[Federal Register Volume 61, Number 179 (Friday, September 13, 1996)]
[Notices]
[Pages 48463-48465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23591]


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DEPARTMENT OF COMMERCE

[Docket No. 960828234-6234-01]
RIN 0690-AA25


Guidelines for Empowerment Contracting

AGENCY: Department of Commerce.

ACTION: Proposed guidelines; request for comment.

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SUMMARY: The Department of Commerce is issuing these proposed 
guidelines requesting public comment on policies and procedures 
intended to promote economy and efficiency in Federal procurement by 
granting qualified large businesses and qualified small businesses 
appropriate incentives to encourage business activity in areas of 
general economic distress. This action is taken in accordance with the 
President's Executive Order entitled, ``Empowerment Contracting.'' The 
standards set forth in these proposed guidelines will serve as the 
basis for a proposed revision to the Federal Acquisition Regulation 
(``FAR''). Information obtained from public comment on these guidelines 
will be used to help draft the proposed FAR revision.

DATES: Comments must be submitted on or before October 15, 1996.

ADDRESSES: Comments may be mailed to the Department of Commerce, Office 
of the Assistant General Counsel for Finance and Litigation, Room 5896, 
14th and Constitution Street, NW., Washington, DC 20230.

FOR FURTHER INFORMATION CONTACT:
Joe Levine, 202-482-1071.

SUPPLEMENTARY INFORMATION: On May 21, 1996, President Clinton issued 
Executive Order 13005, ``Empowerment Contracting'' (the ``Order''). The 
purpose of the Order is to strengthen the economy and secure broad-
based competition for Federal contracts by fostering growth of Federal 
contractors in economically distressed communities. In the Order, the 
President charged the Secretary of Commerce (the ``Secretary''), in 
consultation with the Secretaries of Housing and Urban Development, 
Labor and Defense; and the Administrators of the General Services 
Administration, the National Aeronautics and Space Administration, the 
Small Business Administration, and the Office of Federal Procurement 
Policy, to develop policies and procedures to ensure that Federal 
agencies, when awarding contracts in unrestricted competitions, grant 
qualified large and small businesses appropriate price or evaluation 
incentives to encourage business activity in areas of general economic 
distress.
    Specifically, the Order requires the Secretary to ``develop 
policies and procedures to ensure that agencies, to the extent 
permitted by law, grant qualified large businesses and qualified small 
businesses appropriate incentives to encourage business activity in 
areas of general economic distress, including a price or a non-price 
evaluation credit, when assessing offers for government contracts in 
unrestricted competitions, where the incentives would promote the 
policy set forth in this Order.'' The Order also calls upon the 
Secretary to (1) monitor the implementation and operation of the 
procedures developed; (2) ensure proper administration of the program 
and reduce the potential for fraud by intended beneficiaries; (3) 
develop a process to evaluate the effectiveness of the procedures 
developed; and (4) issue an annual report to the President on the 
status and effectiveness of the program. In addition, the Secretary 
must ensure that all policies, procedures and regulations developed 
pursuant to the Order minimize the administrative burden on affected 
agencies and the procurement process.
    These proposed guidelines, which are being published for 30 days' 
public comment, respond to the requirement in section 4(b) of the Order 
that the Secretary of Commerce draft rules, regulations, and guidelines 
necessary to implement the Order within 90 days of the date of the 
Order. The standards set forth in these proposed guidelines will not, 
in and of themselves, have force and effect in Federal procurements. 
Rather, they will serve as the basis for a proposed revision to the 
Federal Acquisition Regulation (``FAR'') pursuant to the policies and 
procedures set forth in FAR Subpart 1.5., 48 CFR Subpart 1.5. That 
proposed revision will be published for public comment, pursuant to 48 
CFR 1.501-2.
    It has been determined that these proposed guidelines are 
significant for purposes of Executive Order 12866. Because these 
proposed guidelines relate to a matter of public property, loans, 
grants, benefits, or contracts, they are exempted from all the 
procedural requirements of the Administrative Procedure Act (5 U.S.C. 
553). Because notice and comment are not required by 5 U.S.C. 553 or 
any other law, a Regulatory Flexibility Analysis is not required and 
was not done for purposes of the Regulatory Flexibility Act. The 
guidelines do not contain information collection requirements for 
purposes of the Paperwork Reduction Act.

Guidelines for Empowerment Contracting

I. Definitions

    ``Agency'' means any authority of the United States that is an 
``agency'' under 44 U.S.C. 3502(1), other than those considered to be 
independent regulatory agencies, as defined in 44 U.S.C. 3502(10).
    ``Area of general economic distress'' means, for all urban and 
rural communities, any census tract that has a poverty rate of at least 
20 percent or any designated Federal Empowerment Zone, Supplemental 
Empowerment Zone, Enhanced Enterprise Community, or Enterprise 
Community. ``Area of general distress'' also means any rural or Indian 
reservation area that currently meets the criteria for designation as a 
redevelopment area under Sec. 401(a) of the Public Works and Economic 
Development Act of 1965, as amended (42 U.S.C. 3161(a)), as set forth 
at 15 CFR 301.2 (loss of population); 15 CFR 301.4 (Indian Lands) and 
15 CFR 301.7 (special impact areas).
    The Department of Commerce shall develop and maintain the official 
listing of eligible areas, based on the 1990 decennial Census of 
Population data. The listing shall contain the Census tract and block 
numbering for all eligible areas.
    ``Qualified large business'' means a large for-profit or not-for-
profit trade or business that (1) employs a significant number of 
residents from the area of general economic distress; and (2) either 
has a significant physical presence in the area of general economic 
distress or has a direct impact on generating significant economic 
activity in the area of general economic distress.
    ``Qualified small business'' means a small for-profit or not-for-
profit trade or business that (1) employs a significant number of 
residents from the area of general economic distress; (2) has a 
significant physical presence in the area of general economic distress; 
or (3) has a direct impact on generating significant economic activity 
in the area of general economic distress.

[[Page 48464]]

    ``Eligible businesses'':
    (1) ``Business'' means the legal entity responsible for performance 
of the contract for which a preference is sought.
    (2) ``Small business'' is defined by the definitions and procedures 
set forth by the Small Business Administration for determining size 
eligibility for government procurements (13 CFR 121.901-911).
    (3) ``Large business'' means any business that is not a small 
business.
    (4) ``Not-for-profit businesses''--Notwithstanding 13 CFR 121.403 
(the SBA regulations that defines ``business or concern'' to mean for-
profit entities), size determinations for not-for-profit entities will 
follow the same procedures as those of for-profit entities, i.e., the 
Standard Industrial Code (SIC) of the procurement will govern.
    (5) ``Employs a significant number of residents from the area.'' 
This means a business allocates or will (based on a showing made at the 
time of certification of eligibility for a preference) allocate at 
least 15 to 25 percent of its total labor costs associated with 
performing the contract in wages to residents from the area of general 
economic distress;
    (6) ``Has a significant physical presence in the area.'' This means 
a business with physical plant(s) in eligible areas which comprises at 
least 25 percent of the total area of the physical plant(s) of the 
business;
    (7) ``Has a direct impact on generating significant economic 
activity in the area.'' This means a business which: (1) allocates or 
will (based on a showing made at the time of certification of 
eligibility for a preference) allocate at least 40 to 50 percent of its 
total labor costs associated with performing the contract in wages to 
residents from the area of economic distress; or (2) during the six 
months prior to submitting its bid or proposal, has incurred at least 
15 percent of its expenses on goods, materials, and services from firms 
located in eligible areas; or (3) is owned \1\ by permanent resident(s) 
of the area of economic distress who lives full time in the area of 
economic distress.
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    \1\ For these purposes, an individual ``owns'' a business if he 
or she has a 50 percent or greater financial interest in such 
business.
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II. Challenges

    Businesses shall ``certify'' their qualifications pursuant to the 
definitions set forth in the ``Definitions'' section of these 
guidelines. The Commerce Department may develop a system for verifying 
key information, and criminal sanctions shall apply for false 
applications. Challenges regarding certification as to size will 
continue to be handled under SBA's Procedures for Size Protests and 
Appeals (13 CFR 121.1601-121.1722). Challenges to certifications 
regarding other elements required for qualification shall be heard by 
the Commerce Department under procedures to be developed.

III. Applicability

    Subject to the provisions contained in the ``Phased Implementation 
of the Program'' section of these proposed guidelines, these of the 
Program'' section of these proposed guidelines, these proposed 
guidelines shall apply to unrestricted competitions for contracts 
exceeding $100,000.

IV. Incentive Structure

    Both price and non-price incentives shall be available in contracts 
subject to these proposed guidelines. While applying these incentives, 
the Contracting Officer will be authorized to determine the size and 
type of incentive to apply to any particular procurement. Preferences 
in the form of incentives shall represent a price preference of 5 to 10 
percent or an evaluation credit 5 to 10 percent.\2\ Any preference a 
business receives under these guidelines shall be added to the 
preferences it may receive pursuant to other statutory or regulatory 
programs.
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    \2\ If, for example, a price preference were used in an IFB or 
an RFP, a qualifying firm's offered price would be reduced by 5% to 
10%. If an evaluation preference were used in an RFP, an offeror 
that received a preference would have its overall non-price related 
evaluation increased by 5% to 10% above the score it would have 
otherwise received.
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V. Monitoring and Evaluation

    Subject to the provisions of the ``Phased Implementation of the 
Program'' section of these proposed guidelines, the Commerce 
Department, in conjunction with procuring agencies, shall monitor the 
process as follows:
    (1) Monitoring the Federal Procurement Process. We would expect 
that the benefit to the federal procurement system would begin to be 
realized during the latter years of phase two of the program. To assist 
in monitoring and evaluating the efficiency of this new program, 
agencies awarding contracts to qualified businesses shall provide the 
following information to the Department of Commerce:
    (A) The startup costs and ongoing administrative costs of 
implementing the program;
    (B) The extent to which incentives were used in evaluating awards 
under this program;
    (C) The extent to which incentives changed the outcome of the 
procurement;
    (D) The advantages and disadvantages to the agency of awarding 
contracts with these preferences; and
    (E) The savings and/or quality improvements in supplies or services 
bought under contracts subject to the program (or increased costs and/
or decreased quality of such supplies or services).
    (2) Monitoring the Impact on Business Development. Evaluation 
criteria shall be established on national goals and objectives. A 
sample of businesses receiving contracts under the program would be 
examined with the following issues being addressed:
    (A) Did the business locate or remain in a particular place so that 
it would be eligible for preferences under these guidelines;
    (B) Did the business hire new workers or provide additional 
benefits to existing workers from eligible areas so that it would be 
eligible for preferences under these guidelines;
    (C) Did the business purchase additional goods and services from 
firms located in eligible areas so that it would be eligible for 
preferences under these guidelines;
    (D) Did the business propose to hire more workers in eligible areas 
as a result of bidding or proposing under the subject contract;
    (E) Is this contract new work that the business would not have 
received but for this program.
    (3) Monitoring the Impact on Distressed Communities. In order to 
examine impacts of the program on distressed communities, outcomes 
should be measured in the context of local conditions and community 
priorities, as well as broad national goals. The local vision for a 
community's transformation should provide the principal criteria for 
measuring local outcomes. The monitoring and evaluation process should 
have both an initial and a longer term phase. The principal objectives 
of the initial phase would be to:
    (A) Establish baseline measurements of demographics, economic 
indicators, physical infrastructure conditions and needs, and social 
conditions;
    (B) Identify local outcome measures and common national measures 
toward which long-term evaluation will be directed, including 
employment, crime, education, and poverty; and
    (C) Develop a strategy and mechanism for evaluating progress toward 
local and national goals over time.
    The longer-term evaluation should have the capacity to answer

[[Page 48465]]

fundamental questions about the efficacy of targeted Federal 
contracting, specifically its ability to revitalize distressed 
communities and to improve the social and economic well-being of 
residents. This phase will examine such questions as:
    (A) To what extent does the program create or improve the quality 
of jobs and economic opportunities in the distressed area?
    (B) To what extent does the program result in new businesses 
locating in the community or increased rates of business retention in 
the community?
    (C) To what extent does the program affect areas outside the 
distressed community by either connecting residents with opportunities 
in the larger community or by increasing growth in the larger area?
    (D) How have the changes in these communities affected the 
jurisdictions in which they are located?
    (E) How have areas (and residents) adjacent to the distressed 
communities been affected?
    (F) At what cost have these outcomes been achieved? The evaluation 
must ultimately provide an empirical basis for assessing program costs 
relative to benefits.
    (G) How effectively does the program interact with other government 
programs designed to promote the development of economically distressed 
communities?
    In monitoring the program, the Department of Commerce can request 
additional information to the extent that it deems appropriate.

VI. Phased Implementation of the Program

    (1) First phase--six month testing period. These guidelines will 
apply initially, during a first phase of six months' duration, only to 
a limited number of contracts involving industries whose two digit 
Standard Industrial Classification (or ``SIC'') Codes will be listed in 
the revision to the FAR based upon these guidelines (see SUPPLEMENTARY 
INFORMATION). The contracts to be selected shall be developed with the 
concurrence of the Department of Commerce and the procuring agency in 
question. We seek public comment on the industries to be listed. During 
the first phase, the efficacy of alternative forms of preferences in 
different industry settings will be tested and assessed.
    (2) Second phase--further implementation. Further implementation of 
the Order will be instituted in the second phase of the program, which 
will begin after the first phase of the program has ended. In the 
second phase, the program will be applied to a larger number of 
contracts within selected two digit SIC Code industries involved in 
competitive Federal procurements, consistent with efficient 
administration of the program. Industries included in the second phase 
will be identified in advance of being included. The contracts to be 
selected shall be developed with the concurrence of the Department of 
Commerce and the procuring agency in question. The efficacy of the 
program will be monitored and evaluated during the second phase, 
subject to the criteria set forth in the ``Monitoring and Evaluation'' 
section of these guidelines. At the end of this five or so year period, 
we would ascertain whether the program is meeting its goals. 
Specifically, we would determine whether the program (a) stimulated 
economic activity (through, among other things, job creation or new 
investment) in areas of general economic distress and (b) benefited the 
federal procurement system. If the program meets these objectives, it 
would be expanded to other selected industries for similar 
implementation and evaluation.

VII. Effective Date

    The standards set forth in these guidelines will serve as the basis 
for a proposed revision to the Federal Acquisition Regulation pursuant 
to the policies and procedures set forth in FAR Subpart 1.5. The 
proposed FAR revision will be published for public comment, pursuant to 
48 CFR 1.501-2.

    Dated: September 10, 1996.
Michael Kantor,
Secretary of Commerce.
[FR Doc. 96-23591 Filed 9-12-96; 8:45 am]
BILLING CODE 3510-17-M