[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Rules and Regulations]
[Pages 35719-35726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17197]



  Federal Register / Vol. 63, No. 125 / Tuesday, June 30, 1998 / Rules 
and Regulations  

[[Page 35719]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 12, 14, 15, 19, 33, and 52

[FAC 97-06; FAR Case 97-004A]
RIN 9000-AH59


Federal Acquisition Regulation; Reform of Affirmative Action in 
Federal Procurement

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

ACTION: Interim rule with request for comment.

-----------------------------------------------------------------------

SUMMARY: The Department of Defense, the General Services 
Administration, and the National Aeronautics and Space Administration 
have agreed to issue Federal Acquisition Circular 97-06, as an interim 
rule to make amendments to the Federal Acquisition Regulation (FAR) 
concerning programs for small disadvantaged business (SDB) concerns. 
These amendments conform to a Department of Justice (DoJ) proposal to 
reform affirmative action in Federal procurement. DoJ's proposal is 
designed to ensure compliance with the constitutional standards 
established by the Supreme Court in Adarand Constructors, Inc. v. Pena, 
115 S. Ct. 2097 (1995). This regulatory action was subject to Office of 
Management and Budget review under Executive Order 12866, dated 
September 30, 1993. This is a major rule under 5 U.S.C. 804.

DATES: Effective Date: October 1, 1998.
    Applicability Date: The policies, provisions, and clauses of this 
interim rule are effective for all solicitations issued on or after 
October 1, 1998.
    Comment Date: Comments should be submitted to the FAR Secretariat 
at the address shown below on or before August 31, 1998 to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (MVR), 1800 F Street, 
NW, Room 4035, Attn: Ms. Laurie Duarte, Washington, DC 20405.
    E-Mail comments submitted over the Internet should be addressed to: 
[email protected]
    Please cite FAC 97-06, FAR case 97-004A in all correspondence 
related to this case.

FOR FURTHER INFORMATION CONTACT:
Ms. Victoria Moss, Procurement Analyst, Federal Acquisition Policy 
Division, General Services Administration, 1800 F Street NW, Washington 
DC 20405, Telephone: (202) 501-4764
      or
Mr. Mike Sipple, Procurement Analyst, Contract Policy and 
Administration, Director, Defense Procurement, Department of Defense, 
3060 Defense Pentagon, Washington DC 20301-3060, Telephone: (703) 695-
8567.

    For general information call the FAR Secretariat at (202) 501-4755.

SUPPLEMENTARY INFORMATION:

A. Background

    In Adarand, the Supreme Court extended strict judicial scrutiny to 
Federal affirmative action programs that use racial or ethnic criteria 
as a basis for decisionmaking. In procurement, this means that any use 
of race in the decision to award a contract is subject to strict 
scrutiny. Under strict scrutiny, any Federal programs that make race a 
basis for contract decisionmaking must be narrowly tailored to serve a 
compelling Government interest.
    DoJ developed a proposed structure to reform affirmative action in 
Federal procurement designed to ensure compliance with the 
constitutional standards established by the Supreme Court in Adarand. 
The DoJ proposal was published in the Federal Register for public 
notice and invitation for comments at 61 FR 26042, May 23, 1996. The 
DoJ model is expected to be implemented in several parts: revisions to 
the FAR and the FAR supplements; Small Business Administration (SBA) 
regulations; and procurement mechanisms and applicable factors 
(percentages) determined by the Department of Commerce (DoC). The SBA 
regulations were published for public comment on August 14, 1997 (62 FR 
23584). This interim rule contains certain FAR revisions. On May 9, 
1997, proposed amendments to the FAR, based on the DoJ Model, were 
published as a proposed rule in the Federal Register (62 FR 25786). All 
public comments received in response to the proposed rule were 
considered in the formulation of this interim rule. 143 letters 
containing approximately 222 comments were received in response to the 
proposed rule. The following significant changes were made to the rule 
based on the comments received:
    1. Changes were made to conform it to the regulations issued by the 
Small Business Administration. These changes include conforming protest 
and appeal and certification procedures in the FAR to those prescribed 
by SBA.
    2. Clarifying that the annual DoC determination of procurement 
mechanisms shall only affect solicitations that are issued on or after 
the effective date of the DoC determination.
    3. Clarifying that any decisions to limit use of the mechanisms 
because of a finding of undue burden will not affect on-going 
acquisitions.
    4. Clarifying that an individual or business concern need only 
provide supporting rationale in a request for an undue burden 
determination.
    5. Clarifying that fair market price under the price evaluation 
adjustment shall be determined in accordance with the procedures in 
15.404-1(b) (referenced in 19.202-6).
    6. Removing the prohibition against use of the price evaluation 
adjustment for acquisitions under the Competitiveness Demonstration 
Program.
    7. Revising the provisions at 52.212-3 and 52.219-1, and the clause 
at 52.219-23 to facilitate their use by all agencies.
    Other changes have been made to make the rule effective at the 
earliest practicable date, taking account of the time required for SBA 
to determine eligibility of SDB firms. This rule implements the price 
evaluation adjustment for SDB concerns. It is anticipated that coverage 
pertaining to the SDB participation program will be issued 1 day 
following publication of this rule under FAR Case 97-004B.

B. Regulatory Flexibility Act

    These changes may 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 through the 
rule small business concerns may be provided benefits in Federal 
contracting. An Initial Regulatory Flexibility Analysis (IRFA) was 
prepared and submitted to the Chief Counsel for Advocacy of the Small 
Business Administration (SBA). A summary of the IRFA was published 
along with the FAR proposed rule in the Federal Register at 62 FR 
25786, May 9, 997. The economic impact associated with certification 
and associated costs, as well as other program requirements addressed 
in the SBA's changes to 13 CFR Parts 121, 124, and 134 have been 
addressed in analyses prepared by the SBA. The following information is 
provided to update the IRFA related to this FAR interim rule:

    This interim rule would establish in the FAR a procurement 
mechanism benefiting

[[Page 35720]]

small disadvantaged businesses (SDBs). The mechanism is a price 
evaluation adjustment of up to ten percent in certain Standard 
Industrial Classification (SIC) Major Groups as determined by the 
Department of Commerce. This price evaluation adjustment would be 
mandatory for those competitive procurements to which it applied. It 
would not, however, apply to several major categories of 
acquisition, including, for example, acquisitions within the 
simplified acquisition threshold, acquisitions set aside for small 
business, and acquisitions conducted pursuant to the 8(a) program.
    The main impact of the rule is expected to be on SDBs seeking to 
obtain contracts from Federal government agencies. The best 
available estimate of the number of such firms is 30,000. The basis 
for this estimate is the IRFA prepared by SBA addressing the changes 
to 13 CFR Parts 121, 124, and 134. The anticipated costs for 
certification and protest and appeal procedures are addressed in 
SBA's IRFA. The primary impact of this interim rule is expected to 
be the increase in contract awards to qualified firms and a 
corresponding decrease in contract awards to firms that are not 
qualified as SDBs.
    Within the constraints imposed by the need to implement the DoJ-
proposed reforms, the rule was crafted throughout to select 
alternatives that would minimize any adverse economic impact on 
small business.

    A copy of the IRFA may be obtained from the FAR Secretariat.

C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (Pub. L. 104-13) applies 
because the interim rule contains reporting and recordkeeping 
requirements. Requests for approval of new information collection 
requirements were submitted to the Office of Management and Budget 
under 44 U.S.C. 3501, et seq. The information collections required by 
this rule were approved under clearance 9000-0150 through June 30, 
2000. Public comments concerning this request were invited through a 
Federal Register notice published on May 9, 1997. No comments were 
received.

D. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DOD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This action 
is necessary to conform the FAR to the model program designed by the 
Department of Justice to ensure compliance with Constitutional 
standards established by the Supreme Court and, thereby, avoid 
unnecessary litigation. A proposed FAR rule on this subject was 
published for public comment at 62 FR 25786 on May 9, 1997. As a result 
of public comments received in response to the proposed rule, changes 
have been made to the rule. This interim rule would qualify for 
publication as a final rule; however, further public comments are 
requested. Pursuant to Public Law 98-577 and FAR 1.501, public comments 
received in response to this interim rule will be considered in the 
formation of the final rule.

List of Subjects in 48 CFR Parts 1, 12, 14, 15, 19, 33, and 52

    Government procurement.

    Dated: June 23, 1998.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

Federal Acquisition Circular--FAC 97-06

    Federal Acquisition Circular (FAC) 97-06 is issued under the 
authority of the Secretary of Defense, the Administrator of General 
Services, and the Administrator for the National Aeronautics and 
Space Administration.
    The policies, provisions, and clauses of this interim rule are 
effective for all solicitations issued on or after October 1, 1998.

    Dated: June 17, 1998.
R.D. Kerrins,
Col., USA, Dep Director, Defense Procurement.

    Dated: June 16, 1998.
Ida M. Ustad,
Deputy Associate Administrator, Office of Acquisition Policy, General 
Services Administrator, Office of Acquisition Policy, General Services 
Administration.

    Dated: June 17, 1998.
Deidre A. Lee,
Associate Administrator for Procurement, NASA.

    Therefore, 48 CFR Parts 1, 12, 14, 15, 19, 33, and 52 are amended 
as set forth below:
    1. The authority citation for 48 CFR Parts 1, 12, 14, 15, 19, 33, 
and 52 continues to read as follows:

    Authority: 41 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM

    2. Section 1.106 is amended in the table following the introductory 
paragraph by adding, in numerical order, the following entries:


1.106  OMB approval under the Paperwork Reduction Act.

* * * * *

------------------------------------------------------------------------
                                                           OMB  control 
                       FAR segment                              No.     
------------------------------------------------------------------------
                                                                        
              *        *        *        *        *                     
52.219-22...............................................       9000-0150
52.219-23...............................................       9000-0150
                                                                        
              *        *        *        *        *                     
------------------------------------------------------------------------

PART 12--ACQUISITION OF COMMERCIAL ITEMS

    3. Section 12.301 is amended by revising paragraph (b)(2) to read 
as follows:


12.301  Solicitation provisions and contract clauses for the 
acquisition of commercial items.

* * * * *
    (b) * * *
    (2) The provision at 52.212-3, Offeror Representations and 
Certifications-Commercial Items. This provision provides a single, 
consolidated list of certifications and representations for the 
acquisition of commercial items and is attached to the solicitation for 
offerors to complete and return with their offer. This provision may 
not be tailored except in accordance with Subpart 1.4. Use the 
provision with its Alternate I in solicitations issued by DoD, NASA, or 
the Coast Guard that are expected to exceed the threshold at 4.601(a);
* * * * *
    4. Section 12.303(b)(1) is revised to read as follows:


12.303  Contract format.

* * * * *
    (b) * * *
    (1) Block 10 if a price evaluation adjustment for small 
disadvantaged business concerns is applicable (the contracting officer 
shall indicate the percentage(s) and applicable line item(s)), or if 
set aside for emerging small businesses;
* * * * *

PART 14--SEALED BIDDING

    5. The section heading for 14.206 is revised to read as set forth 
below.


14.206  Small business set-asides and price evaluation adjustments for 
small disadvantaged business concerns.

    6. Section 14.502 is amended by redesignating paragraph (b)(4) as 
(b)(5) and adding a new (b)(4) to read as follows:


14.502  Conditions for use.

* * * * *
    (b) * * *

[[Page 35721]]

    (4) The use of the price evaluation adjustment for small 
disadvantaged business concerns (see Subpart 19.11).
* * * * *

PART 15--CONTRACTING BY NEGOTIATION

    7. Section 15.503 is amended by revising paragraph (a)(2) to read 
as follows:


15.503  Notifications to unsuccessful offerors.

    (a) * * *
    (2) Preaward notices for small business programs. In addition to 
the notice in paragraph (a)(1) of this section, when using a small 
business set-aside (see Subpart 19.5), or when a small disadvantaged 
business concern receives a benefit based on its disadvantaged status 
(see Subpart 19.11) and is the apparently successful offeror, upon 
completion of negotiations and determinations of responsibility, and 
completion of the process in 19.304(d), if necessary, but prior to 
award, the contracting officer shall notify each offeror in writing of 
the name and address of the apparently successful offeror. The notice 
shall also state that the Government will not consider subsequent 
revisions of the offeror's proposal; and no response is required unless 
a basis exists to challenge the disadvantaged status and/or small 
business size status of the apparently successful offeror. The notice 
is not required when the contracting officer determines in writing that 
the urgency of the requirement necessitates award without delay or when 
the contract is entered into under the 8(a) program (see 19.805-2).
* * * * *

PART 19--SMALL BUSINESS PROGRAMS

    8. Section 19.000 is amended by revising the introductory text of 
paragraph (a); at the end of (a)(6) by removing ``and''; at the end of 
(a)(7) by removing the period and inserting''; and''; and by adding 
paragraph (a)(8) to read as follows:


19.000  Scope of part.

    (a) This part implements the acquisition-related sections of the 
Small Business Act (15 U.S.C. 631, et seq.), applicable sections of the 
Armed Services Procurement Act (10 U.S.C. 2302, et seq.), the Federal 
Property and Administrative Services Act (41 U.S.C. 252), section 7102 
of the Federal Acquisition Streamlining Act of 1994 (Public Law 103-
355), 10 U.S.C. 2323, and Executive Order 12138, May 18, 1979. It 
covers--
* * * * *
    (8) The use of a price evaluation adjustment for small 
disadvantaged business concerns.
* * * * *
    9. Section 19.001 is amended in the definition of ``Small 
disadvantaged business concern'' by revising its introductory 
paragraph; by redesignating paragraphs (a) and (b) introductory text as 
(a)(1) and (a)(2) introductory text; (b)(1), (b)(2), and (b)(3) as 
(a)(2)(i), (a)(2)(ii), and (a)(2)(iii); and (c) and (d) as (a)(3) and 
(a)(4); and by adding paragraphs (a) introductory text and (b) to read 
as follows:


19.001  Definitions.

* * * * *
    Small disadvantaged business concern, as used in this part, means--
    (a) For subcontractors, a small business concern that is at least 
51 percent unconditionally owned by one or more individuals who are 
both socially and economically disadvantaged, or a publicly owned 
business that has at least 51 percent of its stock unconditionally 
owned by one or more socially and economically disadvantaged 
individuals and that has its management and daily business controlled 
by one or more such individuals. This term also means a small business 
concern that is at least 51 percent unconditionally owned by an 
economically disadvantaged Indian tribe or Native Hawaiian 
Organization, or a publicly owned business that has at least 51 percent 
of its stock unconditionally owned by one of these entities, that has 
its management and daily business controlled by members of an 
economically disadvantaged Indian tribe or Native Hawaiian 
Organization, and that meets the requirements of 13 CFR 124.
* * * * *
    (b) For prime contractors, (except for 52.212-3(c)(2) and 52.219-
1(b)(2) for general statistical purposes and 52.212-3(c)(7)(ii), 
52.219-22(b)(2), and 52.219-23(a) for joint ventures under the price 
evaluation adjustment for small disadvantaged business concerns) an 
offeror that represents, as part of its offer, that it is a small 
business under the size standard applicable to the acquisition; and 
either--
    (1) It has received certification from the Small Business 
Administration as a small disadvantaged business concern consistent 
with 13 CFR 124, Subpart B, and
    (i) No material change in disadvantaged ownership and control has 
occurred since its certification;
    (ii) Where the concern is owned by one or more disadvantaged 
individuals, the net worth of each individual upon whom the 
certification is based does not exceed $750,000 after taking into 
account the applicable exclusions set forth at 13 CFR 124.104(c)(2); 
and
    (iii) It is listed, on the date of its representation, on the 
register of small disadvantaged business concerns maintained by the 
Small Business Administration; or
    (2) It has submitted a completed application to the Small Business 
Administration or a Private Certifier to be certified as a small 
disadvantaged business concern in accordance with 13 CFR 124, Subpart 
B, and a decision on that application is pending, and that no material 
change in disadvantaged ownership and control has occurred since its 
application was submitted. In this case, a contractor must receive 
certification as an SDB by the SBA prior to contract award.
    10. Section 19.201 is amended by redesignating paragraphs (b), (c), 
and (d) as (c), (d), and (e), respectively; and by adding new 
paragraphs (b) and (f) to read as follows:


19.201  General policy.

* * * * *
    (b) The Department of Commerce will determine on an annual basis, 
by Major Groups as contained in the Standard Industrial Classification 
(SIC) manual, and region, if any, the authorized small disadvantaged 
business (SDB) procurement mechanisms and applicable factors 
(percentages). The Department of Commerce determination shall only 
affect solicitations that are issued on or after the effective date of 
the determination. The effective date of the Department of Commerce 
determination shall be no less than 60 days after its publication date. 
The Department of Commerce determination shall not affect ongoing 
acquisitions. The Department of Commerce determination shall include 
the applicable factors, by SIC Major Group, to be used in the price 
evaluation adjustment for SDB concerns (see 19.1104). The authorized 
procurement mechanisms shall be applied consistently with the policies 
and procedures in this subpart. The agencies shall apply the SDB 
procurement mechanisms determined by the Department of Commerce. The 
Department of Commerce, in making its determination, is not limited to 
the price evaluation adjustment for SDB concerns where the Department 
of Commerce has found substantial and persuasive evidence of--

[[Page 35722]]

    (1) A persistent and significant underutilization of minority firms 
in a particular industry, attributable to past or present 
discrimination; and
    (2) A demonstrated incapacity to alleviate the problem by using 
those mechanisms.
* * * * *
    (f)(1) Each agency shall designate, at levels it determines 
appropriate, personnel responsible for determining whether, in order to 
achieve the contracting agency's goal for SDB concerns, the use of the 
SDB mechanism in Subpart 19.11 has resulted in an undue burden on non-
SDB firms in one of the major industry groups and regions identified by 
Department of Commerce following paragraph (b) of this section, or is 
otherwise inappropriate. Determinations under this subpart are for the 
purpose of determining future acquisitions and shall not affect ongoing 
acquisitions. Requests for a determination, including supporting 
rationale, may be submitted to the agency designee. If the agency 
designee makes an affirmative determination that the SDB mechanism has 
an undue burden or is otherwise inappropriate, the determination shall 
be forwarded through agency channels to the OFPP, which shall review 
the determination in consultation with the Department of Commerce and 
the Small Business Administration. At a minimum, the following 
information should be included in any submittal:
    (i) A determination of undue burden or other inappropriate effect, 
including proposed corrective action.
    (ii) The SIC Major Group affected.
    (iii) Supporting information to justify the determination, 
including, but not limited to, dollars and percentages of contracts 
awarded by the contracting activity under the affected SIC Major Group 
for the previous two fiscal years and current fiscal year to date for--
    (A) Total awards;
    (B) Total awards to SDB concerns;
    (C) Awards to SDB concerns awarded contracts under the SDB price 
evaluation adjustment where the SDB concerns would not otherwise have 
been the successful offeror;
    (D) Number of successful and unsuccessful SDB offerors; and
    (E) Number of successful and unsuccessful non-SDB offerors.
    (iv) A discussion of the pertinent findings, including any 
peculiarities related to the industry, regions or demographics.
    (v) A discussion of other efforts the agency has undertaken to 
ensure equal opportunity for SDBs in contracting with the agency.
    (2) After consultation with OFPP, or if the agency does not receive 
a response from OFPP within 90 days after notice is provided to OFPP, 
the contracting agency may limit the use of the SDB mechanism in 
Subpart 19.11 until the Department of Commerce determines the updated 
price evaluation adjustment, as required by this section. This 
limitation shall not apply to solicitations that already have been 
synopsized.
    11. Section 19.202-6 is amended by revising the introductory 
paragraph and paragraph (a) to read as follows:


19.202-6  Determination of fair market price.

    Agencies shall determine the fair market price as follows:
    (a) For total and partial small business set-aside contracts and 
contracts utilizing the price evaluation adjustment for small 
disadvantaged business concerns, the fair market price shall be the 
price achieved in accordance with the reasonable price guidelines in 
15.404-1(b).
* * * * *

Subpart 19.3--Determination of Status as a Small Disadvantaged 
Business Concern or a Small Business Concern

    12. The heading for Subpart 19.3 is revised to read as set forth 
above.
    13. Section 19.302 is amended at the end of the introductory text 
of paragraph (d) by adding the following sentence:


19.302  Protesting a small business representation.

* * * * *
    (d) * * * SBA's regulations on timeliness related to protests of 
disadvantaged status are contained in 13 CFR 124, Subpart B.


19.304  [Redesignated as 19.306]

    14a. Section 19.304 is redesignated as 19.306.
    14b. New sections 19.304 and 19.305 are added to read as follows:


19.304  Disadvantaged business status.

    (a) To be eligible to receive a benefit as a prime contractor based 
on its disadvantaged status, a concern, at the time of its offer, must 
either be certified as a small disadvantaged business (SDB) concern or 
have a completed SDB application pending at the SBA or a Private 
Certifier (see 19.001).
    (b) The contracting officer may accept an offeror's representation 
that it is an SDB concern for general statistical purposes. The 
provision at 52.219-1, Small Business Program Representations, or 
52.212-3(c)(2), Offeror Representations and Certifications-Commercial 
Items, is used to collect SDB data for general statistical purposes.
    (c) The provision at 52.219-22, Small Disadvantaged Business 
Status, or 52.212-3(c)(7), Offeror Representations and Certifications--
Commercial Items, is used to obtain SDB status when the prime 
contractor may receive a benefit based on its disadvantaged status. The 
mechanism that may provide benefits on the basis of disadvantaged 
status as a prime contractor is a price evaluation adjustment for SDB 
concerns (see Subpart 19.11).
    (1) If the apparently successful offeror has represented that it is 
currently certified as an SDB, the contracting officer may confirm that 
the concern is listed on the SBA's register by accessing the list at 
http://www.sba.gov or by contacting the SBA's Office of Small 
Disadvantaged Business Certification and Eligibility.
    (2) If the apparently successful offeror has represented that its 
SDB application is pending at the SBA or a Private Certifier, and its 
position as the apparently successful offeror is due to the application 
of the price evaluation adjustment, the contracting officer shall 
follow the procedure in paragraph (d) of this section.
    (d) Notifications to SBA of potential awards to offerors with 
pending SDB applications. (1) The contracting officer shall notify the 
Small Business Administration Assistant Administrator for SDBCE 409 
Third Street, SW Washington, DC 20416. The notification shall contain 
the name of the apparently successful offeror, and the names of any 
other offerors that have represented that their applications for SDB 
status are pending at the SBA or a Private Certifier and that could 
receive the award due to the application of a price evaluation 
adjustment if the apparently successful offeror is determined not to be 
an SDB by the SBA.
    (2) The SBA will, within 15 calendar days after receipt of the 
notification, determine the disadvantaged status of the apparently 
successful offeror and, as appropriate, any other offerors referred by 
the contracting officer and will notify the contracting officer.
    (3) If the contracting officer does not receive an SBA 
determination within 15 calendar days after the SBA's receipt of the 
notification, the contracting officer shall presume that the apparently 
successful offeror, and any other offerors referred by the contracting 
officer, are not disadvantaged, and shall make award accordingly, 
unless the contracting officer grants an extension to the 15-day 
response period. No

[[Page 35723]]

written determination is required for the contracting officer to make 
award at any point following the expiration of the 15-day response 
period.
    (4) When the contracting officer makes a written determination that 
award must be made to protect the public interest, the contracting 
officer may proceed to contract award without notifying SBA or before 
receiving a determination of SDB status from SBA during the 15-day 
response period. In both cases, the contracting officer shall presume 
that the apparently successful offeror, or any other offeror referred 
to the SBA whose SDB application is pending, is not an SDB and shall 
make award accordingly.


19.305  Protesting a representation of disadvantaged business status.

    (a) This section applies to protests of a small business concern's 
disadvantaged status as a prime contractor. Protests of a small 
business concern's disadvantaged status as a subcontractor are 
processed under 19.703(a)(2). Protests of a concern's size as a prime 
contractor are processed under 19.302. Protests of a concern's size as 
a subcontractor are processed under 19.703(b). An offeror, the 
contracting officer, or the SBA may protest the apparently successful 
offeror's representation of disadvantaged status if the concern is 
eligible to receive a benefit based on its disadvantaged status (see 
Subpart 19.11).
    (b) An offeror, excluding an offeror determined by the contracting 
officer to be non-responsive or outside the competitive range, or an 
offeror that SBA has previously found to be ineligible for the 
requirement at issue, may protest the apparently successful offeror's 
representation of disadvantaged status by filing a protest in writing 
with the contracting officer. SBA regulations concerning protests are 
contained in 13 CFR 124, Subpart B. The protest--
    (1) Must be filed within the times specified in 19.302(d)(1); and
    (2) Must contain specific facts or allegations supporting the basis 
of protest.
    (c) The contracting officer or the SBA may protest in writing a 
concern's representation of disadvantaged status at any time following 
bid opening or notification of intended award.
    (1) If a contracting officer's protest is based on information 
provided by a party ineligible to protest directly or ineligible to 
protest under the timeliness standard, the contracting officer must be 
persuaded by the evidence presented before adopting the grounds for 
protest as his or her own.
    (2) The SBA may protest a concern's representation of disadvantaged 
status by filing directly with its Assistant Administrator for Small 
Disadvantaged Business Certification and Eligibility and notifying the 
contracting officer.
    (d) The contracting officer shall return premature protests to the 
protestor. A protest is considered to be premature if it is submitted 
before bid opening or notification of intended award. SBA normally will 
not consider a postaward protest. SBA may consider a postaward protest 
in its discretion where it determines that an SDB determination after 
award is meaningful (e.g., where the contracting officer agrees to 
terminate the contract if the protest is sustained).
    (e) Upon receipt of a protest that is not premature, the 
contracting officer shall withhold award and forward the protest to 
Small Business Administration, Assistant Administrator for SDBCE, 409 
Third Street, SW, Washington, DC 20416. The contracting officer shall 
send to SBA--
    (1) The written protest and any accompanying materials;
    (2) The date the protest was received;
    (3) A copy of the protested concern's representation as a small 
disadvantaged business, and the date of such representation; and
    (4) The date of bid opening or date on which notification of the 
apparently successful offeror was sent to unsuccessful offerors.
    (f) When the contracting officer makes a written determination that 
award must be made to protect the public interest, award may be made 
notwithstanding the protest.
    (g) The SBA Assistant Administrator for Small Disadvantaged 
Business Certification and Eligibility will notify the protestor and 
the contracting officer of the date the protest was received and 
whether it will be processed or dismissed for lack of timeliness or 
specificity. For protests that are not dismissed, the SBA will, within 
15 working days after receipt of the protest, determine the 
disadvantaged status of the challenged offeror and will notify the 
contracting officer, the challenged offeror, and the protestor. Award 
may be made on the basis of that determination. The determination is 
final for purposes of the instant acquisition, unless it is appealed 
and--
    (1) The contracting officer receives the SBA's decision on the 
appeal before award; or
    (2) The contracting officer has agreed to terminate the contract, 
as appropriate, based on the outcome of the appeal (see 13 CFR 124, 
Subpart B).
    (h) If the contracting officer does not receive an SBA 
determination within 15 working days after the SBA's receipt of the 
protest, the contracting officer shall presume that the challenged 
offeror is disadvantaged and may award the contract, unless the SBA 
requests and the contracting officer grants an extension to the 15-day 
response period.
    (i) An SBA determination may be appealed by--
    (1) The party whose protest has been denied;
    (2) The concern whose status was protested; or
    (3) The contracting officer.
    (j) The appeal must be filed with the SBA's Administrator or 
designee within five working days after receipt of the determination. 
If the contracting officer receives the SBA's decision on the appeal 
before award, the decision shall apply to the instant acquisition. If 
the decision is received after award, it will not apply to the instant 
acquisition (but see paragraph (g)(2) of this section).
    15. Newly redesignated 19.306 is amended in paragraph (a) by adding 
a sentence at the end of the paragraph; and by redesignating paragraph 
(b) as (c) and adding a new paragraph (b) to read as follows:


19.306  Solicitation provision and contract clause.

    (a) * * * The provision shall be used with its Alternate I in 
solicitations issued by DoD, NASA, or the Coast Guard that are expected 
to exceed the threshold at 4.601(a).
    (b) The contracting officer shall insert the provision at 52.219-
22, Small Disadvantaged Business Status, in solicitations that include 
the clause at 52.219-23, Notice of Price Evaluation Adjustment for 
Small Disadvantaged Business Concerns.
* * * * *
    16. Subpart 19.11, consisting of sections 19.1101 through 19.1104, 
is added to read as follows:

Subpart 19.11--Price Evaluation Adjustment for Small Disadvantaged 
Business Concerns

Sec.
19.1101  General.
19.1102  Applicability.
19.1103  Procedures.
19.1104  Solicitation provisions and contract clauses.

    Authority: 41 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

[[Page 35724]]

Subpart 19.11--Price Evaluation Adjustment for Small Disadvantaged 
Business Concerns


19.1101  General.

    A price evaluation adjustment for small disadvantaged business 
concerns shall be applied as determined by the Department of Commerce 
(see 19.201(b)). Joint ventures may qualify provided the requirements 
set forth in 13 CFR 124.1002(f) are met.


19.1102  Applicability.

    (a) The price evaluation adjustment shall be used in competitive 
acquisitions.
    (b) The price evaluation adjustment shall not be used in 
acquisitions that--
    (1) Are not greater than the simplified acquisition threshold;
    (2) Are awarded pursuant to the 8(a) program; or
    (3) Are set aside for small business concerns.


19.1103  Procedures.

    (a) Give offers from small disadvantaged business concerns a price 
evaluation adjustment by adding the factor determined by the Department 
of Commerce to all offers, except--
    (1) Offers from small disadvantaged business concerns that have not 
waived the evaluation adjustment;
    (2) Otherwise successful offers of eligible products under the 
Trade Agreements Act when the acquisition equals or exceeds the dollar 
threshold in 25.402;
    (3) Otherwise successful offers where application of the factor 
would be inconsistent with a Memorandum of Understanding or other 
international agreement with a foreign government;
    (4) For DOD, NASA, and Coast Guard acquisitions, otherwise 
successful offers from historically black colleges and universities or 
minority institutions; or
    (5) For DOD acquisitions, otherwise successful offers of qualifying 
country end products (see DFARS 225.000-70 and 252.225-7001).
    (b) Apply the factor on a line item basis or apply it to any group 
of items on which award may be made. Add other evaluation factors such 
as transportation costs or rent-free use of Government facilities to 
the offers before applying the price evaluation adjustment.
    (c) Do not evaluate offers using the price evaluation adjustment 
when it would cause award, as a result of this adjustment, to be made 
at a price that exceeds fair market price by more than the factor as 
determined by the Department of Commerce (see 19.202-6(a)).


19.1104  Solicitation provisions and contract clauses.

    The contracting officer shall insert the clause at 52.219-23, 
Notice of Price Evaluation Adjustment for Small Disadvantaged Business 
Concerns, in solicitations and contracts when the circumstances in 
19.1102 apply. The contracting officer shall insert the authorized 
price evaluation adjustment factor. The clause shall be used with its 
Alternate I when the contracting officer determines that there are no 
small disadvantaged business manufacturers that can meet the 
requirements of the solicitation.

PART 33--PROTESTS, DISPUTES, AND APPEALS

    17. Section 33.102 is amended in paragraph (a) by revising the last 
sentence to read as follows:


33.102  General.

    (a) * * * (See 19.302 for protests of small business status, and 
19.305 for protests of disadvantaged business status.)
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    18. Section 52.212-3 is amended by revising the date of the 
provision; removing the definition of ``Small disadvantaged business 
concern''; revising paragraph (c)(2); adding (c)(7); and adding 
Alternate I following ``(End of provision)'' to read as follows:


52.212-3  Offeror Representations and Certifications--Commercial Items.

* * * * *

Offeror Representations and Certifications--Commercial Items (Oct 1998)

* * * * *
    (c) * * *
    (2) Small disadvantaged business concern. The offeror 
represents, for general statistical purposes, that it {time}  is, 
{time}  is not, a small disadvantaged business concern as defined in 
13 CFR 124.1002.
* * * * *
    (7) (Complete only if the solicitation contains the clause at 
FAR 52.219-23, Notice of Price Evaluation Adjustment for Small 
Disadvantaged Business Concerns, and the offeror desires a benefit 
based on its disadvantaged status.)
    (i) General. The offeror represents that either--
    (A) It {time}  is, {time}  is not certified by the Small 
Business Administration as a small disadvantaged business concern 
and is listed, on the date of this representation, on the register 
of small disadvantaged business concerns maintained by the Small 
Business Administration, and that no material change in 
disadvantaged ownership and control has occurred since its 
certification, and, where the concern is owned by one or more 
individuals claiming disadvantaged status, the net worth of each 
individual upon whom the certification is based does not exceed 
$750,000 after taking into account the applicable exclusions set 
forth at 13 CFR 124.104(c)(2); or
    (B) It {time}  has, {time}  has not submitted a completed 
application to the Small Business Administration or a Private 
Certifier to be certified as a small disadvantaged business concern 
in accordance with 13 CFR 124, Subpart B, and a decision on that 
application is pending, and that no material change in disadvantaged 
ownership and control has occurred since its application was 
submitted.
    (ii) Joint Ventures under the Price Evaluation Adjustment for 
Small Disadvantaged Business Concerns. The offeror represents, as 
part of its offer, that it is a joint venture that complies with the 
requirements in 13 CFR 124.1002(f) and that the representation in 
paragraph (c)(7)(i) of this provision is accurate for the small 
disadvantaged business concern that is participating in the joint 
venture. [The offeror shall enter the name of the small 
disadvantaged business concern that is participating in the joint 
venture: ____________.]
* * * * *
(End of provision)

    Alternate I (Oct 1998). As prescribed in 12.301(b)(2), add the 
following paragraph (c)(8) to the basic provision:
    (8) (Complete if the offeror has represented itself as 
disadvantaged in paragraph (c)(2) or (c)(7) of this provision.) [The 
offeror shall check the category in which its ownership falls]:

    ____Black American.
    ____Hispanic American.
    ____Native American (American Indians, Eskimos, Aleuts, or 
Native Hawaiians).
    ____Asian-Pacific American (persons with origins from Burma, 
Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China, 
Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, 
U.S. Trust Territory of the Pacific Islands (Republic of Palau), 
Republic of the Marshall Islands, Federated States of Micronesia, 
the Commonwealth of the Northern Mariana Islands, Guam, Samoa, 
Macao, Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru).
    ____Subcontinent Asian (Asian-Indian) American (persons with 
origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the 
Maldives Islands, or Nepal).
    ____Individual/concern, other than one of the preceding.

    19. Section 52.212-5 is amended by revising the clause date; 
redesignating paragraphs (b)(6) through (b)(17) as (b)(7) through 
(b)(18), respectively; and adding a new paragraph (b)(6) to read as 
follows:


52.212-5  Contract Terms and Conditions Required to Implement Statutes 
or Executive Orders--Commercial Items.

* * * * *

[[Page 35725]]

Contract Terms and Conditions Required to Implement Statutes or 
Executive Orders-Commercial Items (Oct 1998)

* * * * *
    (b) * * *
    ____(6)(i) 52.219-23, Notice of Price Evaluation
    Adjustment for Small Disadvantaged Business Concerns (Pub. L. 
103-355, section 7102, and 10 U.S.C. 2323) (if the offeror elects to 
waive the adjustment, it shall so indicate in its offer).
    (ii) ____Alternate I of 52.219-23.
* * * * *
    20. Section 52.219-1 is amended by revising the introductory text 
of the provision; the provision date and paragraph (b)(2); by deleting 
the definitions of ``Joint venture'' and ``Small disadvantaged business 
concern''; and adding an Alternate I to read as follows:


52.219-1  Small Business Program Representations.

    As prescribed in 19.306(a), insert the following provision:

Small Business Program Representations (Oct 1998)

* * * * *
    (b) * * *
    (2) (Complete only if offeror represented itself as a small 
business concern in paragraph (b)(1) of this provision.) The offeror 
represents, for general statistical purposes, that it {time}  is, 
{time}  is not, a small disadvantaged business concern as defined in 
13 CFR 124.1002.
* * * * *
    Alternate I (Oct 1998). As prescribed in 19.306(a), add the 
following paragraph (b)(4) to the basic provision:
    (4) (Complete if offeror represented itself as disadvantaged in 
paragraph (b)(2) of this provision). [The offeror shall check the 
category in which its ownership falls]:
    ____Black American.
    ____Hispanic American.
    ____Native American (American Indians, Eskimos, Aleuts, or 
Native Hawaiians).
    ____Asian-Pacific American (persons with origins from Burma, 
Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China, 
Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, The Philippines, 
U.S. Trust Territory of the Pacific Islands (Republic of Palau), 
Republic of the Marshall Islands, Federated States of Micronesia, 
the Commonwealth of the Northern Mariana Islands, Guam, Samoa, 
Macao, Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru).
    ____Subcontinent Asian (Asian-Indian) American (persons with 
origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the 
Maldives Islands, or Nepal).
    ____Individual/concern, other than one of the preceding.


52.219-2  [Amended]

    21. Section 52.219-2 is amended in the introductory paragraph by 
revising ``19.304(b)'' to read ``19.306(c)''.
    22. Sections 52.219-22 and 52.219-23 are added to read as follows:


52.219-22  Small Disadvantaged Business Status.

    As prescribed in 19.306(b), insert the following provision:

Small Disadvantaged Business Status (Oct 1998)

    (a) General. This provision is used to assess an offeror's small 
disadvantaged business status for the purpose of obtaining a benefit 
on this solicitation. Status as a small business and status as a 
small disadvantaged business for general statistical purposes is 
covered by the provision at FAR 52.219-1, Small Business Program 
Representation.
    (b) Representations.
    (1) General. The offeror represents, as part of its offer, that 
it is a small business under the size standard applicable to this 
acquisition; and either--
    {time}  (i) It has received certification by the Small Business 
Administration as a small disadvantaged business concern consistent 
with 13 CFR 124, Subpart B; and
    (A) No material change in disadvantaged ownership and control 
has occurred since its certification;
    (B) Where the concern is owned by one or more disadvantaged 
individuals, the net worth of each individual upon whom the 
certification is based does not exceed $750,000 after taking into 
account the applicable exclusions set forth at 13 CFR 124.104(c)(2); 
and
    (C) It is listed, on the date of this representation, on the 
register of small disadvantaged business concerns maintained by the 
Small Business Administration; or
    {time}  (ii) It has submitted a completed application to the 
Small Business Administration or a Private Certifier to be certified 
as a small disadvantaged business concern in accordance with 13 CFR 
124, Subpart B, and a decision on that application is pending, and 
that no material change in disadvantaged ownership and control has 
occurred since its application was submitted.
    (2){time} For Joint Ventures. The offeror represents, as part of 
its offer, that it is a joint venture that complies with the 
requirements at 13 CFR 124.1002(f) and that the representation in 
paragraph (b)(1) of this provision is accurate for the small 
disadvantaged business concern that is participating in the joint 
venture. [The offeror shall enter the name of the small 
disadvantaged business concern that is participating in the joint 
venture: ____________.]
    (c) Penalties and Remedies. Anyone who misrepresents any aspects 
of the disadvantaged status of a concern for the purposes of 
securing a contract or subcontract shall:
    (1) Be punished by imposition of a fine, imprisonment, or both;
    (2) Be subject to administrative remedies, including suspension 
and debarment; and
    (3) Be ineligible for participation in programs conducted under 
the authority of the Small Business Act.

(End of provision)


52.219-23  Notice of Price Evaluation Adjustment for Small 
Disadvantaged Business Concerns.

    As prescribed in 19.1104, insert the following clause:

Notice of Price Evaluation Adjustment for Small Disadvantaged Business 
Concerns (Oct 1998)

    (a) Definitions. As used in this clause--
    Small disadvantaged business concern means an offeror that 
represents, as part of its offer, that it is a small business under 
the size standard applicable to this acquisition; and either--
    (1) It has received certification by the Small Business 
Administration as a small disadvantaged business concern consistent 
with 13 CFR 124, Subpart B; and
    (i) No material change in disadvantaged ownership and control 
has occurred since its certification;
    (ii) Where the concern is owned by one or more disadvantaged 
individuals, the net worth of each individual upon whom the 
certification is based does not exceed $750,000 after taking into 
account the applicable exclusions set forth at 13 CFR 124.104(c)(2); 
and
    (iii) It is listed, on the date of its representation, on the 
register of small disadvantaged business concerns maintained by the 
Small Business Administration;
    (2) It has submitted a completed application to the Small 
Business Administration or a Private Certifier to be certified as a 
small disadvantaged business concern in accordance with 13 CFR 124, 
Subpart B, and a decision on that application is pending, and that 
no material change in disadvantaged ownership and control has 
occurred since its application was submitted. In this case, in order 
to receive the benefit of a price evaluation adjustment, an offeror 
must receive certification as a small disadvantaged business concern 
by the Small Business Administration prior to contract award; or
    (3) Is a joint venture as defined in 13 CFR 124.1002(f).
    Historically black college or university means an institution 
determined by the Secretary of Education to meet the requirements of 
34 CFR 608.2. For the Department of Defense (DoD), the National 
Aeronautics and Space Administration (NASA), and the Coast Guard, 
the term also includes any nonprofit research institution that was 
an integral part of such a college or university before November 14, 
1986.
    Minority institution means an institution of higher education 
meeting the requirements of Section 1046(3) of the Higher Education 
Act of 1965 (20 U.S.C. 1135d-5(3)) which, for purposes of this 
clause, includes a Hispanic-serving institution of higher education 
as defined in Section 316(b)(1) of the Act (20 U.S.C. 1059c(b)(1)).
    United States means the United States, its territories and 
possessions, the Commonwealth of Puerto Rico, the U.S. Trust 
Territory of the Pacific Islands, and the District of Columbia.
    (b) Evaluation adjustment. (1) Offers will be evaluated by 
adding a factor of ____________ [percentage to be inserted by

[[Page 35726]]

the contracting officer] percent to the price of all offers, 
except--
    (i) Offers from small disadvantaged business concerns that have 
not waived the adjustment;
    (ii) For DOD, NASA, and Coast Guard acquisitions, otherwise 
successful offers from historically black colleges or universities 
or minority institutions;
    (iii) Otherwise successful offers of eligible products under the 
Trade Agreements Act when the dollar threshold for application of 
the Act is equaled or exceeded (see section 25.402 of the Federal 
Acquisition Regulation (FAR));
    (iv) Otherwise successful offers where application of the factor 
would be inconsistent with a Memorandum of Understanding or other 
international agreement with a foreign government; and
    (v) For DOD acquisitions, otherwise successful offers of 
qualifying country end products (see sections 225.000-70 and 
252.225-7001 of the Defense FAR Supplement).
    (2) The factor shall be applied on a line item basis or to any 
group of items on which award may be made. Other evaluation factors 
described in the solicitation shall be applied before application of 
the factor. The factor may not be applied if using the adjustment 
would cause the contract award to be made at a price that exceeds 
the fair market price by more than the factor in paragraph (b)(1) of 
this clause.
    (c) Waiver of evaluation adjustment. A small disadvantaged 
business concern may elect to waive the adjustment, in which case 
the factor will be added to its offer for evaluation purposes. The 
agreements in paragraph (d) of this clause do not apply to offers 
that waive the adjustment.
    ____Offeror elects to waive the adjustment.
    (d) Agreements. (1) A small disadvantaged business concern, that 
did not waive the adjustment, agrees that in performance of the 
contract, in the case of a contract for--
    (i) Services, except construction, at least 50 percent of the 
cost of personnel for contract performance will be spent for 
employees of the concern;
    (ii) Supplies (other than procurement from a nonmanufacturer of 
such supplies), at least 50 percent of the cost of manufacturing, 
excluding the cost of materials, will be performed by the concern;
    (iii) General construction, at least 15 percent of the cost of 
the contract, excluding the cost of materials, will be performed by 
employees of the concern; or
    (iv) Construction by special trade contractors, at least 25 
percent of the cost of the contract, excluding the cost of 
materials, will be performed by employees of the concern.
    (2) A small disadvantaged business concern submitting an offer 
in its own name agrees to furnish in performing this contract only 
end items manufactured or produced by small disadvantaged business 
concerns in the United States. This paragraph does not apply in 
connection with construction or service contracts.

(End of clause)
    Alternate I (Oct 1998). As prescribed in 19.1104, substitute the 
following paragraph (d)(2) for paragraph (d)(2) of the basic clause:
    (2) A small disadvantaged business concern submitting an offer 
in its own name agrees to furnish in performing this contract only 
end items manufactured or produced by small business concerns in the 
United States. This paragraph does not apply in connection with 
construction or service contracts.

[FR Doc. 98-17197 Filed 6-26-98; 8:45 am]
BILLING CODE 6820-EP-P