[Federal Register Volume 63, Number 224 (Friday, November 20, 1998)]
[Rules and Regulations]
[Pages 64427-64430]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31039]


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DEPARTMENT OF DEFENSE

48 CFR Parts 215, 217, 219, 226, 236, 252, and Appendix I to 
Chapter 2

[DFARS Case 98-D021]


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

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

[[Page 64428]]

Acquisition Circular (FAC) 97-07. 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: January 1, 1999.
    Applicability Date: The policies, provisions, and clauses of this 
interim rule are effective for all solicitations issued on or after 
January 1, 1999, and all Mentor-Protege agreements entered into on or 
after January 1, 1999.
    Comment Date: Comments on the interim rule should be submitted in 
writing to the address shown below on or before January 19, 1999, 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: 
[email protected].
    Please cite DFARS Case 98-D021 in all correspondence related to 
this issue. E-mail comments should cite DFARS Case 98-D021 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-
D021.

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 and an interim DFARS rule were issued: 
FAC 97-06, effective October 1, 1998, implements a price evaluation 
adjustment for SDB concerns (63 FR 35719, June 30, 1998); FAC 97-07, 
effective January 1, 1999, implements an SDB participation program (63 
FR 36120, July 1, 1998); and the rule published on August 6, 1998 (63 
FR 41972), effective October 1, 1998, conforms the DFARS to FAC 97-06. 
This interim rule contains the revisions necessary to conform the DFARS 
to the interim FAR rule in FAC 97-07, and to the DoJ proposal 
implemented by the FAR rule.

B. Regulatory Flexibility Act

    This interim rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because most of 
the changes merely conform the DFARS to the FAR rule in FAC 97-07. 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 with 5 U.S.C. 610. Such 
comments should be submitted separately and should cite DFARS Case 98-
D021 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 97-07, dated July 1, 1998, effective January 1, 1999. FAC 97-07 
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 contains an SDB participation program. Publication of an 
interim DFARS rule is necessary to conform the DFARS to the interim FAR 
rule effective January 1, 1999, 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 215, 217, 219, 226, 236, and 252

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

    Therefore, 48 CFR Parts 215, 217, 219, 226, 236, 252, and Appendix 
I to Chapter 2 are amended as follows:
    1. The authority citation for 48 CFR Parts 215, 217, 219, 226, 236, 
252, and Appendix I to subchapter I continue to read as follows:

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

PART 215--CONTRACTING BY NEGOTIATION

    2. Section 215.304 is revised to read as follows:


215.304  Evaluation factors and significant subfactors.

    (c)(i) In acquisitions that require use of the clause at FAR 
52.219-9, Small, Small Disadvantaged and Women-Owned Small Business 
Subcontracting Plan, other than those based on the lowest price 
technically acceptable source selection process (see FAR 15.101-2), the 
extent of participation of small businesses and historically black 
colleges or universities and minority institutions in performance of 
the contract shall be addressed in source selection. The contracting 
officer shall evaluate the extent to which offerors identify and commit 
to small business and historically black college or university and 
minority institution performance of the contract, whether as a joint 
venture, teaming arrangement, or subcontractor.
    (A) Evaluation factors may include--
    (1) The extent to which such firms are specifically identified in 
proposals;
    (2) The extent of commitment to use such firms (for example, 
enforceable

[[Page 64429]]

commitments are to be weighted more heavily than non-enforceable ones);
    (3) The complexity and variety of the work small firms are to 
perform;
    (4) The realism of the proposal;
    (5) Past performance of the offerors in complying with requirements 
of the clauses at FAR 52.219-8, Utilization of Small, Small 
Disadvantaged and Women-Owned Small Business Concerns, and 52.219-9, 
Small, Small Disadvantaged and Women-Owned Small Business 
Subcontracting Plan; and
    (6) The extent of participation of such firms in terms of the value 
of the total acquisition.
    (B) Proposals addressing the extent of small business and 
historically black college or university and minority institution 
performance may be separate from subcontracting plans submitted 
pursuant to the clause at FAR 52.219-9 and should be structured to 
allow for consideration of offers from small businesses.
    (C) When an evaluation includes the factor in paragraph 
(c)(i)(B)(1) of this section, the small businesses, historically black 
colleges or universities and minority institutions, and women-owned 
small businesses considered in the evaluation shall be listed in any 
subcontracting plan submitted pursuant to FAR 52.219-9 to facilitate 
compliance with 252.219-7003(g).
    (ii) The costs or savings related to contract administration and 
audit may be considered when the offeror's past performance or 
performance risk indicates the likelihood of significant costs or 
savings.

PART 217--SPECIAL CONTRACTING METHODS

    3. 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 an evaluation factor or subfactor for participation of 
SDB concerns is currently authorized (see FAR 19.201(b)); or
    (ii) The follower company will be a prime contractor and the 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 special effort is required by paragraph (1) of this section 
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

    4. Section 219.001 is revised to read as follows:


219.001  Definitions.

    Small disadvantaged business concern is defined:
    (1) At FAR 52.219-23(a) (i.e., a firm is considered a small 
disadvantaged business (SDB) concern by receiving certification by the 
Small Business Administration and meeting the other listed criteria), 
except as specified in paragraph (2) of this definition.
    (2) At FAR 52.219-23(a) or 52.219-1(b)(2) for the following 
purposes (i.e., a firm is considered an SDB concern by either receiving 
certification by the Small Business Administration and meeting the 
other listed criteria or self-representing its status for general 
statistical purposes):
    (i) A higher customary progress payment rate for SDB concerns (see 
232.501-1(a)(i) and 252.232-7004(c)).
    (ii) A lower threshold for inclusion of customary progress payments 
in contracts with SDB concerns (see 232.502-1).
    (iii) The prompt payment policy for SDB concerns in 232. 903 and 
232.905(2).
    (iv) Reporting contract actions with SDB concerns (``Type of 
Business'' on the DD Form 350, Individual Contracting Action Report 
(see 253.204-70(d)(5)(i)(A)) or ``Small Disadvantaged Business (SDB) 
Actions'' on the DD Form 1057, Monthly Contracting Summary of Actions 
$25,000 or Less (see 253.204-71(g)(2)).
    5. Section 219.708 is amended by revising paragraph (c)(1) and 
removing paragraph (c)(2). The revised text reads as follows:


219.708  Solicitation provisions and contract clauses.

* * * * * * *
    (c)(1) Do not use the clause at FAR 52.219-10, Incentive 
Subcontracting Program, in contracts with contractors that have 
comprehensive subcontracting plans approved under the test program 
described in 219.702(a).
    6. Subpart 219.12 is added to read as follows:

Subpart 219.12--Small Disadvantaged Business Participation Program

Sec.
219.1203  Incentive subcontracting with small disadvantaged business 
concerns.
219.1204  Solicitation provisions and contract clauses.


219.1203  Incentive subcontracting with small disadvantaged business 
concerns.

    The contracting officer shall encourage increased subcontracting 
opportunities for SDB concerns in negotiated acquisitions by providing 
monetary incentives in the SIC Major Groups for which use of an 
evaluation factor or subfactor for participation of SDB concerns is 
currently authorized (see FAR 19.201(b)). Incentives for exceeding SDB 
subcontracting targets shall be paid only if an SDB subcontracting 
target was exceeded as a result of actual subcontract awards to SDBs, 
and not a result of developmental assistance credit under the Pilot 
Mentor-Protege Program (see Subpart 219.71).


219.1204  Solicitation provisions and contract clauses.

    (c) The contracting officer shall, when contracting by negotiation, 
insert in solicitations and contracts containing the clause at FAR 
52.219-25, Small Disadvantaged Business Participation Program-
Disadvantaged Status and Reporting, a clause substantially the same as 
the clause at FAR 52.219-26, Small Disadvantaged Business Participation 
Program-Incentive Subcontracting, when authorized (see FAR 19.1203). 
The contracting officer may include an award fee provision in lieu of 
the incentive; in such cases, however, the contracting officer shall 
not use the clause at FAR 52.219-26. Do not use award fee provisions in 
contracts with contractors that have comprehensive subcontracting plans 
approved under the test program described in 219.702(a).

PART 226--OTHER SOCIOECONOMIC PROGRAMS

    7. Section 226.7007 is amended by revising paragraph (b) to read as 
follows:


226.7007  Goals and incentives for subcontracting with HBCU/MIs.

* * * * *
    (b) The contracting officer may, when contracting by negotiation, 
insert in solicitations and contracts a clause similar to the clause at 
FAR 52.219-10, Incentive Subcontracting Program, when a subcontracting 
plan is required, and inclusion of a monetary incentive is, in the 
judgment of the contracting officer, necessary to increase 
subcontracting opportunities for

[[Page 64430]]

historically black colleges or universities and minority institutions. 
The clause should include a separate goal for historically black 
colleges or universities and minority institutions.

PART 236--CONSTRUCTION AND ARCHITECT-ENGINEER CONTRACTS

    8. Section 236.602-1 is amended by revising paragraph (a)(i)(6)(C) 
to read as follows:


236.602-1   Selection criteria.

    (a) * * *
    (i) * * *
    (6) * * *
    (C) Consider the extent to which potential contractors identify and 
commit to small business, to small disadvantaged business (SDB) if the 
Standard Industrial Classification Major Group of the subcontracted 
effort is one in which use of an evaluation factor or subfactor for 
participation of SDB concerns is currently authorized (see FAR 
19.210(b)), and to historically black college or university and 
minority institution performance as subcontractors.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


252.212-7001  [Amended]

    9. Section 252.212-7001 is amended by revising the clause date to 
read ``(JAN 1999)'', and by removing the entry at 252.219-7005.


252.219-7005  [Removed and Reserved]

    10. Section 252.219-7005 is removed and reserved.

Appendix I to Chapter 2--[Amended]

    11. Appendix I to Chapter 2 is amended by revising Section I-104 to 
read as follows:

Appendix I--Policy and Procedures for the DOD Pilot Mentor-Protege 
Program

* * * * *

I-104  Eligibility requirements for a protege firm.

    (a) An entity may qualify as a protege firm if it is--
    (1) An SDB concern as defined at 219.001, paragraph (1) of the 
definition of ``small disadvantaged business concern,'' which is--
    (i) Eligible for the award of Federal contracts; and
    (ii) A small business according to the SBA size standard for the 
Standard Industrial Classification (SIC) code that represents the 
contemplated supplies or services to be provided by the protege firm 
to the mentor firm; or
    (2) A qualified organization employing the severely disabled as 
defined in Pub. L. 102-172, section 8064A.
    (b) A protege firm may self-certify to a mentor firm that it 
meets the eligibility requirements in paragraph (a) (1) or (2) of 
this section. Mentor firms may rely in good faith on a written 
representation that the entity meets the requirements of paragraph 
(a) (1) or (2) of this section, except for a protege's status as a 
small disadvantaged business concern (see FAR 19.703(b)).
    (c) A protege firm may have only one active mentor-protege 
agreement.

[FR Doc. 98-31039 Filed 11-19-98; 8:45 am]
BILLING CODE 5000-04-M