[Federal Register Volume 62, Number 70 (Friday, April 11, 1997)]
[Proposed Rules]
[Pages 17960-17967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9175]



[[Page 17959]]

_______________________________________________________________________

Part III

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Part 11, et al.



Federal Acquisition Regulation; Liquidated Damages; Proposed Rule

  Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / 
Proposed Rules  

[[Page 17960]]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 11, 19, 52, and 53

[FAR Case 97-300]
RIN 9000-AH53


Federal Acquisition Regulation; Liquidated Damages

AGENCIES: Department of Defense (DOD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule with request for comments.

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SUMMARY: The Civilian Agency Acquisition Council (CAAC) and the Defense 
Acquisition Regulations (DAR) Council are proposing to amend the 
Federal Acquisition Regulation (FAR) to clarify policy on liquidated 
damages and commercial subcontracting plans and to implement OFPP 
Policy Letter 95-1, Subcontracting Plans for Companies Supplying 
Commercial Items. Comments received under the existing interim rule FAR 
case 89-042, Liquidated Damages, will be addressed under this new FAR 
case 97-300. This regulatory action was not subject to Office of 
Management and Budget review under Executive Order 12866, dated 
September 30, 1993. This is not a major rule under 5 U.S.C. 804.

DATES: Comments should be submitted on or before June 10, 1997 to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (MVRS), 1800 F Street, 
NW., Room 4035, Washington, DC 20405. E-mail comments submitted over 
Internet should be addressed to: www.arnet.gov">97-300@www.arnet.gov. Please cite FAR 
case 97-300 in all correspondence related to this case.

FOR FURTHER INFORMATION CONTACT: Ms. Linda Klein at (202) 501-3775 in 
reference to this FAR case. For general information, contact the FAR 
Secretariat, Room 4035, GS Building, Washington, DC 20405, (202) 501-
4755. Please cite FAR case 97-300.

SUPPLEMENTARY INFORMATION:

A. Background

    An interim rule, under FAR case 89-042, was published on July 21, 
1989 (54 FR 30708), to require a prime contractor to pay liquidated 
damages upon a finding of lack of good faith efforts to meet its small 
business subcontracting goals. This rule implements Section 304 of the 
Business Opportunity Development Reform Act of 1988, Public Law 100-
656.
    Significant revisions to the interim rule were proposed based on 
analysis of public comments. Extensive discussions took place regarding 
long-standing problems of trying to extend and adapt the requirement of 
Section 8(d) of the Small Business Act to contracts for commercial 
products, now compounded by the introduction of liquidated damages. To 
resolve those problems, the case has been held pending release and 
conformance to Federal Acquisition Circular (FAC) 90-32, published on 
September 18, 1995 (60 FR 48231), FAR case 94-790, ``Acquisition of 
Commercial Items'', and OFPP Policy Letter 95-1, ``Subcontracting Plans 
for Companies Supplying Commercial Items''.
    On January 17, 1997, the CAAC and the DAR Council agreed to close 
FAR case 89-042, Liquidated Damages, into new FAR case 97-300. All of 
the issues raised, and public comments submitted, in response to the 
interim rule published under FAR case 89-042, will be addressed under 
the new FAR case 97-300.

B. Regulatory Flexibility Act

    This proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the 
proposed changes clarify policy on liquidated damages and commercial 
subcontracting plans and the changes are not expected to increase or 
decrease small business awards, and because small businesses are exempt 
from subcontracting plan requirements per FAR 19.702(b). An Initial 
Regulatory Flexibility Analysis has, therefore, not been performed. 
Comments from small entities concerning the affected FAR subparts will 
be considered in accordance with 5 U.S.C. 610 of the Act. Such comments 
must be submitted separately and should cite 5 U.S.C. 601, et seq. (FAR 
case 97-300), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (Public Law 96-511) is deemed to apply 
because FAR case 97-300, in part, adds additional requirements that the 
subcontracting plan shall include. Therefore, a request for approval of 
a revised burden estimate for OMB clearance 9000-0006 has been 
submitted to the Office of Management and Budget under 44 U.S.C. 3501, 
et seq. Public comments concerning this request will be invited through 
a Federal Register notice.

List of Subjects in 48 CFR Parts 11, 19, 52, and 53

    Government procurement.

    Dated: April 2, 1997.
Jeremy F. Olson,
Acting Director, Federal Acquisition Policy Division.

    Therefore, it is proposed that 48 CFR Parts 11, 19, 52, and 53 be 
amended as set forth below:
    1. The authority citation for 48 CFR Parts 11, 19, 52, and 53 
continues to read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 11--DESCRIBING AGENCY NEEDS

    2. Section 11.501 is revised to read as follows:


11.501  General.

    This subpart provides policies and procedures for the use of 
liquidated damages clauses in solicitations and contracts for supplies, 
services, and construction, except for the Liquidated Damages--
Subcontracting Plan Clause at 52.219-16, which may be applied pursuant 
to 19.705-7.

PART 19--SMALL BUSINESS PROGRAMS

    3. Section 19.701 is amended by adding, in alphabetical order, 
definitions for ``Commercial plan'', ``Individual contract plan'' and 
``Master plan'' to read as follows:


19.701  Definitions.

    Commercial plan, as used in this subpart, means a subcontracting 
plan that covers the offeror's fiscal year and that applies to the 
entire production of commercial items sold by either the entire company 
or a portion thereof (e.g., division, plant, or product line).
* * * * *
    Individual contract plan, as used in this subpart, means a 
subcontracting plan that covers the entire contract period (including 
option periods), applies to a specific contract, and has goals that are 
based on the offeror's planned subcontracting in support of the 
specific contract, except that indirect costs incurred for common or 
joint purposes may be allocated on a prorated basis to the contract.
    Master plan, as used in this subpart, means a subcontracting plan 
that

[[Page 17961]]

contains all of the required elements of the individual plans, except 
goals, and may be incorporated into individual contract plans, provided 
the master plan has been approved.
* * * * *
    4. Section 19.702 is amended by revising paragraph (a) introductory 
text and (b)(4) to read as follows:


19.702  Statutory requirements.

* * * * *
    (a) Except as stated in paragraph (b) of this section, Section 8(d) 
of the Small Business Act (15 U.S.C. 637(d)) imposes the following 
requirements regarding subcontracting with small businesses and small 
business subcontracting plans.
* * * * *
    (b) * * *
    (4) For in scope modifications to contracts that do not contain the 
clause at 52.219-8, Utilization of Small, Small Disadvantaged and 
Women-Owned Small Business Concerns (or equivalent prior Defense 
Acquisition Regulation, Federal Procurement Regulations, or National 
Aeronautics and Space Administration clauses); e.g., contracts awarded 
before Public Law 95-507.
* * * * *
    5. Section 19.703(b) is amended by revising the first sentence to 
read as follows:


19.703  Eligibility requirements for participating in the program.

* * * * *
    (b) A contractor acting in good faith may rely on the written 
representation of its subcontractor regarding the subcontractor's 
status as either a small business concern, a small disadvantaged 
business concern or a women-owned small business concern. * * *
    6. Section 19.704 is amended--(a) By redesignating paragraphs 
(a)(2) through (a)(6) as (a)(7) through (a)(11), respectively;
    (b) By adding new paragraphs (a)(2) through (a)(6) and (d);
    (c) In newly-designated (a)(8) by removing the word ``will'' the 
second time it appears, and
    (d) By revising newly-designated paragraphs (a) (10) and (11) and 
paragraphs (b) in the first sentence and (c). The revised and added 
text reads as follows:


19.704  Subcontracting plan requirements.

* * * * *
    (a) * * *
    (2) A statement of total dollars planned to be subcontracted and a 
statement of the total dollars planned to be subcontracted to small, 
small disadvantaged and women-owned small business concerns;
    (3) A description of the principal types of supplies and services 
to be subcontracted and an identification of the types planned for 
subcontracting to small, small disadvantaged and women-owned small 
business concerns;
    (4) A description of the methods used to develop the subcontracting 
goals;
    (5) A description of the methods used to identify potential sources 
for solicitation purposes;
    (6) A statement as to whether or not the offeror included indirect 
costs in establishing subcontracting goals, and a description of the 
method used to determine the proportionate share of indirect costs to 
be incurred with small, small disadvantaged and women-owned small 
business concerns;
* * * * *
    (10) Assurances that the offeror will
    (i) Cooperate in any studies or surveys as may be required,
    (ii) Submit periodic reports so that the Government can determine 
the extent of compliance by the offeror with the subcontracting plan, 
and
    (iii) Submit Standard Form (SF) 294, Subcontracting Report for 
Individual Contracts, and SF 295, Summary Subcontract Report, following 
the instructions on the forms or as provided in agency regulations; and
    (iv) Ensure that its subcontractors agree to submit SF's 294 and 
295;
    (11) A description of the types of records that will be maintained 
concerning procedures adopted to comply with the requirements and goals 
in the plan, including establishing source lists; and a description of 
the offeror's efforts to locate small, small disadvantaged and women-
owned small business concerns and to award subcontracts to them.
    (b) Contractors may establish, on a plant- or division-wide basis, 
a master plan (see 19.701) which contains all the elements required by 
the clause at 52.219-9, Small, Small Disadvantaged and Women-Owned 
Small Business Subcontracting Plan, except goals. * * *
    (c) For multiyear contracts or contracts containing options, the 
cumulative value of the basic contract and all options is considered in 
determining whether a subcontracting plan is necessary (see 19.705-
2(a)). If a plan is necessary and the offeror is submitting an 
individual contract plan, the plan shall contain all the elements 
required by 19.704(a) and shall contain separate statements and goals 
for the basic contract and for each option.
    (d) A commercial plan (as defined in 19.701) is the preferred type 
of subcontracting plan for contractors furnishing commercial items. The 
contractor shall:
    (1) Submit the commercial plan to either
    (i) The first contracting officer awarding a contract subject to 
the plan during the offeror's fiscal year, or
    (ii) If the offeror has ongoing contracts with commercial plans, to 
the contracting officer responsible for the contract with the latest 
completion date. The contracting officer shall negotiate the commercial 
plan for the Government. The approved commercial plan shall remain in 
effect during the offeror's fiscal year for all Government contracts in 
effect during the period.
    (2) Submit a new commercial plan, 30 days before the end of the 
fiscal year, to the contracting officer responsible for the uncompleted 
Government contract with the latest completion date. The contractor 
must provide to each contracting officer responsible for an ongoing 
contract subject to the plan, the identity of the contracting officer 
that will be negotiating the new plan. Once the new commercial plan is 
approved, the contractor shall provide a copy of the approved plan to 
each contracting officer responsible for an ongoing contract that is 
subject to the plan.
    7. Section 19.705-4 is amended--
    (a) In the first sentence of paragraphs (b) and (c) by removing 
``six'' and inserting ``eleven'' in its place,
    (b) Paragraph (b) is further amended in the second sentence by 
removing ``six'';
    (c) Paragraph (c) is further amended by revising the third sentence 
and by adding a sentence between the second and third sentences;
    (d) By revising paragraph (d)(1); and
    (e) By redesignating paragraphs (d)(3) through (d)(6) as (d)(4) 
through (d)(7), respectively, adding a new paragraph (d)(3); and 
revising newly-designated (d)(5). The new and revised text reads as 
follows:


19.705-4  Reviewing the subcontracting plan.

* * * * *
    (c) * * * The contracting officer shall take particular care to 
ensure that the offeror has not submitted unreasonably low goals in 
order to minimize exposure to liquidated damages and to avoid the 
administrative burden of substantiating good faith efforts. 
Additionally, particular attention should be paid to the identification 
of steps that, if taken, would be considered a good faith effort. * * *
    (d) * * *
    (1) Obtain information available from the cognizant administrative 
contracting

[[Page 17962]]

office, as provided for in 19.706(a), and evaluate the offeror's past 
performance in awarding subcontracts for the same or similar products 
or services to small, small disadvantaged and women-owned small 
business concerns. If information is not available on a specific type 
of product or service, evaluate the offeror's overall past performance 
and consider the performance of other contractors on similar efforts.
* * * * *
    (3) Ensure that the subcontracting goals are consistent with the 
offeror's cost and pricing data.
* * * * *
    (5) Evaluate subcontracting potential, considering the offeror's 
make-or-buy policies or programs, the nature of the supplies or 
services to be subcontracted, the known availability of small, small 
disadvantaged and women-owned small business concerns in the 
geographical area where the work will be performed.
* * * * *
    8. Section 19.705-6 is amended by revising the introductory text 
and paragraphs (b) and (g) to read as follows:


19.705-6  Postaward responsibilities of the contracting officer.

    After a contract or contract modification containing a 
subcontracting plan is awarded, the contracting officer who approved 
the plan is responsible for the following:
* * * * *
    (b) Forwarding a copy of each commercial plan and any associated 
approvals to the Assistant Regional Administrator for Procurement 
Assistance in the SBA region where the contractor's headquarters is 
located.
* * * * *
    (g) Taking action to enforce the terms of the contract upon receipt 
of a notice under 19.706(f).
    9. Section 19.705-7 is amended by revising paragraphs (b), (c), and 
(f) and the last sentence of paragraph (d); and by adding (h) to read 
as follows:


19.705-7  Liquidated damages.

* * * * *
    (b) The amount of damages attributable to the contractor's failure 
to comply shall be an amount equal to the actual dollar amount by which 
the contractor failed to achieve each subcontracting goal.
    (c) If, at completion of the basic contract or any option, or in 
the case of a commercial plan, at the close of the fiscal year for 
which the plan is applicable, a contractor has failed to meet its 
subcontracting goals, the contracting officer shall review all 
available information for an indication that the contractor has not 
made a good faith effort to comply with the plan. If no such indication 
is found, the contracting officer shall document the file accordingly. 
If the contracting officer decides in accordance with paragraph (d) of 
this subsection that the contractor failed to make a good faith effort 
to comply with its subcontracting plan, the contracting officer shall 
give the contractor written notice specifying the failure, advising the 
contractor of the possibility that the contractor may have to pay to 
the Government liquidated damages, and providing a period of 15 working 
days (or longer period as necessary) within which to respond. The 
notice shall give the contractor an opportunity to demonstrate what 
good faith efforts have been made before the contracting officer issues 
the final decision, and shall further state that failure of the 
contractor to respond may be taken as an admission that no valid 
explanation exists.
    (d) * * * However, when considered in the context of the 
contractor's total effort in accordance with its plan, the following, 
though not all inclusive, may be considered as indicators of a failure 
to make a good faith effort: a failure to attempt to identify, contact, 
solicit, or consider for contract award small, small disadvantaged or 
women-owned small business concerns; a failure to designate and 
maintain a company official to administer the subcontracting program 
and monitor and enforce compliance with the plan; a failure to submit 
Standard Form (SF) 294, Subcontracting Report for Individual Contracts, 
and Standard Form (SF) 295, Summary Subcontract Report, in accordance 
with instructions on the forms or as provided in agency regulations; a 
failure to maintain records or otherwise demonstrate procedures adopted 
to comply with the plan; and the adoption of company policies or 
procedures which have as their objectives the frustration of the 
objectives of the plan.
* * * * *
    (f) With respect to commercial plans approved under the clause at 
52.219-9, Small, Small Disadvantaged and Women-Owned Small Business 
Subcontracting Plan, the contracting officer that approved the plan 
shall--
    (1) Perform the functions of the contracting officer under this 
subsection on behalf of all agencies with contracts covered by the 
commercial plan;
    (2) Determine whether or not the goals in the commercial plan were 
achieved and, if they were not achieved, review all available 
information for an indication that the contractor has not made a good 
faith effort to comply with the plan, document the results of the 
review, and provide a copy to the other contracting officers with 
contracts subject to the commercial plan as listed in the Remarks block 
of the SF 295; and
    (3) If a determination is made to assess liquidated damages, 
request other contracting officers with contracts incorporating the 
plan to provide the amount of payments made under their Government 
contracts subject to the plan that contributed to the contractor's 
total sales during the contractor's fiscal year in order to calculate 
and assess liquidated damages on the Government's behalf. For example: 
The contractor's total sales are $50 million and the subcontracting 
dollars to support the sales are $20 million, or 40 percent. The 
Government's payments under contracts subject to the plan contributing 
to the contractor's total sales are $5 million. Therefore, the pro rata 
share of subcontracting attributable to the Government contracts 
covered by the plan is 10 percent of $20 million, or $2 million. If the 
contractor failed to achieve its small business goal by 1 percent, the 
liquidated damages would be calculated as 1 percent of $2 million. A 
copy of the contracting officer's final decision assessing liquidated 
damages shall be provided to other contracting officers with contracts 
subject to the commercial plan as listed in the Remarks block of the SF 
295.
* * * * *
    (h) Every contracting officer with a contract that is subject to a 
commercial plan shall include in the contract file--
    (1) A copy of the approved plan,
    (2) A copy of the determination regarding goal achievement and (if 
applicable) whether the contractor made a good faith effort to comply 
with the plan, and
    (3) A copy of the final decision assessing liquidating damages, if 
applicable.
    10. Section 19.706 is amended in paragraph (a) by removing the 
paragraph designation ``(a)''; by removing paragraph (b); by 
redesignating (a)(1) through (a)(6) as (a) through (f), respectively; 
in newly-designated (e) by removing ``and'' at the end; in newly-
designated (f) by removing the period at the end and inserting ``; 
and'' in its place; and by adding (g) to read as follows:


19.706  Responsibilities of the cognizant administrative contracting 
officer.

* * * * *
    (g) Immediate notice that performance under a contract is complete, 
that the goals were or were not met, and if not met, whether there is 
any indication of

[[Page 17963]]

a lack of a good faith effort to comply with the subcontracting plan.


19.708  [Amended]

    11. Section 19.708 is amended in paragraph (b)(2) by adding ``the 
clause with'' after the words ``Plan, or''; in the parenthetical 
citation in (c)(1) by removing ``(a)(1)''; and in the second sentence 
of (c)(2) by removing ``award fee'' and inserting ``award-fee'' in its 
place.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    12. Section 52.219-9 is amended by revising the clause date and 
paragraphs (b), (d)(2)(i), (d)(10), (d)(11) first sentence of 
introductory text, (d)(11)(vi) second sentence, (f) introductory text, 
and (g) to read as follows:


52.219-9  Small, Small Disadvantaged and Women-Owned Small Business 
Subcontracting Plan.

* * * * *

SMALL, SMALL DISADVANTAGED AND WOMEN-OWNED SMALL BUSINESS 
SUBCONTRACTING PLAN (XXX 1997)

* * * * *
    (b) Definitions. As used in this clause--
    Commercial item means a product or service that satisfies the 
definition of commercial item in section 2.101 of the Federal 
Acquisition Regulation.
    Commercial plan means a subcontracting plan that covers the 
offeror's fiscal year and that applies to the entire production of 
commercial items sold by either the entire company or a portion 
thereof (e.g., division, plant, or product line).
    Individual contract plan means a subcontracting plan that covers 
the entire contract period (including option periods), applies to a 
specific contract, and has goals that are based on the offeror's 
planned subcontracting in support of the specific contract, except 
that indirect costs incurred for common or joint purposes may be 
allocated on a prorated basis to the contract.
    Master plan means a subcontracting plan that contains all of the 
required elements of the individual plans, except goals, and may be 
incorporated into individual plans, provided the master plan has 
been approved.
    Subcontract means any agreement (other than one involving an 
employer-employee relationship) entered into by a Federal Government 
prime contractor or subcontractor calling for supplies or services 
required for performance of the contract or subcontract.
* * * * *
    (d) * * *
    (2) * * *
    (i) Total dollars planned to be subcontracted for individual 
plans; or the offeror's total projected sales, expressed in dollars, 
and the total value of projected subcontracts to support the sales 
for commercial plans;
* * * * *
    (10) Assurances that the offeror will (i) cooperate in any 
studies or surveys as may be required, (ii) submit periodic reports 
so that the Government can determine the extent of compliance by the 
offeror with the subcontracting plan, and (iii) submit Standard Form 
(SF) 294, Subcontracting Report for Individual Contracts, and SF 
295, Summary Subcontract Report, following the instructions on the 
forms or as provided in agency regulations; and (iv) ensure that its 
subcontractors agree to submit SF's 294 and 295.
    (11) A description of the types of records that will be 
maintained concerning procedures that have been adopted to comply 
with the requirements and goals in the plan, including establishing 
source lists; and a description of the offeror's efforts to locate 
small, small disadvantaged and women-owned small business concerns 
and to award subcontracts to them. * * *
* * * * *
    (vi) * * * Contractors having commercial plans need not comply 
with this requirement.
* * * * *
    (f) A master plan on a plant or division-wide basis which 
contains all the elements required by paragraph (d) of this clause, 
except goals, may be incorporated by reference as a part of the 
subcontracting plan required of the offeror by this clause; 
provided, * * *
    (g) A commercial plan is the preferred type of subcontracting 
plan for contractors furnishing commercial items (see paragraph (b) 
of this clause). The commercial plan shall relate to the offeror's 
planned subcontracting generally, for both commercial and Government 
business, rather than solely to the Government contract.
* * * * *
(End of clause)
* * * * *
    13. Section 52.219-16 is amended--
    (a) By revising the clause date;
    (b) In the first sentence of paragraph (b) by removing the word 
``product''; by adding a sentence at the beginning of (b); and by 
revising the last sentence;
    (c) In (c) at the end of the first sentence, before the period, by 
adding ``and to discuss the matter''; and
    (d) By revising (d) to read as follows:


52.219-16  Liquidated Damages--Subcontracting Plan.

* * * * *

LIQUIDATED DAMAGES--SUBCONTRACTING PLAN (XXX 1997)

* * * * *
    (b) Performance shall be measured by applying the percentage 
goals to the total actual subcontracting dollars or, if a commercial 
plan is involved, to the pro rata share of actual subcontracting 
dollars attributable to Government contracts covered by the 
commercial plan. * * * The amount of probable damages attributable 
to the Contractor's failure to comply, shall be an amount equal to 
the actual dollar amount by which the Contractor failed to achieve 
each subcontract goal.
* * * * *
    (d) With respect to commercial plans, the Contracting Officer 
who approved the plan will perform the functions of the Contracting 
Officer under this clause on behalf of all agencies with contracts 
covered by the commercial plan.
* * * * *
(End of clause)

PART 53--FORMS

    14. Section 53.301-294 is revised to read as follows:

BILLING CODE 6820-EP-P

[[Page 17964]]

53.301-294  Standard Form 294, Subcontracting Report for Individual 
Contracts
[GRAPHIC] [TIFF OMITTED] TP11AP97.000


[[Page 17965]]

[GRAPHIC] [TIFF OMITTED] TP11AP97.001




[[Page 17966]]


    15. Section 53.301-295 is revised to read as follows:

53.301-295  Standard Form 295, Subcontract Report
[GRAPHIC] [TIFF OMITTED] TP11AP97.002


[[Page 17967]]

[GRAPHIC] [TIFF OMITTED] TP11AP97.003



[FR Doc. 97-9175 Filed 4-10-97; 8:45 am]
BILLING CODE 6820-EP-C