[Federal Register Volume 63, Number 151 (Thursday, August 6, 1998)]
[Rules and Regulations]
[Pages 41972-41975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21043]


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DEPARTMENT OF DEFENSE

48 CFR Parts 205, 206, 217, 219, 225, 226, 236, 252, and 253

[DFARS Case 98-D007]


Defense Federal Acquisition Regulation Supplement; Reform of 
Affirmative Action in Federal Procurement

AGENCY: Department of Defense (DoD).

ACTION: Interim rule with request for comments.

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SUMMARY: The Director of Defense Procurement has issued an interim rule 
amending the Defense Federal Acquisition Regulation Supplement (DFARS) 
guidance 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, and are 
consistent with the changes made to the Federal Acquisition Regulation 
(FAR) in Federal Acquisition Circular (FAC) 97-06. 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).

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 on the interim rule should be submitted in 
writing to the address shown below on or before October 5, 1998, to be 
considered in the formulation of the final rule.

ADDRESSES: Interested parties should submit written comments to: 
Defense Acquisition Regulations Council, Attn: Ms. Susan Schneider, 
PDUSD (A&T) DP (DAR), IMD 3D139, 3062 Defense Pentagon, Washington, DC 
20301-3062, telefax (703) 602-0350.
    E-mail comments submitted over the Internet should be addressed to: 
dfarsacq.osd.mil
    Please cite DFARS Case 98-D007 in all correspondence related to 
this issue. E-mail comments should cite DFARS Case 98-D007 in the 
subject line.

FOR FURTHER INFORMATION CONTACT: Ms. Susan Schneider, PDUSD (A&T) DP 
(DAR), (703) 602-0131, or Mr. Mike Sipple, PDUSD (A&T) DP (CPA), (703) 
695-8567. Please cite DFARS Case 98-D007.

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 for public notice and comment (61 FR 
26042, May 23, 1996). DoJ issued a notice that provided a response to 
the public comments (62 FR 25648, May 9, 1997). To implement the DoJ 
concept, two interim FAR rules were issued: FAC 97-06, effective 
October 1, 1998, implements a price evaluation adjustment for SDB 
concerns (63 FR 35719, June 30, 1998); and FAC 97-07, effective January 
1, 1999, implements an SDB participation program (63 FR 36120, July 1, 
1998). This interim rule contains the revisions necessary to conform 
the DFARS to the interim FAR rule in FAC 97-06, and to the DoJ proposal 
implemented by the FAR rule. Subsequent revisions will be issued to 
conform the DFARS to the interim FAR rule in FAC 97-07.

B. Regulatory Flexibility Act

    This interim rule is not excepted to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., because most of 
the changes merely conform the DFARS to the FAR rule in FAC 97-06. Two 
source selection considerations for SDB concerns currently in the 
DFARS, but not in the FAR, are amended by this rule to conform to the 
DoJ model: Leader company contracting (DFARS 217.401); and architect-
engineer (A-E) services (DFARS 236.602). These two changes are not 
expected to have a significant economic impact on a substantial number 
of small entities since (1) leader company contracting is infrequently 
used by DoD; and (2) the primary factor in A-E selection is the 
determination of the most highly qualified firm; the SDB consideration 
is one of several secondary source selection factors. Therefore, an 
initial regulatory flexibility analysis has not been performed. 
Comments are invited from small businesses and other interested 
parties. Comments from small entities concerning the affected DFARS 
subparts also will be considered in accordance

[[Page 41973]]

with 5 U.S.C. 610. Such comments should be submitted separately and 
should cite DFARS Case 98-D007 in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the interim rule 
does not impose any information collection requirements that require 
the approval of the Office of Management and Budget under 44 U.S.C. 
3501, et seq.

D. Determination to Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense that urgent and compelling reasons exist to publish an 
interim rule prior to affording the public an opportunity to comment. 
This interim rule amends the DFARS to conform it to the requirements of 
FAC 97-06, dated June 30, 1998, effective October 1, 1998. FAC 97-06 
contains an interim rule amending the FAR to implement a DoJ proposal 
for reform of affirmative action in Federal procurement, to ensure 
compliance with the constitutional standards established by the Supreme 
Court in Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995). 
The FAR rule requires use of a price evaluation adjustment for small 
disadvantaged business concerns in competitive acquisitions. 
Publication of an interim DFARS rule is necessary to conform the DFARS 
to the interim FAR rule effective October 1, 1998, and to the DoJ 
proposal implemented by the FAR rule. Comments received in response to 
the publication of this interim rule will be considered in formulating 
the final rule.

List of Subjects in 48 CFR Parts 205, 206, 217, 219, 225, 226, 236, 
252, and 253

    Government procurement.
Michele P. Peterson,
Executive Editor, Defense Acquisition Regulations Council.

    Therefore, 48 CFR Parts 205, 206, 217, 219, 225, 226, 236, 252, and 
253 are amended as follows:
    1. The authority citation for 48 CFR Parts 205, 206, 217, 219, 225, 
226, 236, 252, and 253 continue to read as follows:

    Authority: 41 U.S.C. 421 and 48 CFR Chapter 1.

PART 205--PUBLICIZING CONTRACT ACTIONS


205.207  [Amended]

    2. Section 205.207 is amended by removing paragraphs (d)(i) and 
(d)(ii) and by redesignating paragraphs (d)(iii) through (d)(v) as 
paragraphs (d)(i) through (d)(iii), respectively.

PART 206--COMPETITION REQUIREMENTS

    3. Section 206.203 is revised to read as follows:


206.203  Set-asides for small business concerns.

    (b) Also no separate justification or determination and findings is 
required for contract actions processed as historically black college 
and university and minority institution set-asides (see 226.7003).

PART 217--SPECIAL CONTRACTING METHODS

    4. Section 217.401 is revised to read as follows:


217.401  General.

    (1) When leader company contracting is to be considered, take 
special effort to select a small disadvantaged business (SDB) concern 
as the follower company if--
    (i) The follower company will be a subcontractor and the Standard 
Industrial Classification (SIC) Major Group of the acquisition is one 
in which use of a price evaluation adjustment is currently authorized 
(see FAR 19.201(b)).
    (2) If the follower company will be a subcontractor, or if a price 
evaluation adjustment in the SIC Major Group is authorized, and an SDB 
is not selected as the follower company, the contracting officer shall 
document the contract file to reflect--
    (i) The extent of actions taken to identify SDB concerns for 
participation in the acquisition; and
    (ii) The rationale for selection of a non-SDB as the follower 
company.

PART 219--SMALL BUSINESS PROGRAMS

    5. Section 219.001 is revised to read as follows:


219.001  Definitions.

    Small disadvantaged business concern, as used in Subpart 217.4 (if 
the follower company will be a prime contractor), Subpart 219.11, and 
Subpart 236.6 (if the small disadvantaged business concern is a prime 
contractor or a participant in a joint venture at the prime contract 
level), is defined at FAR 19.001, paragraph (b) of the definition of 
``small disadvantaged business concern.'' As used elsewhere in the 
DFARS, the term ``small disadvantaged business concern,'' for both 
prime contractors and subcontractors, is as defined at FAR 19.001, 
paragraph (b) of the definition of ``small disadvantaged business 
concern,'' except that the firm need not have received certification as 
a small disadvantaged business concern by the Small Business 
Administration or be listed on the register of small disadvantaged 
business concerns maintained by the Small Business Administration.
    6. Section 219.201 is amended by revising paragraph (a); and by 
adding, after paragraph (d)(viii), paragraph (f) to read as follows:


219.201  General policy.

    (a) The DoD will use the Section 8(a) program, small disadvantaged 
business evaluation preferences, advance payments, outreach, and 
technical assistance to meet its five percent goal for contract and 
subcontract awards to small disadvantaged businesses.
* * * * *
    (f) The Directors, Office of Small and Disadvantaged Business 
Utilization, of the military departments and defense agencies are 
responsible for determining whether use of the price evaluation 
adjustment to achieve a small disadvantaged business goal has caused 
non-SDB firms in a particular Standard Industrial Classification Major 
Group to bear an undue burden or other inappropriate effect. A copy of 
each determination shall be forwarded to the Office of Small and 
Disadvantaged Business Utilization, Office of the Under Secretary of 
Defense (Acquisition and Technology), simultaneously with submittal to 
the Office of Federal Procurement Policy.
    7. Section 219.201-5 is amended by revising the introductory text 
and paragraphs (1), (2), and (3) to read as follows:


219.202-5  Data collection and reporting requirements.

    Determine the premium percentage to be entered in Item D4E of the 
Individual Contracting Action Report (DD Form 350), (see 253.204-70), 
as follows:
    (1) For small disadvantaged business or historically black college 
and university/minority institution set-asides, divide the difference 
between the fair market price and the award price by the fair market 
price.
    (2) For price evaluation adjustment awards (see FAR Subpart 19.11), 
divide the difference between the low responsive offer and the award 
price by the low responsive offer.
    (3) For partial small business set-asides with preferential 
consideration for small disadvantaged business concerns, divide the 
difference between the award price on the non-set-aside

[[Page 41974]]

portion and the award price on the set-aside portion by the award price 
on the non-set-aside portion.
* * * * *

Subpart 219.3 [Removed]

    8. Subpart 219.3 is removed.


219.501  [Removed]

    9. Section 219.501 is removed.


219.502-2-70  [Removed]

    10. Section 219.502-2-70 is removed.
    11. Section 219.502-3 is revised to read as follows:


219.502-3  Partial set-asides.

    (c)(1) If the Standard Industrial Classification Major Group of the 
acquisition is one in which use of a price evaluation adjustment for 
small disadvantaged business concerns is currently authorized (see FAR 
19.201(b)), the adjustment shall be applied to the non-set-aside 
portion.


219.502-4, 219.504, 219.506, 219.508, and 219.508-70  [Removed]

    12. Section 219.502-4, 219.504, 219.506, 219.508, and 219.508-70 
are removed.
    13. Section 219.703 is amended by revising paragraph (a)(2)(A) to 
read as follows:


219.703  Eligibility requirements for participating in the program.

    (1) * * *
    (2)(A) To be eligible as an SDB subcontractor, a concern must meet 
the definition in 219.001.
* * * * *
    14. Section 219.705-4 is amended in paragraph (d) by revising the 
first sentence to read as follows:


219.705-4  Reviewing the subcontracting plan.

    (d) Challenge any subcontracting plan that does not contain 
positive goals and consider the extent to which an offeror plans to use 
competition restricted to historically black colleges and universities 
or minority institutions. * * *
    15. Section 219.803 is amended by revising paragraph (c) to read as 
follows:


219.803  Selecting acquisitions for the 8(a) Program.

* * * * *
    (c) Before considering a small business set-aside, review the 
acquisition for offering under the 8(a) Program.
    16. Section 219.804-1 is revised to read as follows:


219.804-1  Agency evaluation.

    (f) The 8(a) firms should be offered the opportunity to give a 
technical presentation.
    17. Section 219.1005 is amended by revising paragraph (a)(3)(A) to 
read as follows:


219.1005  Applicability.

    (a)(3)(A) Architect-engineering services in support of military 
construction projects or military family housing projects are exempt 
from the Small Business Competitiveness Demonstration Program, except 
for the emerging small business (ESB) set-aside requirements. 
Accordingly, these shall--
    (1) Be reviewed for possible award under the 8(a) Program 
regardless of dollar value.
    (2) Not be set aside for small business if the estimated value is 
$85,000 or more (including indefinite delivery-indefinite quantity 
contracts if the value of all anticipated orders exceeds $85,000).
    (3) Be considered for ESB set-aside if the estimated value is both 
less than the emerging small business reserve amount and less than 
$85,000.
    (4) Be considered for small business set-aside if the estimated 
value is less than $85,000, regardless of whether small business set-
asides for other architect-engineer services are prohibited under the 
Small Business Competitiveness Demonstration Program, when an ESB set-
aside is not appropriate.
* * * * *


219.1006  [Amended]

    18. Section 219.1006 is amended by removing paragraph (b)(1); and 
in paragraph (b)(2) by removing the phrase ``Office of the Deputy Under 
Secretary of Defense (International & Commercial Programs)'' and 
inserting in its place the phrase ``Office of the Under Secretary of 
Defense (Acquisition and Technology)''.


219.1007  [Removed]

    19. Section 219.1007 is removed.
    20. Subpart 219.11 is added to read as follows:

Subpart 219.11--Price Evaluation Adjustments for Small Disadvantaged 
Business Concerns

Sec.
219.1102  Applicability.

Subpart 219.11--Price Evaluation Adjustment for Small Disadvantaged 
Business Concerns


219.1102  Applicability.

    (b) The price evaluation adjustment also shall not be used in 
acquisitions that are for commissary or exchange resale.

Subpart 219.70  [Removed and Reserved]

    21. Subpart 219.70 is removed and reserved.

Subpart 219.72  [Removed]

    22. Subpart 219.72 is removed.

PART 225--FOREIGN ACQUISITION


225.403  [Amended]

    23. Section 225.403 is amended by removing paragraph (b).

PART 226--OTHER SOCIOECONOMIC PROGRAMS


226.7004  [Removed and Reserved]

    24. Section 226.7004 is removed and reserved.
    25. Section 226.7008 is amended by revising paragraph (b) to read 
as follows:


226.7008  Solicitation provision and contract clause.

* * * * *
    (b) Use the provision at FAR 52.226-2, Historically Black College 
or University and Minority Institution Representation, in solicitations 
set aside for HBCU/MIs and in solicitations that contain the clause at 
FAR 52.219-23, Notice of Price Evaluation Adjustment for Small 
Disadvantaged Business Concerns.


226.7103  [Amended]

    26. Section 226.7103 is amended by removing paragraph (c)(2) and by 
redesignating paragraph (c)(3) as paragraph (c)(2).

PART 236--CONSTRUCTION AND ARCHITECT-ENGINEER CONTRACTS

    27. Section 236.602-1 is amended by revising paragraph (a)(i)(6)(A) 
introductory text and paragraph (a)(i)(6)(C) to read as follows:


236.602-1  Selection criteria.

    (a)(i) * * *
    (6) * * *
    (A) Consider the volume of work awarded by DoD during the previous 
12 months. In considering equitable distribution of work among A-E 
firms, include small business concerns; historically black colleges and 
universities and minority institutions; firms that have not had prior 
DoD contracts; and small disadvantaged business concerns and joint 
ventures with small disadvantaged business participants if the Standard 
Industrial Classification Major Group of the acquisition is one in 
which use of a price evaluation adjustment is currently authorized (see 
FAR 19.201(b)).
* * * * *

[[Page 41975]]

    (C) Consider the extent to which potential contractors identify and 
commit to small business and to small advantaged business, historically 
black college and university, or minority institution performance of 
the contract as subcontractors.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


252.212-7001  [Amended]

    28. Section 252.212-7001 is amended by revising the clause date to 
read ``OCT 1998''; and in paragraph (b) by removing the entries at 
252.219-7001, 252.219-7002, and 252.219-7006.


252.219-7000, 252.219-7001, 252.219-7002, 252.219-7006, and 252.219-
7008  [Removed and Reserved]

    29. Sections 252.219-7000, 252.219-7001, 252.219-7002, 252.219-
7006, and 252.219-7008 are removed and reserved.
PART 253--FORMS
    30. Section 253.204-70 is amended--
    a. In paragraph (c)(4)(viii)(B)(8)(ii) by removing the 
parenthetical ``(see 206.203)'';
    b. In paragraphs (d)(5)(iv)(A)(4) and (d)(5)(iv)(B)(3) by removing 
the parenthetical ``(219.502-2-70)'';
    c. By revising paragraphs (d)(5)(iv)(B)(4);
    d. In paragraph (d)(5)(iv)(B)(5) by removing the parenthetical 
``(219.502-3)'';
    e. By removing paragraph (d)(5)(iv)(B)(6); and
    f. By revising paragraph (d)(5)(v)(B) introductory text and 
paragraph (e)(3)(ii). The revised text reads as follows:


Sec. 253.204-70  DD Form 350, Individual Contracting Action Report.

* * * * *
    (d) * * *
    (5) * * *
    (iv) * * *
    (B) * * *
    (4) Code D--SDB Price Evaluation Adjustment--Unrestricted. Enter 
code D if the action was unrestricted but an SDB received an award as a 
result of a price evaluation adjustment (see FAR Subpart 19.11).
* * * * *
    (v) * * *
    (B) Enter the code from the following list which corresponds to the 
ethnic group marked by the contractor in the solicitation provision at 
FAR 52.219-1, Small Business Program Representation, or FAR 52.212-
3(c).
* * * * *
    (e) * * *
    (3) * * *
    (ii) If Block E1 or E2 is completed, enter the offered price from 
the small business firm that would have been the low offeror if 
qualified nonprofit agencies employing people who are blind or severely 
disabled had not participated in the acquisition.
* * * * *
    31. Section 253.204-71 is amended in paragraph (g)(2)(ii)(B)(1) by 
removing the parenthetical ``(219.502-2-70)''; by revising paragraph 
(g)(2)(ii)(B)(2); and in paragraph (g)(2)(ii)(B)(3) by removing the 
parenthetical ``(219.502-3)''. The revised text reads as follows:


Sec. 253.204-71  DD Form 1057, Monthly Contracting Summary of Actions 
$25,000 or Less.

* * * * *
    (g) * * *
    (2) * * *
    (ii) * * *
    (B) * * *
    (2) Application of an SDB price evaluation adjustment (see FAR 
Subpart 19.11); or
* * * * *
[FR Doc. 98-21043 Filed 8-5-98; 8:45 am]
BILLING CODE 5000-04-M