[Federal Register Volume 64, Number 63 (Friday, April 2, 1999)]
[Notices]
[Pages 16001-16003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8122]


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OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy


Policy Letter 99-X on Promoting Subcontracting Opportunities and 
Administering Subcontracting Plans

AGENCY: Executive Office of the President, Office of Management and 
Budget (OMB), Office of Federal Procurement Policy (OFPP).

ACTION: OFPP is requesting comments on a policy letter supplementing 
the Federal Acquisition Regulation (FAR) to further promote 
subcontracting opportunities for small, small disadvantaged, and women-
owned small business concerns.

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SUMMARY: This policy letter supersedes and cancels OFPP Policy Letters 
80-1, 80-2, and 80-4. It supplements FAR coverage of subcontracting 
opportunities for small, small disadvantaged, and women-owned small 
business concerns. The current trend toward contract consolidation may 
impact these small business concerns' ability to compete as prime 
contractors. We are issuing this policy letter to enhance 
subcontracting opportunities for such concerns.

COMMENT DATE: Comments must be received on or before June 1, 1999.

ADDRESSES: Please submit comments to Deidre A. Lee, Administrator, 
Office of Federal Procurement Policy, Old Executive Office Building, 
Room 352, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Linda Williams at 202-395-3302.
Deidre A. Lee,
Administrator.

Policy Letter 99-X to the Heads of Executive Departments and 
Establishments

Subject: Policy on Promoting Subcontracting Opportunities and 
Administering Subcontracting Plans
    1. Purpose. This directive supplements Federal Acquisition 
Regulation (FAR) coverage of subcontracting plans required by 
section 8(d) of the Small Business Act (15 U.S.C. 637(d)) as amended 
by the Federal Acquisition Streamlining Act of 1994 (FASA).
    2. Supersession Information. This Policy Letter supersedes and 
cancels OFPP Policy Letter 80-1, ``P.L. 95-507, Section 211, 
Subcontracting: Agency Coordination with the Small Business 
Administration Resident Procurement Center Representatives,'' dated 
January 24, 1980; OFPP Policy Letter 80-2, ``Regulatory Guidance on 
Section 211 of Public Law 95-507,'' dated April 29, 1980; Supplement 
No. 1 to Policy Letter 80-2, dated May 29, 1981; and OFPP Policy 
Letter 80-4, ``Women's Business Enterprise Program,'' dated April 
29, 1980.
    3. Authority. This Policy Letter is issued pursuant to section 6 
of the Office of Federal Procurement Policy Act, as amended, 41 
U.S.C. 405.
    4. Definitions.
    a. The definitions of commercial plan, failure to make a good 
faith effort to comply with the subcontracting plan, individual 
contract plan, master plan, small business concern, small business 
subcontractor, small disadvantaged business concern, and women-owned 
small business concern have the same meaning as that provided by FAR 
Part 19.
    b. The term commercial item has the same meaning as that 
provided by FAR section 2.101.
    c. The term subcontract has the same meaning as that provided by 
FAR section 19.701. However, purchases from a corporation, company 
or division of a prime contractor that are affiliates as defined in 
13 C.F.R. 121.103 are not considered ``subcontracts.''
    5. Policy. This document establishes policies for promoting 
subcontracting opportunities and administering subcontracting plans 
for small business, small disadvantaged business, and women-owned 
small business concerns. Nothing in this Policy Letter precludes an 
agency from establishing additional requirements regarding 
subcontracting plans.
    6. Solicitation and Subcontracting Plan Requirements.
    a. Determining the Need for a Subcontracting Plan. In addition 
to the requirements contained at FAR section 19.705-2, the 
solicitation shall inform prospective offerors that the estimated 
value of indefinite delivery contracts/task order and delivery order 
contracts will be used to determine if a subcontracting plan is 
required.
    b. Reviewing the Subcontracting Plan. In addition to the 
procedures contained at FAR section 19.705-4, contracting officers 
shall take the following actions:
    (1) Require an offeror that proposes lower goals than the target 
goals stated in the solicitation to explain why it cannot achieve 
the stated goals.
    (2) Advise offerors of the availability of the following sources 
of information on potential small, small disadvantaged, and women-
owned small business concern subcontractors:
    (a) The U.S. Small Business Administration (SBA) Procurement 
Marketing and Access Network (PRONet) ( http://pro-net.sba.gov/), a 
free on-line internet-based search engine that provides access to 
the profiles of more than 170,000 small businesses.
    (b) The Department of Commerce, Minority Business Development 
Agency's (MBDA) Phoenix Data Base or the Opportunity Data Base at 
www.mbda.gov.

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    (c) State, county, and city government minority business 
offices.
    (d) Small, minority, and women business associations.
    (e) Local chambers of commerce.
    (f) DOD's Centralized Contractor Registration Data Base.
    (3) Encourage offerors to synopsize in the Commerce Business 
Daily (CBD) or advertise in trade newspapers, journals, or other 
communication media.
    (4) Require offerors to identify other contracts that had 
subcontracting plans. Contact the contracting officers who 
administered those earlier plans to determine whether the objectives 
were realized and required reports were submitted on time. Overall 
compliance should be considered, not merely whether the goals were 
met.
    (5) Ensure that subcontracting master plans meet the following 
conditions:
    (a) The SBA procurement center representative has been given an 
opportunity to comment on the master plan and,
    (b) The subcontract goals for small, small disadvantaged, and 
women-owned small business concerns are specifically set forth in 
each contract or modification.
    (6) Follow the requirements of FAR clause 52.219.9 entitled 
``Small, Small Disadvantaged and Women-Owned Small Business 
Subcontracting Plan'' if the award is expected to exceed $500,000 
($1 million for construction of a public facility), unless the 
acquisition is reserved for small business concerns, no 
subcontracting opportunities exist, the contract will be performed 
entirely outside of any state, territory, or possession of the 
United States, the District of Columbia, and the Commonwealth of 
Puerto Rico, or the contract is with Federal Prison Industries or 
the blind or severely disabled and is awarded under the provisions 
of the Javits-Wagner-O'Day Act. The clause shall apply to all other 
entities including large businesses; state and local governments; 
non-profit organizations; public utilities; educational 
institutions, including Historically Black Colleges and Universities 
(HBCUs), Minority Institutions (MIs), and foreign-owned firms that 
receive federal contracts if the portion of the contract to be 
performed in the United States exceeds the above thresholds. 
However, subcontracting plans are not required from HBCUs and MIs 
that receive contract awards above the thresholds from the 
Department of Defense (DOD), the Coast Guard, and the National 
Aeronautics and Space Administration (NASA).
    (7) Ensure that small disadvantaged and women-owned small 
business concern dollars are included in the small business 
category. This means, for example, that a small disadvantaged 
business concern owned by a woman is counted as a small business 
concern, a small disadvantaged business concern, and a women-owned 
small business concern.
    (8) Ensure that the actual achievements on the SF 294, 
Subcontracting Report for Individual Contracts, are reported on the 
same basis as the goals set forth in the contract.
    (9) When subcontractors are required to adopt subcontracting 
plans (see FAR section 19.704(a)(9)), require offerors to review, 
approve, and monitor their subcontractors' compliance with such 
plans. Copies of subcontractors' plans must be retained by the prime 
contractor until subcontract completion. A ``certificate of 
compliance'' or statement from the subcontractor that it has a 
subcontracting plan does not satisfy this requirement.
    c. Award of Contracts or Contract Modifications.
    (1) The Small Business Act treats contracts and modifications 
separately. The following policies apply to contract modifications 
other than options. If a subcontracting plan is not required at the 
time of award because the contract value is below the threshold, a 
subcontracting plan will not be required even if a subsequent 
modification increases the contract value to an amount exceeding the 
threshold. The only exception to this rule is when the contract 
modification itself exceeds the threshold. Moreover, it is not 
necessary to obtain another subcontracting plan for a modification 
exceeding the applicable threshold if the contract already includes 
a subcontracting plan. However, the original plan must be modified 
to adjust the goals to account for the new effort.
    (2) The following policies apply to contractors and 
subcontractors that no longer meet the size or ownership criteria 
for a small, small disadvantaged, or women-owned small business 
concern as a result of growth, a buy-out, or a merger during the 
period of contract performance:
    (a) A subcontracting plan is not required of any former small 
business prime contractor that, during contract performance, no 
longer meets the definition of a small business concern. Similarly, 
the requirement to submit periodic reports does not apply. However, 
a subcontracting plan is required if a prime contractor erroneously 
considered itself small at the time of contract award. Under this 
circumstance, the contracting officer should request a 
subcontracting plan from the contractor and the responsibility to 
submit periodic reports applies.
    (b) A prime contractor may continue to report subcontract 
dollars as a small, small disadvantaged, or women-owned small 
business concern award for the duration of the subcontract, 
including all option years.
    d. Contract Awards Involving Commercial Plans.
    (1) Commercial plans, as described in FAR section 19.704(d), are 
useful for companies that normally rely on their existing network of 
suppliers for all of their business and do not enter into specific 
subcontracts to fill Government contracts. Commercial plans may 
apply to the production of the offeror's entire company, or may be 
limited to a corporation, company, division, plant or product line.
    (2) Commercial plans are recognized as one way to reduce the 
burden of government-unique requirements for companies that provide 
commercial items under Government contracts and subcontracts.
    (3) Agencies shall inform prospective offerors in solicitations 
expected to trigger the requirements for a subcontracting plan of 
the opportunity for them and/or their subcontractors to develop 
commercial plans if they are supplying commercial items.
    (4) Offerors shall state if there is a pre-approved plan and for 
which item(s) and/or service(s) the plan has been approved.
    (5) The contracting officer shall obtain a copy of the plan and 
approval document from a contractor who has a commercial plan 
previously approved by another agency's contracting activity or 
another federal agency.
    e. Contract Administration of Subcontracting Plans. In addition 
to the requirements at FAR section 19.706, administrative 
contracting officers shall:
    (1) Monitor a contractor's compliance with the SF 294 report 
requirements. The SF 294 is used to evaluate the contractor's 
progress toward meeting the subcontracting goals established in an 
individual contract plan. The contracting officer shall pay 
particular attention to reviewing the SF 294 required at contract 
completion. The SF 294 is not required for contracts with an 
approved commercial plan.
    (2) Ensure receipt of and review the SF 295 (Summary 
Subcontracting Report). The SF 295 is used to evaluate the 
contractor's progress toward meeting the subcontracting goals in 
commercial plans. The SF 295 also is used for both commercial plans 
and individual plans to summarize all subcontract awards under 
contracts with a particular federal agency.
    7. Best Practices. For purposes of this Policy Letter, best 
practices are practical techniques gained from experience that 
agencies may use to improve subcontracting plans. The best practices 
are not mandatory and should not form the basis for Inspector 
General or other audit reviews.
    a. Subcontract Plan Evaluation.
    (1) DOD, Coast Guard, and NASA regulations require that the 
subcontracting plan be a factor in evaluating bids or competitive 
proposals (10 U.S.C. 2323(h)(2)) under solicitations that require a 
plan. Other agencies may use this approach as appropriate. For 
example, the offeror's subcontracting plan may be a separate factor/
subfactor in complex, large dollar negotiated acquisitions, or 
consolidated procurements, where substantial subcontracting 
opportunities exist. As a separate evaluation factor/subfactor 
(apart from the offeror's technical, management, and cost proposal), 
the subcontracting plan should account for a meaningful percentage 
or weight of the total evaluation. In cases where small businesses 
are bidding against large contractors and small businesses are not 
required to have a plan, contracting officers shall give small 
businesses a rating equal to the maximum points available for those 
evaluation factors/subfactors.
    (2) Agencies should define the parameters by which a 
subcontracting plan will be evaluated. The parameters may include 
the following:
    (a) The extent to which the plan expresses definitive 
commitments to subcontracting with small, small disadvantaged, and 
women-owned small business concerns. Greater credit may be given to 
an offeror who identifies the names of the intended small, small 
disadvantaged, and women-owned small business concerns with the 
initial submission of its plan, and/or provides

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``letters of commitment'' to subcontract with such firms.
    (b) The extent to which the plan provides a significant share of 
subcontracting dollars to small, small disadvantaged, and women-
owned small business concerns.
    (c) The quality of the offeror's overall plan, including its 
goals and methods for achieving those goals.
    (d) For individual contract plans, the offeror's procedures for 
reviewing, approving, and monitoring its subcontractors' compliance 
with subcontracting plans.
    (e) The extent to which the offeror utilizes small business 
incumbents with proven performance records as subcontractors under 
consolidated contracts for services. Utilizing incumbents allows the 
government to retain institutional knowledge, and small businesses 
to continue providing quality services at advantageous prices.
    (f) For mission-specific contracts such as high technology and 
research, the extent to which the offeror plans to award 
subcontracts for other than routine support services.
    (g) The extent to which prime contractors have excelled in 
achieving subcontracting goals or participated in a Mentor Protege 
Program.
    b. Use of Past Performance in Source Selection.
    (1) The contracting officer may obtain information from the 
cognizant contract administration office concerning an offeror's 
past performance with respect to subcontracting with small, small 
disadvantaged, and women-owned small business concerns. In addition, 
the contracting officer may seek the advice of the agency's small 
business representative and/or check with the SBA Area Director for 
Government Contracting or the Defense Contract Management Command to 
determine the offeror's current subcontracting performance rating.
    (2) In evaluating past performance, the contracting officer may 
consider the following:
    (a) The extent to which goals were achieved on contracts 
completed during the current fiscal year and the two previous fiscal 
years, with greater weight assigned to those contracts completed 
most recently.
    (b) The extent to which the offeror's subcontracting efforts 
were consistent with its subcontracting plan or the extent to which 
the offeror made a good faith effort to comply with its plan.
    (c) The extent to which the offeror required its large business 
subcontractors to adopt similar plans under the contract flow-down 
requirement.
    (d) The extent to which an offeror complied with the timely and 
accurate submission of the required SF 294 and SF 295.
    (e) The extent to which the offeror participates in a Mentor 
Protege Program.
    c. Awards and Incentives.
    (1) Contracting activities, in conjunction with Heads of Offices 
of Small and Disadvantaged Business Utilization, may establish an 
awards program for contracting officials and prime contractors who 
do an outstanding job of promoting small, small disadvantaged, and 
women-owned small business concerns as subcontractors. Recognition 
may be in the form of plaques, certificates, monetary awards, etc. 
The awards program may, among other things, recognize:
    (a) Prime contractors that exceed all of their subcontracting 
goals;
    (b) Contracting officials who are exemplary in administering and 
enforcing compliance with subcontracting plans, and
    (c) Small business and contracting specialists who demonstrate 
outstanding outreach efforts to promote the use of small, small 
disadvantaged, and women-owned small business concerns as 
subcontractors.
    (2) In addition to an awards program, contracting activities may 
consider incentives such as:
    (a) In contracts containing the Liquidated Damages clause at FAR 
section 52.219-16, requiring that a certain percentage of the 
contract value be subcontracted to small business concerns. If the 
percentage is not met, the contracting activity may assess 
liquidated damages.
    (b) Making the administration and enforcement of subcontracting 
plans a critical factor in the contracting officer's performance 
appraisal.
    (c) Negotiating alternative payment schedules with prime 
contractors that offer to provide substantial subcontracting 
opportunities to small, small disadvantaged, and women-owned small 
business concerns. This incentive also could be applied to prime 
contractors that agree to mentor small business concerns under a 
Mentor Protege Program.
    (d) Reducing inspection, monitoring, and auditing of 
subcontracting compliance for prime contractors that have an 
outstanding past performance record. For example, a contractor that 
receives an outstanding rating on a subcontracting compliance review 
could receive a follow-up review the next year that consists of a 
statistical desk audit only. The SBA has authorized its field office 
staff to exempt outstanding contractors from a formal compliance 
review for three years as long as the SF 295 shows no deterioration 
in the dollars awarded to small, small disadvantaged, and women-
owned small business concerns during that period.
    d. Goals.
    (1) The contracting officer may use target goals in 
solicitations to inform potential offerors of what the Government 
expects in an acceptable subcontracting plan.
    (2) The contracting officer may specify subcontracting 
percentage goals to increase small, small disadvantaged, and women-
owned business concern participation in newly consolidated contracts 
for non-commercial items/services. The percentages may be determined 
on a contract-by-contract basis based on market research and 
requests for information from potential offerors and potential small 
business subcontractors.
    (3) In addition to the statutory goals for small, small 
disadvantaged, and women-owned small business concerns, which are 
based on the projected value of the prime and subcontract awards 
proposed by the offeror, the contracting officer may also establish 
subcontracting goals based on the overall value of the procurement.

(Note: In some cases, this may not be a realistic approach. The 
dollar value of the contract may have no effect on the potential for 
subcontracting.)

    (4) The contracting officer may consider increasing the small, 
small disadvantaged, and women-owned small business concern 
participation goals commensurate with the size of the contract. For 
example, the larger the degree of contract aggregation, the higher 
the goals for small, small disadvantaged and women-owned small 
business concern participation may be set.
    8. Responsibilities. The Federal Acquisition Regulatory Council 
shall ensure that the policies established herein are incorporated 
in the FAR within 210 days from the date this Policy Letter is 
published in final form in the Federal Register. Promulgation of 
final regulations within that 210-day period shall be considered 
issuance in a ``timely manner'' as prescribed in 41 U.S.C. 405(b).
    9. Information Contact. Questions regarding this Policy Letter 
should be directed to Linda Williams, Deputy Associate 
Administrator, Office of Federal Procurement Policy, 725 17th 
Street, NW, Washington, DC 20503, telephone 202-395-3302, facsimile 
202-395-5105.
    10. Judicial Review. This Policy Letter only provides policy 
guidance to agencies in the exercise of their discretion concerning 
Federal contracting. It does not interpret the Constitution or any 
law. It is not intended to create any legal right or any basis on 
which to sue the United States or its representatives.
    11. Effective Date. The Policy Letter is effective 30 days after 
the date of issuance.

[FR Doc. 99-8122 Filed 4-1-99; 8:45 am]
BILLING CODE 3110-01-P