[Federal Register Volume 65, Number 96 (Wednesday, May 17, 2000)]
[Rules and Regulations]
[Pages 31250-31253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-12408]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 361

RIN 3064-AB12


Minority and Women Outreach Program--Contracting

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Board of Directors of the Federal Deposit Insurance 
Corporation (FDIC) is amending its regulation establishing an outreach 
program for minority- and women-owned businesses and announcing its 
policy to utilize that portion of the Federal Affirmative Action 
Contracting Program, set forth in the Federal Acquisition Regulations, 
providing contracting benefits to Small Disadvantaged Businesses. The 
FDIC will no longer grant a price incentive based solely on race and 
gender criteria. The FDIC will, however, continue its outreach programs 
for minorities and women, and entities owned by them.

EFFECTIVE DATE: May 10, 2000.

FOR FURTHER INFORMATION CONTACT: Martin Blumenthal, Counsel, Legal 
Division, Corporate Operations Branch, Corporate Legal Issues Section, 
Contracting Law Unit (202) 736-0756; David McDermott, Chief, Policy and 
Compliance Unit, Acquisition and Corporate Services Branch, Division of 
Administration, (202) 942-3434; Rita Wiles Ross, Counsel, Legal 
Division, Corporate Operations Branch, Legal Operations Section, Legal 
Services Unit, (202) 736-3072; or Judith M. Wood, Chief, Diversity 
Branch, Office of Diversity and Economic Opportunity, (202) 416-2456.

SUPPLEMENTARY INFORMATION:

I. Background

    In 1989, with enactment of the Financial Institutions Reform, 
Recovery and Enforcement Act (FIRREA), Congress mandated that the FDIC 
augment its program for contracting activities by prescribing

``regulations to establish and oversee minority outreach program [s] 
* * * to ensure inclusion, to the maximum extent possible, of 
minorities and women, and entities owned by minorities and women * * 
* in all contracts entered into by the agency * * *'' 12 U.S.C. 
1833e(c).

    In response, the FDIC adopted a regulation that obligates and 
requires the Corporation to engage in outreach efforts to identify and 
register minority-and women-owned businesses (MWOBs) that can provide 
the goods and services utilized by the FDIC. 12 CFR 361.6(b); Minority 
and Women Outreach Program--Contracting, 57 FR 15004 (April 24, 1992). 
In addition, to ensure that MWOBs are ``being included in each 
solicitation, the solicitation process will include: * * * (3) Allowing 
qualified MWOBs a 3% price incentive and additional technical 
consideration for competitively bid services; * * *'' 12 CFR 
361.8(b)(3).
    However, the Supreme Court has held that all such racial 
classifications, whether imposed by federal, state, or local 
governments, must be analyzed by a reviewing court under strict 
scrutiny. Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 227; 115 
S.Ct. 2097, 2113 (1995). Thereafter, in 1996, the Department of Justice 
invited public comments on a system designed to reform affirmative 
action in federal procurement in response to Adarand. 61 FR 26042, May 
23, 1996. Continuing in that vein, in 1998, the Department of Defense, 
the General Services Administration, and the National Aeronautics and 
Space Administration published a revision to the Federal Acquisition 
Regulations (FAR) implementing a new program of affirmative action in 
federal procurement. 63 FR 52426, September 30, 1998.
    In this program, each year, the Department of Commerce makes a 
determination as to which industries demonstrate the results of past 
discrimination and are thereby eligible for a benefit in federal 
contracting. The Department of Commerce also determines the size of a 
price evaluation adjustment, not to exceed 10%, to be available in 
those industries. In the first year of the program, eligible industries 
that are generally used by the FDIC include accounting firms, asset 
managers, information technology contractors, office services, and 
building services. The amount of the price evaluation adjustment for 
1999 is 10%.
    The price evaluation adjustment is available to firms certified as 
Small Disadvantaged Businesses (SDBs) by the Small Business 
Administration (SBA). An SDB is a small business firm that is at least 
51% owned by individuals who are both socially and economically 
disadvantaged. Socially disadvantaged individuals include Black 
Americans,

[[Page 31251]]

Hispanic Americans, Asian Pacific Americans, Subcontinent Asian 
Americans, and Native Americans as a class, as well as other groups 
that the SBA may from time to time designate, and individuals that can 
prove by a preponderance of the evidence previous discrimination on a 
case-by-case basis. Economically disadvantaged individuals have an 
individual net worth of less than $750,000.\1\ The standard for 
determining whether a firm qualifies as ``small'' varies between 
industry classifications and may be based on revenue or number of 
employees.
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    \1\ The $750,000 excludes individual equity in a primary 
residence and the value of the individual's ownership interest in 
the firm seeking SDB status.
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    In lieu of a price incentive, an SDB may take advantage of an SDB 
participation factor, if the contracting agency includes such a factor 
in the procurement. A non-SDB may take advantage of the factor by 
proposing to partner with an SDB or to use SDB subcontractors. An SDB 
can also take advantage of this factor as the prime contractor. 
However, the SDB would only be eligible for the participation factor if 
it first waives the price evaluation adjustment. Utilization of SDBs as 
subcontractors may also be encouraged, at the discretion of the 
contracting agency, by offering prime contractors a financial incentive 
to exceed the proposed SDB subcontracting. An additional payment can be 
authorized where the prime contractor promises a particular monetary 
target of SDB subcontracting and its actual performance exceeds that 
promise. The monetary incentive can be up to 10% of the SDB 
subcontracting dollars in excess of the target amount.

II. Utilization of SDB Program

    The FDIC has determined that it was unlikely that the FDIC MWOB 
price incentive, as implemented, would pass the Constitutional tests 
enunciated by the Supreme Court in Adarand. Accordingly, although the 
FDIC is not subject to the FAR, it believes that the FAR's affirmative 
action contracting program provides a constitutionally sustainable 
means of enhancing the opportunities for SDBs in FDIC contracting. The 
FDIC will, therefore, voluntarily utilize that program in lieu of the 
constitutionally questionable price incentive based on race and gender 
that has been awarded in the past. 64 FR 42862 (August 6, 1999). No 
comments were filed in response to that Notice.
    The program, to be included in the FDIC Acquisition Policy Manual 
(APM), will provide that, for goods and services acquired under Formal 
Contracting Procedures, as defined in the APM, generally involving 
expenditures of $100,000 or more, a price evaluation adjustment will be 
available to technically qualified SDB bidders in the following 
circumstances: (a) The bidder has been certified as an SDB by the SBA 
under procedures set forth in 13 CFR part 124; and (b) the Standard 
Industrial Classification (SIC) code for the prime contract is one in 
which the Department of Commerce has authorized the use of a 
preference. The eligible SICs and amount of the price evaluation 
adjustment is established annually by the Department of Commerce 
pursuant to 48 CFR 19.201(b).
    Moreover, solicitations issued under the Formal Contracting 
Procedures involving awards of $500,000 or more ($1,000,000 for 
construction contracts) may also include an evaluation factor for SDB 
participation in the performance of the contract. The value to be 
assigned this factor, if any, is determined by the contracting officer 
on a contract-by-contract basis. The prime contract need not be in a 
SIC code identified as authorized by the Department of Commerce for the 
use of preferences, but only SDB participation in authorized SIC codes 
would be considered in the evaluation of the participation factor. SDB 
participation may be in the form of subcontracts, joint ventures or 
teaming partners.\2\ Where the SDB is bidding as a prime contractor in 
response to a solicitation that includes an SDB participation factor, 
the SDB will not be eligible for the participation factor unless it 
first waives its price evaluation adjustment.\3\
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    \2\ Any joint venture in which an SDB undertakes to perform a 
portion of the work could qualify for consideration under the SDB 
participation factor. The technical value assigned to such joint 
venture under the SDB participation factor would, of course, depend 
on the proportion of the work to be performed by the SDB joint 
venture. In other circumstances, a joint venture may itself qualify 
as an SDB under SBA regulations. Generally, for a joint venture to 
qualify, the SDB participant must have at least a 51% ownership 
share, perform 51% of the work, and the managing partner must be 
from the SDB participant.
    \3\ In evaluating this factor, the contracting officer may 
consider the specificity of the proposal, the enforceability of the 
commitments, the complexity and variety of the work to be performed 
by SDBs, the realism of the proposal, and the contractor's past 
performance in complying with SDB participation goals.
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    Utilization of SDBs as subcontractors may also be encouraged, at 
the FDIC's discretion, by offering prime contractors a financial 
incentive to exceed the proposed SDB subcontracting. An additional 
payment can be authorized where the prime contractor promises a 
particular monetary target of SDB subcontracting and its actual 
performance exceeds that promise. The monetary incentive can be up to 
10% of the SDB subcontracting dollars in excess of the target amount.
    The FDIC will not certify SDBs. That process will be carried out by 
the SBA under procedures established in the SBA's regulations, 13 CFR 
part 124. SDBs responding to FDIC solicitations are responsible for 
identifying themselves and certifying their current status as an SDB. 
An SDB that has applied for, but not yet received, SBA certification 
may be entitled to treatment as an SDB where certification can be 
obtained before the contract is awarded. It is the intention of the 
FDIC to establish procedures whereby the SBA will treat FDIC 
contractors seeking SDB certification in the same manner as contractors 
with FAR agencies that are similarly situated. However, if 
certification cannot be obtained in a timely manner, the contract may 
be awarded to another bidder. \4\
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    \4\ The FDIC will communicate with the SBA to ensure that FDIC 
contractors seeking certificaiton as SDBs are given the same 
consideration as other contractors seeking similar certification.
    \5\ In July 1999, the Board withdrew its proposal to amend 12 
CFR part 361 that would have, inter alia, established an outreach 
program for individuals with disabilities. Nevertheless, the FDIC 
will continue its outreach program for individuals with disabilities 
and entities owned by them as a matter of policy.
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III. Final Rule

    To facilitate the implementation of the policy enunciated above, we 
have repealed the provisions of part 361 that confer a price incentive, 
12 CFR 361.8(b)(3), as well as made other conforming amendments to the 
regulations. The FDIC Office of Diversity and Economic Opportunity 
(ODEO) will continue to have overall responsibility for providing the 
FDIC with technical assistance and guidance to facilitate the 
identification, registration and solicitation of MWOBs. ODEO is also 
responsible for the Corporation's outreach efforts, such as:
    (1) Identifying MWOBs that can provide legal or other services to 
FDIC;
    (2) Conducting seminars, meetings, workshops and other various 
functions to promote the identification of MWOBs; and
    (3) Participating in conventions, seminars, meetings, workshops and 
other functions to promote the identification and inclusion of MWOBs.
    Moreover, ODEO has specific responsibility for the Outreach Program 
with respect to providers of non-legal services, and in addition to the 
functions noted above, it will distribute information concerning the 
FDIC program for outreach to MWOBs. Generally, ODEO will work with 
contracting officials to ensure that

[[Page 31252]]

MWOBs are included on FDIC solicitation lists. \5\
    ODEO will also collect information from each FDIC office and 
division that performs contracting or outreach activities, on a 
quarterly basis or upon request, including statistical information on 
contract awards and solicitations by designated demographic categories 
and related outreach activities. The FDIC will request and maintain 
information on firms that have represented themselves as minority- or 
women-owned for purposes of outreach efforts and statistical reporting.
    The Legal Division will perform outreach efforts targeted at 
providers of legal services. Generally, in addition to the functions 
listed above, the Legal Division's National Outreach Coordinator will 
require, at a minimum, quarterly submissions of statistical information 
on legal fees and expenses paid to outside counsel by designated 
demographic categories. FDIC will also encourage use of minority and 
women lawyers within other firms and partnering of firms with MWOBs. 
Moreover, specific procedures and activities will be detailed in the 
Legal Division's Outside Counsel Deskbook as well as the FDIC's web 
site at: www.fdic.gov.

Final Rule Changes

    In addition to a general editorial updating and simplification of 
the rule, the FDIC has amended Sec. 361.3 to remove unnecessary 
definitions and to conform the definition of a minority to the SBA 
definition. Section 361.4 remains essentially unchanged.
    The FDIC has removed Secs. 361.7-361.10 because the FDIC will no 
longer grant a price incentive based on race and gender criteria. 
Statistics based on self-certification of minorities and women and 
entities owned by them will be used in conjunction with survey efforts 
solely for monitoring the FDIC's outreach efforts.
    The FDIC is presenting this final rule in a question-and-answer 
format in an effort to make the regulation easier to use. This change 
does not, however, affect the substance of the regulation.

IV. Matters of Regulatory Procedure

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et 
seq.), the FDIC may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid Office of Management and Budget (OMB) control number. 
Public comment and OMB approval has previously been obtained for an 
FDIC collection of information titled ``Acquisition Services 
Information Requirements'' which includes questions regarding 
contractors' minority status. This information collection, approved 
under OMB control number 3064-0072, will not be changed by this final 
rule.

Regulatory Flexibility Act

    The FDIC has determined that this final rule may have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 604, et seq., 
because the amendment repeals the 3% incentive that FDIC rules had 
provided to MWOBs, including small businesses. We invited comments on 
the proposal and our initial regulatory flexibility analysis, but none 
were filed. Accordingly, this final regulatory flexibility analysis has 
been prepared in accordance with 5 U.S.C. 604.
    In Adarand Constructors, Inc. v. Pena, 115 S.Ct. 2097 (1995), the 
Supreme Court applied strict judicial scrutiny to federal affirmative 
action programs that use racial or ethnic criteria as a basis for 
decision making. The FDIC has determined that its price incentive for 
MWOBs may not pass the Constitutional tests enunciated by the Supreme 
Court in Adarand. Therefore, in this final rule, the FDIC is amending 
its regulation to repeal that part of the regulation which provides a 
3% incentive to MWOBs that bid on FDIC contracts. The FDIC believes 
that this approach is the only readily apparent solution, because 
providing any price incentive without meeting the criteria of the Court 
would be constitutionally suspect.
    The Federal Acquisition Regulations (FAR), 63 FR 52426 (September 
30, 1998), Reform of Affirmative Action in Federal Procurement, provide 
a constitutionally sustainable means of enhancing opportunities for 
SDBs. The FDIC will voluntarily utilize the FAR's affirmative action 
program.
    The objective of this final rule is to implement an outreach and 
affirmative action procurement program consistent the Supreme Court's 
decision in Adarand.
    The 3% price incentive being repealed was available to MWOBs 
without regard to whether such firms were also ``small'' businesses. 12 
CFR 361.8(b)(3). In 1999, the FDIC awarded 2,778 contracts, including 
626 (22.5%) to MWOBs. However, the overwhelming majority of those 
contracts were awarded without reference to the price incentive because 
the contract was for less than the $50,000 threshold in the rule, or 
the purchase was made off the Federal Supply Schedule. Of the 278 
awards that were subject to the price incentive, 54 (19.4%) went to 
MWOBs. Based on a self-certification, the majority of those firms 
(about 60%) identified themselves as small business concerns. The FDIC 
anticipates that there will be no significant change in its contracting 
activity for 2000. Thus, there may be some adverse effect on small 
entities that enjoyed the price incentive under the regulation, 
principally small, women-owned firms. However, given the FDIC's record 
of contract awards where the price incentive was not applicable as well 
as the benefits being conferred on SDBs under the federal affirmative 
action contracting program, it is anticipated that the economic impact 
on small businesses may be substantially attenuated.
    Repeal of regulations establishing a 3% incentive will not impose 
any new paperwork burden. Public comment and Office of Management and 
Budget approval has previously been obtained for an FDIC collection of 
information titled ``Acquisition Services Information Requirements'' 
which includes questions regarding contractors' minority- and/or women-
owned status. This information collection, approved under OMB control 
number 3064-0072, will not be changed by this final rule. This rule 
does not duplicate, overlap, or conflict with any other federal rules.
    Because the 3% price incentive for MWOBs would likely fail the 
constitutionally mandated strict scrutiny test established in the 
Adarand case, the only readily apparent alternative is to repeal the 
regulation.

Assessment of Impact of Federal Regulation on Families

    The FDIC has determined that this amendment will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act of 1999 (Public Law 105-277).

Small Business Regulatory Enforcement and Fairness Act

    Pursuant to the congressional review provisions of the Contract 
with America Advancement Act of 1996, 5 U.S.C. 801 et seq., the FDIC 
must report certain final rules to Congress. The Office of Management 
and Budget has determined that this rule is not a ``major rule'' within 
the meaning of the relevant

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section of the Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA), 5 U.S.C. 801, et seq. As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the General 
Accounting Office.

List of Subjects in 12 CFR Part 361

    Government contracts, Lawyers, Legal services, Minority businesses, 
Reporting and recordkeeping requirements, Women businesses.

    For the reasons set forth above, the Board of Directors of the 
Federal Deposit Insurance Corporation revises part 361 of chapter III 
of title 12 of the Code of Federal Regulations as follows:

PART 361--MINORITY AND WOMEN OUTREACH PROGRAM CONTRACTING

Sec.
361.1   Why do minority- and women-owned businesses need this 
outreach regulation?
361.2   Why does the FDIC have this outreach program?
361.3   Who may participate in this outreach program?
361.4   What contracts are eligible for this outreach program?
361.5   What are the FDIC's oversight and monitoring 
responsibilities in administering this program?
361.6   What outreach efforts are included in this program?

    Authority: 12 U.S.C. 1833e.


Sec. 361.1  Why do minority- and women-owned businesses need this 
outreach regulation?

    The purpose of the FDIC Minority and Women Outreach Program (MWOP) 
is to ensure that minority- and women-owned businesses (MWOBs) are 
given the opportunity to participate fully in all contracts entered 
into by the FDIC.


Sec. 361.2  Why does the FDIC have this outreach program?

    It is the policy of the FDIC that minorities and women, and 
businesses owned by them have the maximum practicable opportunity to 
participate in contracts awarded by the FDIC.


Sec. 361.3  Who may participate in this outreach program?

    For purposes of this part:
    (a) Minority has the same meaning as defined by the Small Business 
Administration at 13 CFR 124.103(b).
    (b) Legal Services means all services provided by attorneys or law 
firms (including services of support staff).


Sec. 361.4  What contracts are eligible for this outreach program?

    The FDIC outreach program applies to all contracts entered into by 
the FDIC. The outreach program is incorporated into FDIC policies and 
guidelines governing contracting and the retention of legal services.


Sec. 361.5  What are the FDIC's oversight and monitoring 
responsibilities in administering this program?

    (a) The FDIC Office of Diversity and Economic Opportunity (ODEO) 
has overall responsibility for nationwide outreach oversight, which 
includes, but is not limited to, the monitoring, review and 
interpretation of relevant regulations. In addition, the ODEO is 
responsible for providing the FDIC with technical assistance and 
guidance to facilitate the identification, registration, and 
solicitation of MWOBs.
    (b) Each FDIC office that performs contracting or outreach 
activities will submit information to the ODEO on a quarterly basis, or 
upon request. Quarterly submissions will include, at a minimum, 
statistical information on contract awards and solicitations by 
designated demographic categories.


Sec. 361.6  What outreach efforts are included in this program?

    (a) Each office engaged in contracting with the private sector will 
designate one or more MWOP coordinators. The coordinators will perform 
outreach activities for MWOP and act as liaison between the FDIC and 
the public on MWOP issues. On a quarterly basis, or as requested by the 
ODEO, the coordinators will report to the ODEO on their implementation 
of the outreach program.
    (b) Outreach includes the identification and registration of MWOBs 
who can provide goods and services utilized by the FDIC. This includes 
distributing information concerning the MWOP.
    (c) The identification of MWOBs for the provision of legal and non-
legal services will primarily be accomplished by:
    (1) Obtaining various lists and directories of MWOBs maintained by 
other federal, state, and local governmental agencies;
    (2) Participating in conventions, seminars and professional 
meetings comprised of, or attended predominately by, MWOBs;
    (3) Conducting seminars, meetings, workshops and other various 
functions to promote the identification and registration of MWOBs;
    (4) Placing MWOP promotional advertisements indicating 
opportunities with the FDIC in minority- and women-owned media; and
    (5) Monitoring to assure that FDIC staff interfacing with the 
contracting community are knowledgeable of, and actively promoting, the 
MWOP.

    By Order of the Board of Directors.

    Dated at Washington, DC, this 10th day of May 2000.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 00-12408 Filed 5-16-00; 8:45 am]
BILLING CODE 6714-01-P