and affiliates would not count as work performed by the 
concern. The commenter points out that SBA does not treat the affiliate 
as a separate entity for purposes of size determination and argues that 
it is inconsistent to treat the affiliate as a separate entity for 
purposes of subcontracting. The commenter also points out that an 
applicant can easily defeat this restriction by bidding as a joint 
venture with its affiliate.
    SBA believes that the governing statute, 15 U.S.C. 644(o), urges 
this result. That statute refers to ``employees of the concern'' 
(contracts for services) and ``the concern will perform work'' 
(contracts for supplies). SBA regulations define a ``concern'' as ``a 
business entity organized for profit * * * (which) may be in the legal 
form of an individual proprietorship, partnership, corporation, joint 
venture, association, trust or a cooperative * * *.'' (13 CFR 121.403).
    An offeror and its affiliates are separate legal entities. Even if 
the statute were construed to permit a different rule, SBA believes a 
regulation defining ``concern'' differently for different purposes 
could be burdensome and confusing. While it is true that SBA aggregates 
for size purposes the employees or revenues of subsidiaries or 
affiliates of a concern, SBA does not treat the different legal 
entities as having merged or lost their separate identities in terms of 
ownership, management, assets and liabilities. To credit work performed 
by a subsidiary or an affiliate as work performed by the concern itself 
would be inconsistent with this approach.
    Finally, two commenters inquired as to how SBA or a contracting 
officer can 

[[Page 3312]]
determine an offeror's compliance with subcontracting restrictions 
before an award. As a responsibility matter, the contracting officer 
will determine whether an offeror intends to comply and if so, whether 
it is capable of complying. SBA may then review adverse determinations. 
If award occurs, the contracting officer will have a continuing 
responsibility to monitor contract performance to assure compliance 
with contract terms, including subcontracting limitations.
    In addition to modifying the provision governing the period of time 
considered for measuring compliance with statutory subcontracting 
limitations, the final rule makes minor changes from the proposed rule 
in order to further streamline the part. SBA has removed the list of 
``additional responsibilities'' assigned to commercial marketing 
representatives (CMRs) set forth in proposed Sec. 125.3(e). CMRs will 
be assigned responsibilities in addition to their matching tasks as the 
need arises. SBA has also deleted the last sentence of proposed 
Sec. 125.6(b)(4), which was inadvertently included in the proposed 
regulation. The treatment of leasing utility distribution facilities in 
the context of this section is still under review. SBA also corrected 
an inadvertent error contained in the proposed rule as to the 
eligibility of kit assemblers for a certificate of competency 
(Sec. 125.5(b)(1)(v)(B) of the proposed rule). The final rule will 
continue SBA's policy of making COCs available to kit assemblers 
regardless of the size of the manufacturer where the procurement is 
unrestricted, and of making COCs available to kit assemblers on small 
business set-asides only where they provide components manufactured 
only by domestic small businesses. SBA has also removed language in 
that subparagraph relating to the treatment of components manufactured 
by directed sources where the sources are large businesses. Under 
current regulations, contracting agencies must first obtain a waiver of 
the nonmanufacturing rule from SBA before they may direct large 
business sources in a small business set-aside. Accordingly, there is 
no need to include additional language governing directed sources.

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 rule will 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 eliminates 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 will be affected by 
this 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 rule contains no new reporting or recordkeeping 
requirements.
    For purposes of Executive Order 12612, SBA certifies that this rule 
does 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.
    Accordingly, pursuant to the authority set forth in Section 4 of 
Public Law 101-515 (104 Stat. 2140), Section 610(a) of Public Law 100-
202 (101 Stat. 1329-39), sections 5(b)(6), 8 and 15 of the Small 
Business Act, 72 Stat. 384, as amended (15 U.S.C. 631, et seq.), 31 
U.S.C. 9701, 9702, SBA hereby revises Part 125 of Title 13 of the Code 
of Federal Regulations to read 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 (the 
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 (15 U.S.C. 644(l)) 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 

[[Page 3313]]
FAR and Section 15(l) of the 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 Act requires other-than-small firms awarded contracts 
that offer subcontracting possibilities 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 
part 19, 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 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.


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 chapter.


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. For purposes of this Section, the term ``United States'' 
includes its territories, possessions, and the Commonwealth of Puerto 
Rico.
    (2) A contracting officer must, upon determining an apparent low 
small business offeror to be nonresponsible, refer that small business 
to SBA for a possible COC, even if the next low apparently responsible 
offeror is also a small business.
    (3) A small business offeror referred to SBA as nonresponsible may 
apply to SBA for a COC. Where the applicant is a non-manufacturing 
offeror on a supply contract, the COC applies to the responsibility of 
the non-manufacturer, not to that of the manufacturer.
    (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 chapter.
    (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.
    (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 by a small business. A waiver of this 
requirement may be requested under Secs. 121.1301 through 121.1305 of 
this chapter for either the type of product being procured or the 
specific contract at issue.
    (iv) A non-manufacturer making an offer on an unrestricted 
procurement or a procurement utilizing simplified acquisition threshold 
procedures with a cost that does not exceed $25,000 must furnish end 
items manufactured in the United States to be eligible for a COC.
    (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;
    (B) Each component comprising the kit was manufactured in the 
United States; and
    (C) In the case of a set-aside, each component comprising the kit 
was manufactured by a small business under the size standard applicable 
to the component provided. A waiver of this requirement may be 
requested under Secs. 121.1301 through 121.1305 of this chapter.
    (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 the Procurement section of the list due to 
matters not directly related to the concern itself, responsibility will 
be determined in accordance with paragraph (f)(2) 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. 

[[Page 3314]]

    (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 procurement 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 (its Best and Final Offer for a negotiated 
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 
nonresponsibility;
    (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, and also identify the reasons for the 
nonresponsibility determination.
    (d) Application for COC. (1) Upon receipt of the contracting 
officer's referral, the 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, 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 without issuing a COC and will notify the 
contracting officer and the concern with a declination letter.
    (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 part 9, 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 part, subpart 
9.4).
    (g) Decision by Area Director (``Director''). After reviewing the 
information submitted by the applicant and the information gathered by 
SBA, the Area 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                               applicant and      
 procedures.                                         contracting agency 
                                                     in writing of the  
                                                     decision.          
Between $100,000 and $25      (1) Director may      (1) Final.          
 million.                      deny.                                    
                              (2) Director may      (2) Contracting     
                               approve, subject to   agency may proceed 
                               right of appeal and   under paragraph (h)
                               other options.        or paragraph (i) of
                                                     this section.      
Exceeding $25 million.......  (1) Director may      (1) Final.          
                               deny.                                    
                              (2) Director must     (2) Contracting     
                               refer to SBA          agency may proceed 
                               Headquarters          under paragraph (j)
                               recommendation for    of this section.   
                               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, the contracting officer 
has the following options:
    (1) Accept the Director's decision to issue the COC and award the 
contract to the concern. The COC issuance letter will then be sent, 
including as an attachment a detailed rationale of the decision; or
    (2) Ask the Director to suspend the case for one of the following 
purposes:
    (i) To forward a detailed rationale for the decision to the 
contracting officer for review within a specified period of time;
    (ii) To afford the contracting officer the opportunity to meet with 
the Area Office to review all documentation contained in the case file;
    (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 

[[Page 3315]]
agreeable to the contracting officer and SBA); or
    (iv) To permit resolution of an appeal by the contracting agency to 
SBA Headquarters under paragraph (i) of this section.
    (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 must 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 Area Office may not have 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.
    (3) 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, 
where an award of the contract has not occurred, and one of the 
following circumstances exists:
    (i) The COC applicant submitted false or omitted materially adverse 
information;
    (ii) New materially adverse information has been received relating 
to the current responsibility of the applicant concern; or
    (iii) The COC has been issued for more than 60 days (in which case 
SBA may investigate the firm's current circumstances).
    (2) Where SBA reconsiders and reaffirms the COC the procedures 
under paragraph (h) of this section do not apply.
    (m) Effect of a COC. By the terms of the 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) Effect of Denial of COC. Denial of a COC by SBA does not 
preclude a contracting officer from awarding a contract to the referred 
firm, nor does it prevent the concern from making an offer on any other 
procurement.
    (o) Monitoring performance. Once a COC has been issued and a 
contract awarded on that basis, SBA may monitor contractor performance.


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

    (a) In order to be awarded a full or partial small business set-
aside contract, an 8(a) contract, or an unrestricted procurement where 
a concern has claimed a 10 percent small disadvantaged business (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 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 

[[Page 3316]]
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.
    (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 chapter.
    (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 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) Compliance will be considered an element of responsibility and 
not a component of size eligibility.
    (e) The period of time used to determine compliance will be the 
period of performance which the evaluating agency uses to evaluate the 
proposal or bid. If the evaluating agency fails to articulate in its 
solicitation the period of performance it will use to evaluate the 
proposal or bid, the base contract period, excluding options, will be 
used to determine compliance. In indefinite quantity contracts, 
performance over the guaranteed minimum will be used to determine 
compliance unless the evaluating agency articulates a different period 
of performance which it will use to evaluate the proposal or bid in its 
solicitation.
    (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, the procurement is a full or partial 
small business set-aside or an SDB has claimed a preference, and refers 
the matter to SBA for a COC determination.

    Dated: January 19, 1996.
Philip Lader,
Administrator.
[FR Doc. 96-1157 Filed 1-30-96; 8:45 am]
BILLING CODE 8025-01-P