[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Notices]
[Pages 35714-35718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17157]



[[Page 35713]]

_______________________________________________________________________

Part VII

Office of Management and Budget

Department of Defense

General Services
Administration

National Aeronautics and Space Administration



48 CFR Part 1, et al.

Small Business Administration



13 CFR Part 121, et al.



_______________________________________________________________________



Federal Acquisition Regulations for Small Disadvantaged Businesses; 
Notice and Rules

  Federal Register / Vol. 63, No. 125 / Tuesday, June 30, 1998 / 
Notices  

[[Page 35714]]


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OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy


Small Disadvantaged Business Procurement; Reform of Affirmative 
Action in Federal Procurement

AGENCY: Office of Federal Procurement Policy (OFPP), OMB.


ACTION: Notice of determination concerning price evaluation 
adjustments.

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SUMMARY: The Federal Acquisition Regulation (FAR), 48 CFR Part 19, 
contains regulations permitting eligible small disadvantaged businesses 
(SDB's) to receive price evaluation adjustments in Federal procurement 
programs. The FAR provides further that the Department of Commerce 
(DOC) will determine the price evaluation adjustments available for use 
in Federal procurement programs. The DOC, in the attached memorandum, 
determines price evaluation adjustments (percentages) by Standard 
Industrial Classification (SIC) major groups and regions that are 
effective for new solicitations for the upcoming year. The DOC 
memorandum describes the methodology for determining price evaluation 
adjustments.

EFFECTIVE DATE: June 30, 1998.

FOR FURTHER INFORMATION CONTACT: Ms. Linda G. Williams, Deputy 
Associate Administrator, Office of Federal Procurement Policy, 
Telephone 202-395-3302. For information on the Commerce methodology, 
contact Mr. Jeffrey Mayer, Director of Policy Development, Economics 
and Statistics Administration, U.S. Department of Commerce, Telephone 
202-482-1728.

SUPPLEMENTARY INFORMATION:

Procurement Mechanisms and Factors

    FAR Subpart 19.11 provides for the use of price evaluation 
adjustments for eligible SDBs. OFPP gives notice that the attached 
Memorandum from the DOC determines that certain SIC major groups are 
eligible for a price evaluation adjustment. The Memorandum also 
includes factors for use on a regional basis in certain industries. FAR 
Subpart 19.11 provides that these factors are authorized for use in new 
solicitations issued on or after October 1, 1998, that allow for a 
price evaluation adjustment.
Allan E. Brown,
Acting Administrator.

Attachment

Department of Commerce

Economics and Statistics Administration

Memorandum for Office of Federal Procurement Policy
From: Jeffrey L. Mayer, Director of Policy Development.
Subect: Price Evaluation Adjustments and Benchmarking Methodology.

    Pursuant to new Federal Acquisition Regulation (FAR) 19.201(b), 
transmitted herein is the Department of Commerce determination on the 
price evaluation adjustments for use in Federal procurements and the 
supporting benchmarking methodology.

I. Background

    FAR 19.201(b) requires the Department of Commerce to determine 
price evaluation adjustments for applicable standard industrial 
classification (SIC) major groups. To establish price evaluation 
adjustments, the Office of the Chief Economist and the Office of Policy 
Development in the Economics and Statistics Administration of the 
Department of Commerce (DOC) conducted an economic analysis to identify 
industries eligible for price evaluation adjustments to implement the 
Administration's proposal for reforming affirmative action in Federal 
procurement programs.
    DOC is responsible for: (i) developing the methodology for 
calculating the benchmark limitations; (ii) developing the methodology 
for calculating the size of the price evaluation adjustments that 
should be employed in a given industry; and (iii) determining 
applicable adjustments. In addition, DOC is charged with providing 
information to the Small Business Administration for its use in 
administering the 8(a) program.

II. Price Evaluation Adjustments

    Based upon the methodology described below, DOC determines that a 
price evaluation adjustment of ten percent be employed in the following 
industries:

                         Industries Eligible for Ten Percent Price Evaluation Adjustment                        
----------------------------------------------------------------------------------------------------------------
         SIC major industry group                    Eligibility (*)            Description of industry grouping
----------------------------------------------------------------------------------------------------------------
                                       Agriculture, Forestry, and Fishing                                       
----------------------------------------------------------------------------------------------------------------
01.......................................  ..................................  Agricultural production--crops.  
02.......................................  ..................................  Agricultural production--        
                                                                                livestock.                      
07.......................................  ..................................  Agricultural services.           
08.......................................  ..................................  Forestry.                        
09.......................................  ..................................  Fishing, hunting, & trapping.    
----------------------------------------------------------------------------------------------------------------
                                                     Mining                                                     
----------------------------------------------------------------------------------------------------------------
10.......................................  *                                   Metal mining.                    
12.......................................  *                                   Coal mining.                     
13.......................................  *                                   Oil & gas extraction.            
14.......................................  *                                   Extraction of nonmetallic        
                                                                                minerals, ex. Fuels.            
----------------------------------------------------------------------------------------------------------------
                                                  Construction                                                  
----------------------------------------------------------------------------------------------------------------
15.......................................  ..................................  Building construction--general   
                                                                                contractors.                    
15.......................................  *                                   East North Central.              
15.......................................  *                                   East South Central.              
15.......................................  *                                   Middle Atlantic.                 
15.......................................  ..................................  Mountain.                        
15.......................................  ..................................  New England.                     
15.......................................  ..................................  Pacific.                         
15.......................................  ..................................  South Atlantic.                  
15.......................................  ..................................  West North Central.              
15.......................................  *                                   West South Central.              

[[Page 35715]]

                                                                                                                
16.......................................  ..................................  Heavy construction other than    
                                                                                buildings--contractors.         
16.......................................  ..................................  East North Central.              
16.......................................  *                                   East South Central.              
16.......................................  ..................................  Middle Atlantic.                 
16.......................................  ..................................  Mountain.                        
16.......................................  ..................................  New England.                     
16.......................................  ..................................  Pacific.                         
16.......................................  ..................................  South Atlantic.                  
16.......................................  ..................................  West North Central.              
16.......................................  *                                   West South Central.              
17.......................................  ..................................  Construction--special trade      
                                                                                contractors.                    
17.......................................  ..................................  East North Central.              
17.......................................  ..................................  East South Central.              
17.......................................  ..................................  Middle Atlantic.                 
17.......................................  ..................................  Mountain.                        
17.......................................  *                                   New England.                     
17.......................................  ..................................  Pacific.                         
17.......................................  ..................................  South Atlantic.                  
17.......................................  *                                   West North Central.              
17.......................................  ..................................  West South Central.              
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                                                  Manufacturing                                                 
----------------------------------------------------------------------------------------------------------------
20.......................................  ..................................  Food & kindred products.         
21.......................................  ..................................  Tobacco products.                
22.......................................  *                                   Textile mill products.           
23.......................................  *                                   Apparel & other finished products
                                                                                made from fabrics.              
24.......................................  *                                   Lumber & wood products, ex.      
                                                                                Furniture.                      
25.......................................  *                                   Furniture & fixtures.            
26.......................................  *                                   Paper & allied products.         
27.......................................  *                                   Printing, publishing, & allied   
                                                                                industries.                     
28.......................................  *                                   Chemicals & allied products.     
29.......................................  *                                   Petroleum refining & related     
                                                                                industries.                     
30.......................................  *                                   Rubber & miscellaneous plastics  
                                                                                products.                       
31.......................................  *                                   Leather & leather products.      
32.......................................  ..................................  Stone, clay, glass, & concrete   
                                                                                products.                       
33.......................................  ..................................  Primary metal industries.        
34.......................................  *                                   Fabricated metal products.       
35.......................................  ..................................  Industrial & commercial machinery
                                                                                & computer equipment.           
36.......................................  *                                   Electronic & other electrical    
                                                                                equipment & components, ex.     
                                                                                Computers.                      
37.......................................  *                                   Transportation equipment.        
38.......................................  *                                   Measuring, analyzing, &          
                                                                                controlling instruments;        
                                                                                photographic, medical & optical 
                                                                                goods; watches & clocks.        
39.......................................  *                                   Miscellaneous manufacturing      
                                                                                industries.                     
----------------------------------------------------------------------------------------------------------------
                        Transportation, Communications, Electric, Gas, Sanitary Services                        
----------------------------------------------------------------------------------------------------------------
40.......................................  ..................................  Railroad transportation.         
41.......................................  *                                   Local & suburban transit &       
                                                                                interurban highway passenger    
                                                                                transportation.                 
42.......................................  *                                   Motor freight transportation &   
                                                                                warehousing.                    
44.......................................  *                                   Water transportation.            
45.......................................  ..................................  Transportation by air.           
46.......................................  *                                   Pipelines, exc. natural gas.     
47.......................................  *                                   Transportation services.         
48.......................................  *                                   Communications.                  
49.......................................  *                                   Electric, gas, & sanitary        
                                                                                services.                       
----------------------------------------------------------------------------------------------------------------
                                                 Wholesale Trade                                                
----------------------------------------------------------------------------------------------------------------
50.......................................  *                                   Wholesale trade--durable goods.  
51.......................................  *                                   Wholesale trade--nondurable      
                                                                                goods.                          
----------------------------------------------------------------------------------------------------------------
                                                  Retail Trade                                                  
----------------------------------------------------------------------------------------------------------------
52.......................................  *                                   Building materials, hardware,    
                                                                                garden supply, & mobile home    
                                                                                dealers.                        
53.......................................  *                                   General Merchandise stores.      
54.......................................  *                                   Food stores.                     
55.......................................  *                                   Automotive dealers & gasoline    
                                                                                service stations.               
56.......................................  *                                   Apparel & accessory stores.      
57.......................................  *                                   Home furniture, furnishings, &   
                                                                                equipment stores.               
58.......................................  *                                   Eating & drinking places.        
59.......................................  *                                   Miscellaneous retail.            
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[[Page 35716]]

                                                                                                                
                                       Finance, Insurance, and Real Estate                                      
----------------------------------------------------------------------------------------------------------------
60.......................................  *                                   Depository institutions.         
61.......................................  *                                   Nondepository adjustment         
                                                                                institutions.                   
62.......................................  *                                   Security & commodity brokers,    
                                                                                dealers, exchanges, & services. 
63.......................................  *                                   Insurance carriers.              
64.......................................  *                                   Insurance agents, brokers, &     
                                                                                services.                       
65.......................................  *                                   Real estate.                     
67.......................................  *                                   Holding & other investment       
                                                                                offices.                        
----------------------------------------------------------------------------------------------------------------
                                                    Services                                                    
----------------------------------------------------------------------------------------------------------------
70.......................................  *                                   Hotels, rooming houses, camps, & 
                                                                                other lodging places.           
72.......................................  ..................................  Personal services.               
73.......................................  *                                   Business services.               
75.......................................  *                                   Automotive repair, services, &   
                                                                                parking.                        
76.......................................  *                                   Miscellaneous repair services.   
78.......................................  ..................................  Motion pictures.                 
79.......................................  ..................................  Amusement & recreation services. 
80.......................................  *                                   Health services.                 
81.......................................  ..................................  Legal services.                  
82.......................................  *                                   Educational services.            
83.......................................  ..................................  Social services.                 
84.......................................  ..................................  Museums, art galleries, &        
                                                                                botanical & zoological gardens  
86.......................................  ..................................  Membership organizations.        
87.......................................  *                                   Engineering, accounting,         
                                                                                research, management, & related 
                                                                                services.                       
88.......................................  ..................................  Private households.              
89.......................................  *                                   Miscellaneous services.          
----------------------------------------------------------------------------------------------------------------

III. Benchmarking Methodology

    DOC's methodology is designed to ensure that the price adjustments 
authorized by the reforms are narrowly tailored to remedy 
discrimination. The methodology includes four steps. First, DOC 
identified firms that are ``ready and willing'' to supply the federal 
government. Second, DOC calculated the federal government's utilization 
of each ready and willing firm as the FY 1996 net contract obligations 
awarded by federal agencies to each ready and willing firm. Third, DOC 
estimated the capacity of each ready and willing firm to supply the 
federal government. Finally, DOC compared SDB shares of utilization and 
capacity held by ready and willing firms in each Contracting Arena 
1 and recommended that the price evaluation adjustments be 
implemented where SDB share of industry utilization falls short of SDB 
share of industry capacity.
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    \1\ A firm's Contracting Arena is the industry grouping in which 
it bid, was awarded a contract, or had 8(a) certification and (in 
the case of construction companies) the Census Division where it was 
located. In most cases, the industry grouping is the two digit 
Standard Industrial Classification major industry group. The 
following related major industry groups were regrouped together for 
purposes of applying the benchmarking methodology because otherwise 
the regression analysis (described below) for at least one of the 
constituent major industry groups would have had what DOC deemed to 
be an insufficient number of firms (that is, less than 30 degrees of 
freedom): agriculture (SIC Major Industry Groups 01, 02, 07); 
forestry and fishing (08, 09); mining (10, 12, 13, 14); rubber, 
misc. plastic products, and leather products (30, 31); local 
transit, interurban highway passenger transportation, and misc. 
transportation services (41, 47); pipelines and utilities (46, 49); 
retail trade other than eating and drinking places (53, 54, 55, 56, 
57,59); and finance, insurance, and real estate (60, 61, 62, 63, 64, 
65, 67). We could make no satisfactory aggregation for several major 
industry groups (21, 40, 72, 78, 79, 81, 84, 86, 88) that would 
allow analysis with a sufficient number of firms.
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A. Data

    DOC set four major criteria for choosing the data needed to 
estimate the benchmark limitations:
     The data should be as current as possible;
     The data should include information on a large number of 
firms, including SDBs;
     The data should identify firms that are ready and willing 
to supply the federal government;
     The data should permit the direct comparison of capacity 
and utilization for the same year.
    No existing data sets, such as the Survey of Minority-Owned 
Business Enterprises (conducted by the U.S. Bureau of the Census), were 
designed to meet these criteria. Consequently, DOC identified three 
sets of firms as ready and willing to supply the federal government in 
FY 1996.2 These sets are:
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    \2\ Unique ``firms'' were identified by their Taxpayer 
Identification Numbers (TIN) and the Contracting Arenas in which 
they participated in federal contracting. Firms with missing or 
defective TINs or Contracting Arena information were not included in 
the unified data set. A firm can be any for-profit company, non-
profit organization, or a state or local government establishment 
that bid for a federal contract, or a company certified in the 8(a) 
program. Finally, some firms were included more than once if they 
participated in federal contracting in more than one Contracting 
Arena.
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    1. Bidders from a sample of competitive procurements (over $25,000) 
in FY 1996. DOC implemented a survey of federal contracting officers, 
who were asked to identify the firms that bid in a random sample of 
16,616 procurements (the survey had a response rate of 76 percent). The 
sample of procurements was drawn from a sampling frame consisting of 
all new, competitive, multi-bid contracts awarded by major federal 
agencies.3 The sampling frame was extracted from the Federal 
Procurement Data System (FPDS) for prime contract actions worth more 
than $25,000.4 The sampling frame

[[Page 35717]]

was stratified by the two, three, or four-digit Standard Industrial 
Classification (SIC) codes corresponding to the major activity covered 
by each contract. For SIC 15, SIC 16 and SIC 17 (i.e., construction 
industries), the sampling frame was further stratified by the nine 
multi-state Census Divisions in which the contractor was located. Each 
sampled contract had a sample weight equal to the reciprocal of its 
probability of being sampled. All firms responding to the solicitation 
resulting in the contract in the sample were included in the resulting 
bidders' data set.
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    \3\ The agencies were all 14 cabinet agencies, plus EPA, GSA, 
NASA, and TVA, which together accounted for 98.8 percent of the 
value of all procurement contracts over $25,000 in FY 1996.
    \4\ Awards under contracts valued at $25,000 or less (and 
individual contract actions worth $25,000 or less and awarded by 
DOD) accounted for only 7.2 percent of all federal contract awards 
in FY 1996. The FPDS does not include detailed data on individual 
contracts worth $25,000 or less, making it impossible to include 
these contracts in DOC's analysis. Since the SDB share of the sub-
$25,000 awards was only 3.3 percent, while the SDB share of awards 
over $25,000 was 5.8 percent, omitting the sub-$25,000 awards (where 
usage of 8(a) contracting is negligible) does not under-estimate SDB 
utilization.
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    2. All firms that won all other types of new contracts (over 
$25,000) in FY 1996, i.e., firms identified in the FY 1996 FPDS that 
were the sole bidder on new, competitive contracts, and firms awarded 
new contracts in FY 1996 through noncompetitive 
contracting.5
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    \5\ Firms listed under GSA and VA schedules in FY 1996 and that 
did not appear elsewhere in the FY 1996 data were not included in 
DOC's analysis; total orders under these schedules accounted for 
only 1.6 percent of contract awards greater than $25,000 in FY 1996. 
DOC found that omitting these firms had no effect on its findings.
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    3. All firms certified as active and eligible for 8(a) contracts by 
the Small Business Administration in FY 1996, whether or not the firms 
won new contracts in FY 1996.
    To prevent duplication, DOC matched the three data sets by the 
firms' Taxpayer Identification Numbers and the Contracting Arenas in 
which they participated in federal contracting. Each firm that appeared 
in data sets (2) or (3) was given a sample weight of 1.0, as these 
firms were sampled with certainty. DOC recomputed the sample weights 
for each firm that appeared more than once in data set (1), but not in 
data sets (2) and (3), as the inverse of the joint probability of being 
selected, where the probability of each solicitation that resulted in a 
contract being selected was independent.6 The resulting 
``Ready and Willing Data Set'' had no firms with duplicate Taxpayer 
Identification Numbers in the same Contracting Arena.7
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    \6\ Competitive contracts were sampled without replacement for 
purposes of collecting data on bidders, so the probability of 
selecting one contract is independent of the probability of 
selecting another. However, since many firms bid for more than one 
contract, bidders were sampled with replacement.
    \7\ Some firms in the Ready and Willing Data Set did not 
consistently identify their SDB status. DOC based its decision on 
which SDB designation to accept as follows:
     All 8(a) certified firms were assumed to be SDBs;
     If a firm was not 8(a) certified, then it was 
considered SDB if it self-certified as SDB on any offer in the 
bidders' sample;
     If a firm was in neither the 8(a) certified data set 
nor in the bidders' data set, then its SDB status was assumed to be 
the most frequently appearing status that appeared for the firm in 
the FPDS.
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    DOC then matched the firms in the Ready and Willing Data Set by 
their Taxpayer Identification Numbers to data on firm age,8 
annual payroll, and for-profit status for all payroll taxpaying legal 
entities included in the Census Bureau's 1995 Standard Statistical 
Establishment List (SSEL), which consists of all establishments in the 
United States. The SSEL was also used to fill in the state where 
construction firms were located, if the Ready and Willing Data Set was 
missing that information.9
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    \8\ More precisely, each firm's age was derived from a variable 
in the SSEL that indicated the year that the TIN first appeared in 
the SSEL, the earliest effective year being 1975, when Census first 
began keeping track of when firms appeared in the data set.
    \9\ Any estimates that used SSEL data were subject to the Census 
Bureau's Title 13 disclosure rules and must be accompanied by this 
standard notice:
    ``The research described in this memorandum was conducted while 
the authors were research associates at the Center for Economic 
Studies, U.S. Bureau of the Census. Research results and conclusions 
expressed are those of the authors and do not necessarily indicate 
concurrence by the Bureau of the Census or the Center for Economic 
Studies.''
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B. Computing SDB Share of Utilization

    DOC matched firms in the Ready and Willing Data Set to the FPDS, by 
their Taxpayer Identification Numbers and Contracting Arenas to obtain 
the total net contract obligations actually awarded (``utilization'') 
to these firms in FY 1996. The resulting data set is called the 
``Utilization Data Set.'' DOC then computed the SDB share of 
utilization in a Contracting Arena by dividing the weighted sum of 
utilization of SDB firms in the Contracting Arena by the weighted sum 
of utilization of all firms the Contracting Arena (regardless of SDB 
status), where the weights were the sample weights in the Ready and 
Willing Data Set.

C. Estimating SDB Share of Capacity

    DOC defined a firm's capacity to fulfill federal contracts as the 
geometric mean value of federal contracting work a contractor of a 
given size and age handles, in a given Contracting Arena. The method 
for estimating capacity is as follows:
    1. Using the Utilization Data Set, the natural logarithm of 
utilization was regressed on the following variables for for-profit 
firms in each Contracting Arena with positive utilization:
     A constant term;
     Firm age in 1996 (measured as the natural logarithm of 
number of years since the firm first appeared in the SSEL);
     A dummy variable if the firm first appeared in the SSEL 
before 1975;
     The natural logarithm of 1995 payroll (measured in 
thousands of dollars);
     Interaction terms between the natural logarithm of payroll 
and the two age variables;
     A dummy variable if the firm certified that it met the 
Small Business Administration's definition of a small business in that 
Contracting Arena.
    2. Using the Utilization Data Set, the mean natural logarithm of 
utilization was computed separately for two groups of firms in each 
Contracting Arena:
     Firms missing one or more of the regressors listed in step 
1 above;
     Non-profit and government establishments.
    This was done so that we would not have to drop these firms from 
our analysis and possibly bias our estimates. Not-for-profit and 
government entities do not fit well into our basic regression model, 
since payroll data are probably not a true measure of resource limits 
for a government establishment and because non-profit organizations may 
behave differently from for-profit firms participating in federal 
contracting.
    3. The mean natural logarithm of utilization for firms of a given 
size and age was estimated for each of the for-profit firms with 
complete data in the Ready and Willing Data Set by computing their 
predicted utilization using the regression coefficients estimated in 
step 1 above and the corresponding characteristics of ready and willing 
firms (i.e., their payroll, age, and small business status).
    4. The mean natural logarithm of utilization for profit-making 
firms with missing data and for non-profit/government entities in the 
Ready and Willing Data Set was set equal to the corresponding means 
computed in step 2 above.
    5. The estimates of mean natural logarithm of utilization were 
exponentiated to convert them to dollar amounts; these were each firm's 
``capacity'' to fulfill federal contracts.
    6. Weighted sums of the capacity estimates were then computed for 
SDBs and for all firms in each Contracting Arena, where the weights 
were the sample weights described in section III.A. above.
    7. The benchmark limitations (i.e., SDB share of industry capacity 
held by firms ready and willing to fulfill federal contracts) in each 
Contracting Arena is equal to the ratio of the weighted sum of SDB 
capacities to the weighted sum of capacities of all firms in the 
Contracting Arena.

[[Page 35718]]

    In this way, DOC's method for estimating capacity converts the 
number of ready and willing firms that contract with the federal 
government to aggregate expected value of the amount (in dollars) of 
federal contracting that ready and willing firms potentially could 
fulfill. The method adjusts raw firm counts to reflect observable 
characteristics widely believed to be associated with the quantity of 
federal contracting work that a firm is able to manage.

IV. Estimating the Size of the Price Evaluation Adjustment

    Based on the Defense Department's experience with its price 
evaluation adjustment, DOC determined that a price evaluation 
adjustment of ten percent would not raise the SDB share of utilization 
above the SDB share of capacity held by firms ready and willing to 
fulfill federal contracts in any industry (and regions, in the case of 
the construction sector). Accordingly, DOC determined that there were 
no industries (and regions, in the case of the construction sector) 
where a price evaluation adjustment greater than 0 percent and less 
than ten percent would be appropriate.

V. Basis for DOC's Determinations

    DOC compared the benchmark limitations for each Contracting Arena 
to the SDB shares of actual utilization in each Contracting Arena. DOC 
determined that a price adjustment be used in those Contracting Arenas 
where it can be shown that SDBs have a greater share of capacity than 
the federal government is using, i.e., where the benchmark limitations 
exceed SDB shares of actual utilization.10
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    \10\ In effect, the benchmarking methodology measures gaps in 
contracting awards to SDBs that are unrelated to size and age 
differences with non-SDBs. The methodology does not attempt to 
estimate SDB share of industry capacity to fulfill federal contracts 
in the absence of all current and past discrimination. In other 
words, to the extent that differences in size, age, or number of 
firms reflect discrimination against small, disadvantaged 
businesses, this analysis does not take direct account of such 
discrimination, which may be substantial.

[FR Doc. 98-17157 Filed 6-26-98; 8:45 am]
BILLING CODE 3110-01-P