[Federal Register Volume 64, Number 205 (Monday, October 25, 1999)]
[Rules and Regulations]
[Pages 57366-57372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27801]



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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 125


Government Contracting Programs

AGENCY: Small Business Administration.

ACTION: Interim rule with request for comments.

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SUMMARY: The Small Business Administration (SBA) is amending its 
regulations to address contract bundling due to changes set forth in 
the Small Business Reauthorization Act of 1997 (Pub. L. 105-135, 111 
Stat. 2617). 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.

DATES: Effective Date: December 27, 1999.

    Comment Date: Comments due on or before December 27, 1999.

ADDRESSES: Address comments to Linda G. Williams, Deputy Associate 
Deputy Administrator for Government Contracting and Minority Enterprise 
Development, U.S. Small Business Administration, 409 Third Street, SW, 
Washington, DC 20416.

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 adversely 
affects small businesses. Section 413(b)(1) of Pub. L. 105-135 
reinforced existing appeal rights and further defined 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).
    On January 13, 1999, SBA published a proposed rule in the Federal 
Register requesting public comments on implementation of sections 411-
417 of the Small Business Reauthorization Act of 1997 (Pub. L. 105-
135). See 64 FR 2153, Jan. 13, 1999. The statutory amendments recognize 
that the consolidation of contract requirements may be necessary and 
justified, in some cases. The rule requires that each Federal agency, 
to the maximum extent practicable, take steps to avoid unnecessary and 
unjustified bundling of contract requirements that preclude small 
business participation as prime contractors. The rule also requires 
each agency to eliminate obstacles to small business participation as 
prime contractors.
    The comment period for 64 FR 2153 closed on March 15, 1999. SBA 
received 32 comments in response to the proposed rule. The comments are 
comprised of 11 (34 percent) from Government agencies, 11 (34 percent) 
from trade associations, 9 (28 percent) from small-businesses, and 1 (3 
percent) from a large business.
    SBA specifically requested comments on three difficult definitional 
areas: (1) What constitutes substantial bundling?; (2) what constitutes 
measurably substantial benefits as a justification for bundling?; and 
(3) what quantifiable test constitutes substantial if reduction of 
administrative or personnel costs is the sole basis for bundling? The 
comments and recommendations received by SBA to these questions and to 
other provisions of the proposed rule are discussed below in the 
section-by-section analysis.
    SBA also identifies in the section-by-section analysis below the 
number of specific comments relating to particular provisions of the 
rule. Not all comments received addressed the issues contained in the 
proposed rule. For instance, several commenters identified a particular 
provision, but spoke of the problems caused by bundling generally, and 
not how the provision itself should be changed. Other commenters stated 
that they agreed with or disagreed with a particular provision without 
offering any reasoning or alternatives. Thus, SBA has not identified 
every comment that it received in response to a particular provision 
and responded to them.
    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 of 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 a ``bundled'' requirement, 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 are not 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 document 
the benefits to be derived from the bundled contract and to justify its 
use.
    The Small Business Act does not define ``substantial bundling.'' 
The SBA defines substantial bundling in this interim rule.
    The rule also defines what constitutes ``measurably substantial 
benefits'' for purposes of determining whether

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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 benefits. In 
assessing whether benefits would be achieved through bundling, the 
analysis must compare the cost that was charged by small businesses for 
the work that they 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. To proceed with a bundled 
procurement, a procuring activity must quantify the identified benefits 
as noted herein and explain how their impact would be measurably 
substantial.
    The statute recognizes that in some circumstances bundling should 
be permitted because of the benefits that flow to the Government as a 
result of consolidation of requirements. Congress determined that those 
benefits may overcome any impact on small business in certain 
circumstances. The statutory language requires contracting officers to 
demonstrate ``measurably substantial benefits'' and the Joint 
Explanatory Statement calls for meaningful, enforceable controls to 
preclude unnecessary and unjustified bundling. Pursuant to the statute, 
there are two requirements that must be satisfied before items are 
bundled. 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.'' SBA developed 
objective, 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 (64 FR 2153) identified 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 also 
established specific criteria for measuring whether these benefits or 
improvements, which are to be derived, are ``substantial.'' Those 
criteria are maintained in this interim rule.
    The proposed regulation (64 FR 2153) also reiterated the statutory 
requirement that the reduction of administrative or personnel costs 
alone cannot be a justification for bundling unless the 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 required a 
comparison between the administrative or personnel costs without 
bundling to those anticipated with bundling. In response to public 
comment, this interim rule implements a quantifiable test, outlined 
below, for determining whether administrative or personnel cost savings 
are expected to be ``substantial.''
    SBA is concerned that bundled contracts will render small business 
participation as prime contractors unlikely. Section 125.2(b)(5) of 
this interim rule authorizes SBA's Procurement Center Representatives 
(PCRs) to recommend alternative procurement methods to agencies to 
provide prime contract opportunities. These strategies 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.

Section by Section Analysis

    SBA received 10 comments concerning proposed Sec. 121.103(f)(3). 
This section authorizes an exclusion from SBA's affiliation rules for a 
procurement that qualifies as a ``bundled'' requirement. Eight comments 
were in strong support of this section. One comment thought that this 
section should ``address the implications of past performance.'' SBA 
believes that past performance should have no bearing on this 
regulatory provision for several reasons. Section 121.103(f)(3) is a 
size regulation. Past performance is more typically associated with 
responsibility, or a firm's ability to perform a specific contract 
opportunity. A firm's ability to perform a given contract, based on 
capacity, past performance, or other responsibility criteria, does not 
affect whether the concern is a small business or not. Moreover, this 
provision is a size rule for joint ventures or teaming relationships. A 
joint venture is normally a one-time association to perform a 
particular contract. There most likely is not any past performance 
history on the joint venture entity. In addition, one commenter 
suggested that the proposed rule reference a number of existing FAR 
provisions dealing with liability, consent to subcontracts, and 
performance and payment bonds. SBA believes existing Federal 
Acquisition Regulation (FAR) provisions are adequate for purposes of 
this rule and sees no need to amend this section.
    SBA received two comments concerning Sec. 125.2(a). One commenter 
thought that a literal reading of this section requires all awards to 
be made to small businesses. SBA first notes that the language 
contained in the regulations repeats almost verbatim the statutory 
language contained in section 15(a) of the Small Business Act. SBA does 
not agree that language requires what the commenter suggests. The 
statutory and regulatory language requires award to a small business 
only where ``SBA and the procuring or disposal agency'' determine one 
of four things to be present. If the procuring or disposal agency does 
not agree that one of those circumstances exists and SBA does not 
appeal that decision to the head of the agency, award need not be made 
to a small business. Another commenter suggested extending the rule to 
include nonprofit agencies contracting with the Government. SBA's size 
regulations have historically defined a ``small business concern'' to 
be a business entity organized for profit. This rule is not the 
appropriate vehicle to consider changes to that longstanding position, 
and SBA makes no changes in that regard.
    SBA received no comments concerning Sec. 125.2(b)(1), which 
generally discusses the duties of SBA PCRs. As such, Sec. 125.2(b)(1) 
remains as proposed.
    SBA received eight comments concerning Sec. 125.2(b)(2), which 
requires the procuring agency to provide a copy of a proposed 
acquisition strategy to the PCR 30 days prior to issuance or to the 
Government Contracting Area Office if a PCR is not assigned to the 
buying activity. This section is consistent with FAR 19.202-1(e)(1) 
(Encouraging Small Business Participation). Most of the comments 
expressed concern about possible delays in SBA's response. The 
procedures and time frames for PCR response are set forth in FAR 
19.402(c)(2) and FAR 19.505 (48 CFR 19.402 and 19.505) which SBA 
believes are adequate. Therefore, the interim rule remains as proposed.
    SBA received four comments concerning Sec. 125.2(b)(3) that 
requires the procuring agency to give the PCR a written statement of 
explanation and justification for bundling. The statement

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must explain why certain small business accommodations are not 
possible. One commenter thought this section would be burdensome and 
adds little value given the other criteria in the rule. Sections 411 
through 417 of SBA's Reauthorization Act specifically require this 
written justification. As such, it remains as proposed in this interim 
rule.
    SBA received one comment concerning Sec. 125.2(b)(4), which 
requires PCRs to identify capable small businesses, including small 
business teams, for particular requirements on bundled contracts. The 
commenter suggested a 30-calendar-day requirement for such an 
identification process to avoid or limit acquisition delays. Timeframes 
regarding PCR actions are currently addressed in 48 CFR 19.5. This 
section remains as proposed.
    Six commenters endorsed the proposed change to Sec. 125.2(b)(5), 
which provides the SBA's PCRs with a number of alternatives to 
recommend to procurement officials who are considering the bundling of 
contracts into one larger contract. These commenters also recommended 
that proposed Sec. 125.2(b)(5) be modified to include the following two 
additional alternatives: recommending the solicitation and resultant 
contract specifically state the small business subcontracting goals 
which are expected of the contractor awardee, and recommending that the 
small business subcontracting goals be based on contract dollars versus 
subcontract dollars. SBA finds that these suggestions have merit and 
have incorporated them in this interim rule.
    One commenter suggested a time frame to develop alternatives to 
bundling. FAR 19.402(c)(2) already specifies the time frame.
    SBA received three comments concerning Sec. 125.2(b)(6), which 
authorizes a PCR to appeal to the head of the contracting activity and 
subsequently to the secretary of the department, or the head of the 
agency, in cases where there is disagreement between the PCR and the 
contracting officer. One commenter suggested that this section be 
clarified by stating that the appeal be initiated within 30 calendar 
days of following receipt of the contracting activity's acquisition 
strategy statement. SBA believes that existing provisions in FAR 19.505 
adequately address this issue.
    SBA received one comment concerning Sec. 125.2(b)(7), which 
requires the PCR to work with the procuring activity's Small 
Disadvantaged Business Utilization Specialists (SADBUS). The commenter 
stated that term was changed to Small Business Specialist in 1997. This 
term was changed by the Federal Acquisition Streamlining Act (FASA) in 
1995. Accordingly SBA will incorporate the recommended change.
    SBA received one comment concerning Sec. 125.2(d)(1), which defines 
certain identified terms used in these regulations. The comment related 
to the impact of the rule on simplified acquisitions and administrative 
lead-time. Since the interim rule establishes a dollar value standard 
for the determination of substantial bundling, this section need not be 
changed from the proposed rule.
    SBA received no comments concerning Sec. 125.2(d)(2), which 
restates the statutory mandates. This section is not changed in this 
interim rule.
    SBA received 38 separate comments concerning Sec. 125.2(d)(3) and 
its subsections. Paragraph (d)(3)(i) mandates market research to 
determine whether bundling is necessary and justified. We believe that 
the paragraph, as written, meets the congressional intent, and it will 
remain as proposed. The comments received concerning 
Sec. 125.2(d)(3)(iii)(A) were diverse, but none offered definitive 
criteria from which to quantify measurably substantial benefits. SBA 
has reconsidered its original proposal and has formulated a two tiered 
approach to quantify measurably substantial benefits. In the first 
approach, depending upon the estimated dollar value of the procurement 
(including options), the contracting activity must quantify the 
identified benefits and explain how their impact would be measurably 
substantial. SBA has established percentages to quantify the benefits 
which must be met. In the second approach, where the benefits do not 
meet the thresholds established by SBA, the Assistant Secretaries with 
responsibility for acquisition matters (Service Acquisition Executives) 
or the Under Secretary of Defense for Acquisition and Technology (for 
other Defense Agencies) in the Department of Defense, and the Deputy 
Under Secretary or equivalent for civilian agencies can determine on a 
non-delegable basis, that the consolidated requirement is critical to 
the success of the agency's mission. The procedures in 
Sec. 125.2(d)(3)(iii) (A) and (B) are not applicable to consolidated 
procurements that are subject to the cost comparisons conducted in 
accordance with OMB Circular A-76.
    SBA received two comments concerning Sec. 125.2(d)(4), which 
requires agencies, in cases of substantial bundling, to document their 
procurement strategies and to include a determination that the 
anticipated benefits justify the use of bundling. One commenter 
believed that the rule should state that SBA will assist the 
contracting officer in identifying less obvious obstacles to small 
business participation. Because this is implicitly stated elsewhere in 
the rule, SBA believes that re-statement here is unnecessary.
    One commenter recommended deletion of Sec. 125.2(d)(4)(iii), as its 
might be confusing. SBA believes that the provision is clear, and does 
not change it from the proposed rule.
    SBA received six comments concerning proposed Sec. 125.2(d)(5), 
which specified values for small business evaluation criteria. Some 
commenters believed that this proposal unduly involved the SBA in 
another agency's contractor selection process. SBA believes that its 
statutory mandate provides authority to require this evaluation 
criteria. Accordingly, this section remains unchanged in this interim 
rule.
    SBA received eight comments on Sec. 125.6(g). This section provides 
that when the small business members of a team submitting an offer are 
exempt from affiliation, the performance of work requirements shall 
apply to the cooperative effort of the team or joint venture, not its 
individual members. Seven commenters recommended that for services, 
this section should be strengthened to require that the cooperative 
effort of the team or joint venture perform at least 70 percent of the 
cost of the contract incurred for personnel. Changing the percentages 
of work required by small businesses is beyond the scope of this rule.
    Another commenter suggested clarifying language regarding 
contractual obligations, similar to an earlier recommendation. SBA 
finds this change unnecessary.

Defining Substantial Bundling

    The SBA sought comments on appropriate ways to define substantial 
bundling (for example, in terms of threshold contract value or a 
threshold number of geographic locations and Standard Industrial 
Classification (SIC) codes). Several commenters recommended that 
substantial bundling not be defined and to leave determinations of 
substantial bundling to the discretion of the contracting officer. The 
supporting rationale for this approach is that if the Congress wanted 
to define substantial bundling they would have done so in statute. The 
absence of a clear-cut definition of substantial bundling, however, 
creates a

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number of serious administrative issues, which, if unresolved, would 
defeat congressional intent. SBA's approach is to provide a clear and 
reasonable standard. For example, in evaluating the level of 
substantial bundling, the Congress directed that the Federal 
Procurement Data Center track bundling of contract awards at the five 
million-dollar level. While SBA believes that this level is too low for 
the purpose of defining ``substantial bundling,'' it demonstrates that 
a single dollar standard for defining substantial bundling is 
consistent with congressional intent. Several other commenters 
supported an objective standard for determining what constitutes 
``substantial bundling.''
    Bundling is any contract consolidation that renders a contract 
likely to be unsuitable for award to a small business concern due to 
the aggregate dollar value of the anticipated award; the diversity, 
size, or specialized nature of the elements of the performance 
specified; the geographic dispersion of contract performance sites; or 
any combination of these three criteria. SBA determined that the 
aggregate dollar value of the anticipated award is the single most 
important criteria for determining substantial bundling. The other 
criteria, while significant, do not rise to the level of importance as 
the aggregate dollar value of anticipated award. In addition, the other 
criteria are generally correlated to high aggregate dollar levels.
    As such, this interim rule defines substantial bundling as the 
aggregation of two or more contracts whose combined average annual 
value is at least $10 million. Typically, contracts are described in 
terms of their total value over the life of the contract. Thus, for 
example, a one-year contract with four one-year options with a value of 
$10 million for the base year and each option year, would be considered 
a $50 million contract. SBA determined that the $10 million substantial 
bundling threshold will meet the statutory mandate to avoid unnecessary 
and unjustified bundling of contract requirements that precludes small-
business participation as prime contractors. Establishing the $10 
million threshold will not unduly burden federal agencies with the 
administrative requirements of this regulation. Using the threshold, 
contracting officers and the public can easily determine whether a 
given consolidation of requirements constitutes substantial bundling. 
For example, a consolidation of two contracts each with an average 
value of $6 million into one contract with an average annual value of 
$12 million constitutes substantial bundling.

Defining Measurably Substantial Benefits

    When a procuring activity intends to proceed with a ``bundled'' 
requirement, it must document that the bundling is necessary and 
justified. If it cannot do so, the procuring activity cannot go forward 
with the consolidation. In order for bundling to be necessary and 
justified, the consolidation must achieve ``measurably substantial 
benefits.'' In its proposed rule, SBA specifically asked for comments 
on how SBA could best objectively define this term. SBA received 11 
comments regarding how ``measurable substantial benefits'' should be 
defined. Of these eleven, four were from Federal Government agencies, 
six from trade associations, and one from a small business firm.
    Several commenters suggested that ``measurably substantial 
benefits'' cannot be defined since the criteria set forth in the 
legislation are not directly comparable. SBA recognizes the lack of 
direct comparability in the criteria as commonly understood. However, 
to meet Congressional intent, SBA has determined that for purposes of 
this interim rule all anticipated benefits be expressed in dollars. 
This will permit computation of benefits as a percentage of the total 
anticipated contract award.
    After considering all comments received, SBA concluded that 
measurably substantial benefits must be expressed as a percentage of 
the anticipated contract award value (including options). This is 
necessary in order to facilitate comparisons among the varying benefits 
to be derived. In other words, a reduction in cycle time must be 
converted to a dollar value in order to be compared to the other 
criteria such as cost savings. Without a common denominator such as 
dollars, or percent of dollars, the careful analysis and justification 
the law contemplates would not be possible. The inability to express 
the various competing criteria without a common denominator would, in 
effect, prevent evaluation. Several commenters offered a percentage 
savings. Two recommended 25 percent and one recommended 20 percent. One 
commenter advocated flexibility and did not propose a percentage. Even 
though the commenters recommended a higher percentage than those 
adopted by SBA in this interim rule, SBA believes that its approach 
provides an appropriate balance between the efficiencies of larger 
procurements and the socio-economic benefits derived through the use of 
small businesses.
    SBA determined that measurably substantial benefits should be 
quantified using a two tiered approach: (1) Benefits equivalent to 10 
percent if the contract value (including options) is $75 million or 
less; or (2) benefits equivalent to 5 percent if the contract value 
(including options) is over $75 million. The benefits may include cost 
savings and/or price reduction, quality improvements that will save 
time or improve or enhance performance or efficiency, reduction in 
acquisition cycle times, better terms and conditions and any other 
benefits that individually, in combination, or in the aggregate would 
lead to the above benefits. The rule also permits the Assistant 
Secretaries with responsibility for acquisition matters (Service 
Acquisition Executives) or the Under Secretary of Defense for 
Acquisition and Technology (for other Defense Agencies) in the 
Department of Defense, and the Deputy Secretary or equivalent for 
civilian agencies, on a non-delegable basis, to determine that a 
bundled contract is necessary and justified when: (1) There are 
benefits that do not meet the thresholds defined above but, in the 
aggregate, are critical to the agency's mission success; and (2) the 
procurement strategy provides for maximum practicable participation by 
small businesses.
    The procedures described above do not apply to consolidated 
procurements that are subject to the cost comparisons conducted in 
accordance with OMB Circular A-76.
    SBA believes that this approach takes into consideration the 
likelihood that savings will vary depending on the size of the 
contract. SBA has no historical data on cost savings associated with 
bundled contracts from which to determine a quantifiable measure. 
However, SBA does maintain records on the value of bundled contracts 
that we review. Based on data that SBA has collected over the past 4 
years, it was determined that the majority of bundled contracts fell 
within a range between $50 million and $75 million. We believe that the 
highest percentage to quantify the benefits should be applied to 
contracts of $75 million or less. At levels above $75 million, benefits 
equivalent to 5 percent of the contract value (including options) would 
still equate to measurably substantial benefits.

Defining Measurably Substantial Administrative or Personnel Cost 
Savings

    This interim rule reiterates the statutory requirement that the 
reduction of administrative or personnel costs

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alone cannot be a justification for bundling unless the 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. SBA is committed to 
implementing a quantifiable test for determining whether administrative 
or personnel cost savings are expected to be ``substantial.''
    SBA specifically requested comments on how best to define 
``substantial'' administrative or personnel cost savings. SBA received 
six comments regarding defining ``measurably substantial administrative 
or personnel cost savings,'' two from Federal agencies, three from 
trade associations, and one from a small business concern. Several 
commenters offered specific percentages to define substantial 
administrative savings. Commenters suggested 10 percent, 20 percent and 
25 percent. SBA determined that a saving of at least 10 percent of the 
anticipated contract award (including options) will be deemed 
substantial for purposes of this section.

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 interim 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 interim rule may have a significant 
beneficial economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 
Secs. 601-612. The interim 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. 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 interim 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 stated in the preamble, SBA amends 13 CFR part 121 
and 125 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation for 13 CFR part 121 is revised 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, revise paragraphs (f)(3)(i) to read as follows:


Sec. 121.103  What is affiliation?

* * * * *
    (f) * * *
    (3) * * *
    (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--GOVERNMENT CONTRACTING PROGRAMS

    1. The authority citation for 13 CFR part 125 is revised to read as 
follows:

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

    2. In Sec. 125.2, redesignate paragraphs (a) and (b) as paragraphs 
(b) and (c), respectively, revise newly designated paragraph (b), and 
add 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 is 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 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:

[[Page 57371]]

    (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 shall 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) Reserving one or more awards for small companies when issuing 
multiple awards under task order contracts.
    (i) 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.
    (ii)The PCR will also work to ensure that small business 
participation is maximized through subcontracting opportunities. This 
may include:
    (A) Recommending that the solicitation and resultant contract 
specifically state the small business subcontracting goals which are 
expected of the contractor awardee; and
    (B) Recommending that the small business subcontracting goals be 
based on total contract dollars instead of subcontract dollars.
    (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 Business 
Specialist (SBS) 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 SBS 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.
    (iii) Substantial bundling: Substantial bundling is any contract 
consolidation, which results in an award whose average annual value is 
$10 million or more.
    (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

[[Page 57372]]

days prior to the issuance of the solicitation for the bundled or 
substantially bundled requirement. The procuring activity, at that 
time, should 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 measurably substantial. The benefits may 
include cost savings and/or price reduction, quality improvements that 
will save time or improve or enhance performance or efficiency, 
reduction in acquisition cycle times, better terms and conditions, and 
any other benefits that individually, in combination, or in the 
aggregate would lead to:
    (1) Benefits equivalent to 10 percent if the contract value 
(including options) is $75 million or less; or
    (2) Benefits equivalent to 5 percent if the contract value 
(including options) is over $75 million.
    (B) Notwithstanding paragraph (d)(3)(iii)(A) of this section, the 
Assistant Secretaries with responsibility for acquisition matters 
(Service Acquisition Executives) or the Under Secretary of Defense for 
Acquisition and Technology (for other Defense Agencies) in the 
Department of Defense and the Deputy Secretary or equivalent in 
civilian agencies may, on a non-delegable basis determine that a 
consolidated requirement is necessary and justified when:
    (1) There are benefits that do not meet the thresholds set forth in 
paragraph (d)(3)(iii)(A) of this section but, in the aggregate, are 
critical to the agency's mission success; and
    (2) Procurement strategy provides for maximum practicable 
participation by small business.
    (C) Notwithstanding paragraph (d)(3)(iii)(A) and (B) of this 
section, a consolidated requirement is necessary and justified when it 
is subject to the cost comparison conducted in accordance with OMB 
Circular A-76.
    (D) 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). To be substantial, such cost savings 
must be at least 10 percent of the contract value (including options).
    (E) 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. In Sec. 125.6, add new paragraph (g) to read as follows:


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: October 19, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-27801 Filed 10-22-99; 8:45 am]
BILLING CODE 8025-01-P