[Federal Register Volume 64, Number 8 (Wednesday, January 13, 1999)]
[Proposed Rules]
[Pages 2153-2157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-560]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 125


Government Contracting Programs

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The Small Business Administration (SBA) proposes to add 
regulatory language addressing contract bundling, due to changes set 
forth in sections 411-417 of the Small Business Reauthorization Act of 
1997 (Public Law 105-135). In addition, this rule restates SBA's 
current authority to appeal to the head of a procuring agency, 
decisions made by the agency that SBA believes to adversely affect 
small businesses. The statutory amendments recognize that the 
consolidation of contract requirements may be necessary and justified, 
in some cases, but require that each Federal agency, to the maximum 
extent practicable, take steps to avoid unnecessary and unjustified 
bundling of contract requirements that precludes small business 
participation as prime contractors as well as to eliminate obstacles to 
small business participation as prime contractors. Section 414 of 
Public Law 105-135 requires that the Federal Procurement Data System 
(FPDS) be modified to collect data regarding bundling of contracts when 
a contracting officer anticipates that the resulting contract price 
will exceed $5 million, including options. The SBA will confer with the 
Federal Procurement Data Center and analyze the data reported in the 
FPDS on all bundled contracts expected to exceed $5 million in order to 
determine the impact on small business resulting from contract bundling 
and generate a report on the extent to which individual agencies are 
engaging in the practice of contract bundling.

DATES: Submit comments on or before March 15, 1999.

ADDRESSES: Address comments concerning this proposed rule to Judith 
Roussel, Associate Administrator for Government Contracting, U.S. Small 
Business Administration, 409 Third Street, SW., Mail Code 6250, 
Washington, DC, 20416.


[[Page 2154]]


FOR FURTHER INFORMATION CONTACT: Anthony Robinson, Office of Government 
Contracting, (202) 205-6465.

SUPPLEMENTARY INFORMATION: Section 15(a) of the Small Business Act, 15 
U.S.C. 644(a), authorizes SBA to appeal to the head of a procuring 
agency certain decisions made by the agency that SBA believes to 
adversely affect small businesses, including proposed procurements that 
include ``goods or services currently being performed by a small 
business'' and which are in a ``quantity or estimated dollar value the 
magnitude of which renders small business prime contract participation 
unlikely.'' Section 413(b)(1) of Pub. L. 105-135 added an appeal right 
to section 15(a) of the Small Business Act for ``an unnecessary or 
unjustified bundling of contract requirements.'' It left intact, 
however, SBA's current appeal rights. In this regard, the Joint 
Explanatory Statement of the bundling provisions contained in Public 
Law 105-135 as set forth in the Congressional Record specifically 
provided that ``[n]othing in [the bundling amendments] is intended to 
amend or change in any way the existing obligations imposed on a 
procuring activity or the authority granted to the Small Business 
Administration under section 15(a) of the Small Business Act.'' 143 
Cong. Rec. S11522, S11526 (daily ed. Oct. 31, 1997).
    Consistent with the statutory amendments, this rule defines 
``bundling,'' identifies the circumstances under which such 
``bundling'' may be necessary and justified, and permits SBA to appeal 
bundling actions that it believes to be unnecessary and unjustified to 
the head of the procuring agency. It also authorizes two or more small 
businesses to form a contract team and for that team to be considered a 
small business for purposes of a bundled procurement requirement, 
provided that each small business partner to the teaming arrangement 
individually qualifies as a small business under the SIC code for the 
requirement. Finally, the rule restates SBA's current authority to 
appeal to the head of an agency other procurement decisions made by 
procuring activities that SBA believes will adversely affect small 
business.
    The rule reorganizes and amends 13 CFR 125.2 to more clearly 
explain SBA's current rights under section 15(a) of the Small Business 
Act. The rule sets forth a procuring activity's current 
responsibilities to submit a proposed procurement to SBA for review 
whenever the procurement includes in its statement of work, goods or 
services currently being performed by a small business and the 
magnitude of the quantity or estimated dollar value of the proposed 
procurement would render small business prime contract participation 
unlikely. It also requires a procuring activity to submit a proposed 
procurement to SBA for review where a proposed procurement for 
construction seeks to package or consolidate discrete construction 
projects. In addition it authorizes SBA to appeal disagreements over 
the suitability of a particular acquisition for a small business set-
aside first to the head of the contracting activity, and then to the 
head of the agency. This authority is currently granted to SBA by 
section 15(a) of the Small Business Act and was not affected by the 
addition of new rights regarding ``bundling.'' This rule does not apply 
to contracts to be awarded and performed entirely outside the United 
States.
    In implementing the new statutory bundling provisions, the rule 
also requires a procuring activity to submit a proposed procurement to 
SBA for review whenever the procurement includes in its statement of 
work ``bundled'' requirements, and authorizes SBA to appeal to the head 
of the contracting activity, and then to the head of the agency, 
``bundled'' requirements that SBA believes not to be necessary and 
justified. Whenever the procurement includes in its statement of work a 
``substantial bundling'' of contract requirements, Section 15(a)(3) of 
the Small Business Act requires that the procuring activity must 
document that the benefits to be derived from the bundled contract 
justify its use.
    The Small Business Act does not define ``substantial bundling.'' 
SBA seeks public comments on appropriate ways to define substantial 
bundling (e.g., in terms of a threshold contract value, or a threshold 
number of geographic locations and SIC codes).
    The rule defines what ``measurably substantial benefits'' are for 
purposes of determining whether bundling is necessary and justified. 
The rule defines ``measurably substantial benefits'' to include, in any 
combination, or in the aggregate, cost savings; quality improvements 
that will save time, improve or enhance performance or efficiency; 
reduction in acquisition cycle times; better terms and conditions; or 
any other quantifiably substantial benefits. In assessing whether cost 
savings would be achieved through bundling, the analysis must compare 
the cost that has been charged by small businesses for the work that 
they have performed and, where available, the cost that could have been 
or could be charged by small businesses for the work not previously 
performed by small business. In order to proceed with a bundled 
procurement a procuring activity must quantify the identified benefits 
and explain how their impact would be substantial.
    The statute recognizes that in some circumstances bundling should 
be permitted because of the benefits that flow to the Government 
because of it. Congress has made a determination that those benefits 
overcome any impact on small business in certain circumstances. 
However, it is also clear from the statutory language requiring 
contracting officers to demonstrate ``measurably substantial benefits'' 
and from the Joint Explanatory Statement cited above that Congress 
intends that meaningful controls should be in place that are capable of 
enforcement to preclude unnecessary and unjustified bundling. Pursuant 
to the statute, there are two requirements that must be satisfied. The 
benefits to be derived by the Government must be ``measurable'' and 
they must be ``substantial.'' In order to be ``measurable,'' the 
benefits must be quantifiable. Pursuant to the statutory language, 
however, quantifiable benefits are not sufficient to justify bundling 
unless they are also ``substantial.'' As an example, OMB Circular A-76 
sets forth a measure of substantial savings when determining whether 
the government will convert to or from in-house or contracted 
performance of certain commercial support activities. SBA is committed 
to developing objective and quantifiable criteria for determining when 
a consolidation of procurements will provide ``measurably substantial 
benefits,'' and, thus, when bundling will be necessary and justified.
    The proposed regulation identifies areas in which there may be 
``measurably substantial benefits,'' including cost savings or price 
reduction, quality improvements that will save time or improve or 
enhance performance or efficiency, reduction in acquisition cycle 
times, or better terms and conditions. The proposed rule does not 
however, set forth specific criteria for measuring whether these 
benefits or improvements, which are to be derived, are ``substantial.'' 
SBA specifically requests comments on appropriate measurements that 
PCRs may use to gauge whether or not a benefit is ``substantial.''
    The proposed regulation also reiterates the statutory requirement 
that the reduction of administrative or personnel costs alone cannot be 
a justification for bundling unless the

[[Page 2155]]

administrative or personnel costs are expected to be ``substantial'' in 
relation to the dollar value of the procurement (including options) to 
be consolidated. In determining whether the reduction of administrative 
or personnel costs are ``substantial,'' the statute clearly requires a 
comparison between the administrative or personnel costs without 
bundling to those anticipated with bundling. As with defining 
substantial benefits. SBA is committed to implementing a quantifiable 
test for determining whether administrative or personnel cost savings 
are expected to be ``substantial.'' SBA specifically requests comments 
on how best to define ``substantial'' administrative or personnel cost 
savings.
    SBA is concerned that bundled contracts will render small business 
participation as prime contractors unlikely. SBA has proposed in 
Sec. 125.2(b)(5), that its Procurement Center Representatives (PCR), in 
recommending alternative procurement methods to agencies, include, 
under appropriate circumstances, (1) breaking up the procurement into 
smaller discrete procurements to render them suitable for small 
business set-asides; (2) breaking out discrete components, where 
practicable, to be set aside for small business; or (3) when issuing 
multiple awards against a single solicitation, reserving one or more 
awards for small companies. SBA invites the public to offer suggestions 
on other creative strategies which may enhance small business 
participation as prime contractors.

Compliance With Executive Orders 12612, 12788 and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and the 
Paperwork Reduction Act (44 U.S.C. Chapter 3501 et seq.)

    SBA certifies that this rule, if adopted in final form, would not 
be a significant rule within the meaning of Executive Order 12866. The 
rule does not impose costs upon the businesses which may be affected by 
it. It is not likely to have an annual economic impact of $100 million 
or more, result in a major increase in costs or prices, or have a 
significant adverse effect on competition or the United States economy.
    SBA has determined that this rule may have a significant beneficial 
economic impact on a substantial number of small entities with the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. SS 601-612. The 
proposed rule can potentially apply to all small businesses that are 
performing or may want to perform on the prime contract opportunities 
of the Federal Government. In Fiscal Year 1996, all categories of small 
businesses were responsible for 314,965, or 68 percent, of the total 
number of contract actions in excess of $25,000. While there is no 
precise estimate of the number of small entities or the extent of the 
economic impact, SBA believes that a significant number of small 
businesses would be affected. SBA has submitted a complete Initial 
Regulatory Flexibility Analysis of this proposed rule to the Chief 
Counsel for Advocacy of the Small Business Administration. For a copy 
of this analysis, please contact Anthony Robinson at (202) 205-6465.
    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA certifies that this rule would not impose new reporting or record 
keeping requirements, other than those required on the Government by 
law.
    For purposes of Executive Order 12612, SBA certifies that this rule 
does not have any federalism implications warranting the preparation of 
a Federalism Assessment.
    For purposes of executive Order 12778, the SBA certifies that this 
rule is drafted, to the extent practicable, in accordance with the 
standards set forth in section 2 of this order.

List of Subjects

13 CFR Part 121

    Government procurement, Government property, Grant programs-
business, Individuals with disabilities, Loan programs-business, Small 
businesses.

13 CFR Part 125

    Government contracts, Government procurement, Reporting and 
recordkeeping requirements, Small businesses, Technical assistance.

    For the reasons set forth above, SBA proposes to amend Title 13, 
Code of Federal Regulations (CFR), as follows:

PART 121--[AMENDED]

    1. The authority citation for 13 CFR part 121 continues to read as 
follows:

    Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c), and 
662(5); and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.

    2. Section 121.103 is amended by revising paragraph (f)(3)(i) to 
read as follows:


Sec. 121.103  What is affiliation?

* * * * *
    (f) Affiliation based on joint venture arrangements. * * *
    (3) Exclusion from affiliation. (i) A joint venture or teaming 
arrangement of two or more business concerns may submit an offer as a 
small business for a Federal procurement without regard to affiliation 
under paragraph (f) of this section so long as each concern is small 
under the size standard corresponding to the SIC code assigned to the 
contract, provided:
    (A) The procurement qualifies as a ``bundled'' requirement, at any 
dollar value, within the meaning of Sec. 125.2(d)(1)(i) of this 
chapter; or
    (B) The procurement is other than a ``bundled'' requirement within 
the meaning of Sec. 125.2(d)(1)(i) of this chapter, and:
    (1) For a procurement having a revenue-based size standard, the 
dollar value of the procurement, including options, exceeds half the 
size standard corresponding to the SIC code assigned to the contract; 
or
    (2) For a procurement having an employee-based size standard, the 
dollar value of the procurement, including options, exceeds $10 
million.
* * * * *

PART 125--[AMENDED]

    3. The authority citation for 13 CFR part 125 continues to read as 
follows:

    Authority: 15 U.S.C. 634(b)(6), 637 and 644; 31 U.S.C. 9701, 
9702.

    4. Section 125.2 is amended by redesignating paragraphs (a) and (b) 
as paragraphs (b) and (c), respectively, by revising newly designated 
paragraph (b), and by adding new paragraphs (a) and (d) to read as 
follows:


Sec. 125.2  Prime contracting assistance.

    (a) General. Small business concerns must receive any award or 
contract, or any contract for the sale of Government property, that SBA 
and the procuring or disposal agency determine to be in the interest 
of:
    (1) Maintaining or mobilizing the Nation's full productive 
capacity;
    (2) War or national defense programs;
    (3) Assuring that a fair proportion of the total purchases and 
contracts for property, services and construction for the Government in 
each industry category are placed with small business concerns; or
    (4) Assuring that a fair proportion of the total sales of 
Government property be made to small business concerns.
    (b) PCR and procuring activity responsibilities. (1) SBA 
Procurement Center Representatives (PCRs) are generally located at 
Federal agencies and buying activities which have major contracting 
programs. PCRs review all acquisitions not set aside for small 
businesses to determine whether a set-aside is appropriate.
    (2) A procuring activity must provide a copy of a proposed 
acquisition

[[Page 2156]]

strategy (e.g., Department of Defense Form 2579, or equivalent) to the 
applicable PCR (or to the SBA Office of Government Contracting Area 
Office serving the area in which the buying activity is located if a 
PCR is not assigned to the procuring activity) at least 30 days prior 
to a solicitation's issuance whenever a proposed acquisition strategy:
    (i) Includes in its description goods or services currently being 
performed by a small business and the magnitude of the quantity or 
estimated dollar value of the proposed procurement would render small 
business prime contract participation unlikely;
    (ii) Seeks to package or consolidate discrete construction 
projects; or
    (iii) Meets the definition of a bundled requirement as defined in 
paragraph (d)(1)(i) of this section.
    (3) Whenever any of the circumstances identified in paragraph 
(b)(2) of this section exist, the procuring activity must also submit 
to the applicable PCR (or to the SBA Office of Government Contracting 
Area Office serving the area in which the buying activity is located if 
a PCR is not assigned to the procuring activity) a written statement 
explaining why:
    (i) If the proposed acquisition strategy involves a bundled 
requirement, the procuring activity believes that the bundled 
requirement is necessary and justified under the analysis required by 
paragraph (d)(3)(iii) of this section; or
    (ii) If the description of the requirement includes goods or 
services currently being performed by a small business and the 
magnitude of the quantity or estimated dollar value of the proposed 
procurement would render small business prime contract participation 
unlikely, or if a proposed procurement for construction seeks to 
package or consolidate discrete construction projects,
    (A) The proposed acquisition cannot be divided into reasonably 
small lots to permit offers on quantities less than the total 
requirement;
    (B) Delivery schedules cannot be established on a basis that will 
encourage small business participation;
    (C) The proposed acquisition cannot be offered so as to make small 
business participation likely; or
    (D) Construction cannot be procured as separate discrete projects.
    (4) In conjunction with their duties to promote the set-aside of 
procurements for small business, PCRs will identify small businesses 
that are capable of performing particular requirements, including teams 
of small business concerns for larger or bundled requirements (see 
Sec. 121.103(f)(3) of this chapter).
    (5)(i) If a PCR believes that a proposed procurement will render 
small business prime contract participation unlikely, or if a PCR does 
not believe a bundled requirement to be necessary and justified, the 
PCR may recommend to the procurement activity alternative procurement 
methods which would increase small business prime contract 
participation. Such alternatives may include:
    (A) Breaking up the procurement into smaller discrete procurements;
    (B) Breaking out one or more discrete components, for which a small 
business set-aside may be appropriate; and
    (C) When issuing multiple awards under task order contracts, 
reserving one or more awards for small companies.
    (ii) Where bundling is necessary and justified, the PCR will work 
with the procuring activity to tailor a strategy that preserves small 
business prime contract participation to the maximum extent 
practicable.
    (6) In cases where there is disagreement between a PCR and the 
contracting officer over the suitability of a particular acquisition 
for a small business set-aside, whether or not the acquisition is a 
bundled or substantially bundled requirement within the meaning of 
paragraph (d) of this section, the PCR may initiate an appeal to the 
head of the contracting activity. If the head of the contracting 
activity agrees with the contracting officer, SBA may appeal the matter 
to the secretary of the department or head of the agency. The time 
limits for such appeals are set forth in 19.505 of the Federal 
Acquisition Regulation (FAR) (48 CFR 19.505).
    (7) PCRs will work with a procuring activity's Small and 
Disadvantaged Business Utilization Specialist (SADBUS) to identify 
proposed solicitations that involve bundling, and with the agency 
acquisition officials to revise the acquisition strategies for such 
proposed solicitations, where appropriate, to increase the probability 
of participation by small businesses, including small business contract 
teams, as prime contractors. If small business participation as prime 
contractors appears unlikely, the SADBUS and PCR will facilitate small 
business participation as subcontractors or suppliers.
* * * * *
    (d) Contract bundling--(1) Definitions--(i) Bundled requirement or 
bundling. The term ``bundled requirement or bundling'' refers to the 
consolidation of two or more procurement requirements for goods or 
services previously provided or performed under separate smaller 
contracts into a solicitation of offers for a single contract that is 
likely to be unsuitable for award to a small business concern due to--
    (A) The diversity, size, or specialized nature of the elements of 
the performance specified;
    (B) The aggregate dollar value of the anticipated award;
    (C) The geographical dispersion of the contract performance sites; 
or
    (D) Any combination of the factors described in paragraphs 
(d)(1)(i) (A), (B), and (C).
    (ii) Separate smaller contract: A separate smaller contract is a 
contract that has previously been performed by one or more small 
business concerns or was suitable for award to one or more small 
business concerns.
    (2) Requirement to foster small business participation: The Small 
Business Act requires each Federal agency to foster the participation 
of small business concerns as prime contractors, subcontractors, and 
suppliers in the contracting opportunities of the Government. To comply 
with this requirement, agency acquisition planners must:
    (i) Structure procurement requirements to facilitate competition by 
and among small business concerns, including small disadvantaged, 8(a) 
and women-owned business concerns; and
    (ii) Avoid unnecessary and unjustified bundling of contract 
requirements that inhibits or precludes small business participation in 
procurements as prime contractors.
    (3) Requirement for market research. (i) In addition to the 
requirements of paragraph (b)(2) of this section and before proceeding 
with an acquisition strategy that could lead to a contract containing 
bundled or substantially bundled requirements, an agency must conduct 
market research to determine whether bundling of the requirements is 
necessary and justified. During the market research phase, the 
acquisition team should consult with the applicable PCR (or if a PCR is 
not assigned to the procuring activity, the SBA Office of Government 
Contracting Area Office serving the area in which the buying activity 
is located).
    (ii) The procuring activity must notify each small business which 
is performing a contract that it intends to consolidate that 
requirement with one or more other requirements at least 30 days prior 
to the issuance of the solicitation for the bundled or substantially 
bundled requirement. The procuring activity, at that time, should

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also provide to the small business the name, phone number and address 
of the applicable SBA PCR (or if a PCR is not assigned to the procuring 
activity, the SBA Office of Government Contracting Area Office serving 
the area in which the buying activity is located).
    (iii) When the procuring activity intends to proceed with an 
acquisition involving bundled or substantially bundled procurement 
requirements, it must document the acquisition strategy to include a 
determination that the bundling is necessary and justified, when 
compared to the benefits that could be derived from meeting the 
agency's requirements through separate smaller contracts.
    (A) The procuring activity may determine a consolidated requirement 
to be necessary and justified if, as compared to the benefits that it 
would derive from contracting to meet those requirements if not 
consolidated, it would derive measurably substantial benefits. The 
procuring activity must quantify the identified benefits and explain 
how their impact would be substantial. Measurably substantial benefits 
include any one, or more, of the following in any combination, or in 
the aggregate:
    (1) Cost savings and/or price reduction;
    (2) Quality improvements that will save time or improve or enhance 
performance or efficiency;
    (3) Reduction in acquisition cycle times;
    (4) Better terms and conditions; or
    (5) Any other quantifiably substantial benefits.
    (B) The reduction of administrative or personnel costs alone shall 
not be a justification for bundling of contract requirements unless the 
administrative or personnel cost savings are expected to be 
substantial, in relation to the dollar value of the procurement to be 
consolidated (including options).
    (C) In assessing whether cost savings and/or a price reduction 
would be achieved through bundling, the procuring activity and SBA must 
compare the price that has been charged by small businesses for the 
work that they have performed and, where available, the price that 
could have been or could be charged by small businesses for the work 
not previously performed by small business.
    (4) Substantial bundling. Where a proposed procurement strategy 
involves a substantial bundling of contract requirements, the procuring 
agency must, in the documentation of that strategy, include a 
determination that the anticipated benefits of the proposed bundled 
contract justify its use, and must include, at a minimum:
    (i) The analysis for bundled requirements set forth in paragraph 
(d)(3)(iii) of this section;
    (ii) An assessment of the specific impediments to participation by 
small business concerns as prime contractors that will result from the 
substantial bundling;
    (iii) Actions designed to maximize small business participation as 
prime contractors, including provisions that encourage small business 
teaming for the substantially bundled requirement; and
    (iv) Actions designed to maximize small business participation as 
subcontractors (including suppliers) at any tier under the contract or 
contracts that may be awarded to meet the requirements.
    (5) Significant subcontracting opportunity. (i) Where a bundled or 
substantially bundled requirement offers a significant opportunity for 
subcontracting, the procuring agency must designate the following 
factors as significant factors in evaluating offers:
    (A) A factor that is based on the rate of participation provided 
under the subcontracting plan for small business in the performance of 
the contract; and
    (B) For the evaluation of past performance of an offeror, a factor 
that is based on the extent to which the offeror attained applicable 
goals for small business participation in the performance of contracts.
    (ii) Where the offeror for such a bundled contract qualifies as a 
small business concern, the procuring agency must give to the offeror 
the highest score possible for the evaluation factors identified in 
paragraph (d)(5)(i) of this section.
    5. Section 125.6 is amended by adding the following new paragraph 
(g) at the end thereof:


Sec. 125.6  Prime contractor performance requirements (limitations on 
subcontracting).

* * * * *
    (g) Where an offeror is exempt from affiliation under 
Sec. 121.103(f)(3) of this chapter and qualifies as a small business 
concern, the performance of work requirements set forth in this section 
apply to the cooperative effort of the team or joint venture, not its 
individual members.

    Dated: December 22, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 99-560 Filed 1-12-99; 8:45 am]
BILLING CODE 8025-01-P