[Federal Register Volume 65, Number 245 (Wednesday, December 20, 2000)]
[Rules and Regulations]
[Pages 80256-80266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32429]



[[Page 80255]]

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Part IV





Department of Defense

General Services Administration

National Aeronautics and Space Administration





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48 CFR Part 9, et al.



Federal Acquisition Regulation; Contractor Responsibility, Labor 
Relations Costs, and Costs Relating to Legal and Other Proceedings; 
Final Rule



Federal Acquisition Regulation; Small Entity Compliance Guide; Final 
Rule

  Federal Register / Vol. 65, No. 245 / Wednesday, December 20, 2000 / 
Rules and Regulations  

[[Page 80256]]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 9, 14, 15, 31, and 52

[FAC 97-21; FAR Case 1999-010]
RIN 9000-AI40


Federal Acquisition Regulation; Contractor Responsibility, Labor 
Relations Costs, and Costs Relating to Legal and Other Proceedings

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Federal Acquisition Regulatory Council (FAR Council) is 
issuing a final rule clarifying what constitutes a ``satisfactory 
record of integrity and business ethics'' in making contractor 
responsibility determinations under FAR Part 9, and revising certain 
cost principles under FAR Part 31 related to labor relations, and legal 
and other proceedings.

DATES: Effective Date: January 19, 2001.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC, 20405, at (202) 501-4755 for information 
pertaining to status or publication schedules. For clarification of 
content, contact Mr. Ralph De Stefano, Procurement Analyst, at (202) 
501-1758. Please cite FAC 97-21, FAR case 1999-010.

SUPPLEMENTARY INFORMATION: The Federal Acquisition Regulatory Council 
(FAR Council) is issuing a final rule that clarifies what constitutes a 
``satisfactory record of integrity and business ethics'' in making 
contractor responsibility determinations under FAR Part 9, and revises 
certain cost principles under FAR Part 31 relating to labor relations, 
and legal and other proceedings. Public comment on proposed revisions 
on these matters had previously been requested on July 9, 1999 (64 FR 
37360) and on June 30, 2000 (65 FR 40830).

1. The Statutory and FAR Responsibility Criteria

    The main portion of this rule makes clarifying revisions to the 
existing regulatory language in FAR Part 9 (and adds an accompanying 
certification in FAR Part 52) regarding what constitutes a 
``satisfactory record of integrity and business ethics'' in making 
contractor ``responsibility'' determinations.
    By statute, Federal agencies are required to award contracts to 
``responsible'' sources. 10 U.S.C. 2305(b); 41 U.S.C. 253b. A 
``responsible source'' is defined to be a prospective contractor which, 
among other things, ``has a satisfactory record of integrity and 
business ethics.'' 41 U.S.C. 403(7)(D). Congress enacted this 
definition of ``responsible source'' in 1984 (Pub. L. 98-369, Div. B, 
Title VII, Sec. 2731, 98 Stat. 1195).
    The statutory ``responsibility'' requirement has been implemented 
in FAR Part 9. The FAR states that ``[p]urchases shall be made from, 
and contracts shall be awarded to, responsible prospective contractors 
only.'' 48 CFR 9.103(a). The FAR makes clear that ``an affirmative 
determination'' of responsibility is required. ``No purchase or award 
shall be made unless the contracting officer makes an affirmative 
determination of responsibility. In the absence of information clearly 
indicating that the prospective contractor is responsible, the 
contracting officer shall make a determination of nonresponsibility.'' 
48 CFR 9.103(b); see also 48 CFR 9.103(c) (``A prospective contractor 
must affirmatively demonstrate its responsibility . . .'').
    In accordance with the statutory definition of ``responsible 
source,'' the FAR states that, ``[t]o be determined responsible, a 
prospective contractor must . . . Have a satisfactory record of 
integrity and business ethics . . . .'' 48 CFR 9.104-1. Beyond this 
simple reiteration of the statutory language, however, the FAR has not 
elaborated upon what it means to have ``a satisfactory record of 
integrity and business ethics,'' nor has the FAR provided contracting 
officers with a framework to guide their analysis and assist them in 
making this statutorily-required determination.
    This lack of guidance has an unfortunate consequence: Contracting 
officers are extremely reluctant, absent clear guidance, to exercise 
their discretion in making this determination. As a result, the 
Government continues to award contracts to firms that have violated 
procurement and other Federal laws, in some cases repeatedly. For 
example, in a study of the top 100 defense contractors over a four year 
period, the General Accounting Office found over 100 instances in which 
contractors had either been convicted of or signed settlements after 
charges of violations--of procurement-related law alone. These 
companies paid more than $400 million in fines and restitution, in some 
cases for multiple violations. If the analysis had been expanded to 
include compliance with other laws, the concern might well have been 
even broader.
    It is clear that, in many cases, the Government continues to do 
business with contractors who violate laws, sometimes repeatedly. By 
giving contracting officers a clearer basis for declining to contract 
with such businesses, the Government can improve the integrity of the 
contracting process, reduce the risk of fraud or noncompliance, and 
encourage standards of integrity and compliance with the law.

2. The July 1999 Proposed Rule To Clarify the FAR Responsibility 
Requirement

    In July 1999, the Civilian Agency Acquisition Council and the 
Defense Acquisition Regulations Council (the Councils) requested 
comment on a proposed rule that would amend the FAR's responsibility 
provisions so as to assist contracting officers in making the statutory 
determination of whether a prospective contractor has ``a satisfactory 
record of integrity and business ethics.'' (64 FR 37360, July 9, 1999). 
In fleshing out what constitutes ``a satisfactory record of integrity 
and business ethics,'' the preamble to the proposed rule stated that a 
prospective contractor's ``record of compliance with laws'' constitutes 
``a relevant and important part of the overall responsibility 
determination'' Id. It was believed that additional regulatory guidance 
was needed in the FAR ``concerning general standards of contractor 
compliance with applicable laws when making pre-award responsibility 
determinations.'' Id.
    The Councils, therefore, requested comment on a revision to the FAR 
that ``clarifies the existing rule by providing several examples of 
what constitutes an unsatisfactory record of compliance with laws and 
regulations.'' Id. Specifically, the proposed rule would have amended 
FAR 9.104-1(d) by adding--immediately after the statutory requirement 
that a prospective contractor ``Have a satisfactory record of integrity 
and business ethics''--the following parenthetical phrase: ``(examples 
of an unsatisfactory record may include persuasive evidence of the 
prospective contractor's lack of compliance with tax laws, or 
substantial noncompliance with labor laws, employment laws, 
environmental laws, antitrust laws, or consumer protection laws)''. (64 
FR 37361, July 9, 1999).
    The Councils provided the public with 120 days in which to submit

[[Page 80257]]

comments. The Councils received more than 1500 comment letters on the 
proposal. Some commenters expressed strong support for the proposed 
rule, while others strongly opposed it. In addition to indicating their 
overall support or opposition to the proposed rule, commenters on both 
sides focused on what they viewed as problems with the specific 
regulatory language in the proposal. In some cases, the commenters 
suggested alternative language.

3. The June 2000 Revised Proposed Rule To Clarify the FAR 
Responsibility Requirement

    In response to the comments received on the July 1999 proposal, the 
FAR Council developed a revised proposal. Again, as with the original 
proposal, the purpose of the revised proposal was to provide 
contracting officers with guidance in evaluating a prospective 
contractor's ``record of compliance with laws and regulations'' in 
connection with the statutory ``responsibility'' determination that the 
contractor has ``a satisfactory record of integrity and business 
ethics.'' In addition, the Council proposed additional procedural 
protections for contractors, to provide further confidence that 
contracting officers would not misuse their discretion.
    The FAR Council requested comment on the revised proposal in June 
2000 (65 FR 40830, June 30, 2000). In the preamble to the June 2000 
notice, the FAR Council summarized the comments that had been submitted 
on the July 1999 proposal. Id.
    In response to the concerns raised by commenters on the July 1999 
proposal, the FAR Council revised the proposed amendment to FAR Part 9 
in a number of respects. First, to aid contracting officers in 
evaluating a prospective contractor's ``record of compliance with laws 
and regulations,'' the FAR Council proposed additional language, for 
inclusion in FAR 9.103, to state that contracting officers ``should 
coordinate nonresponsibility determinations based upon integrity and 
business ethics with legal counsel (see 9.104-1(d)).'' Second, the FAR 
Council modified the amendments that had been proposed in July 1999 for 
FAR Part 9, ``to confirm that satisfactory compliance with Federal laws 
including tax laws, labor and employment laws, environmental laws, 
antitrust laws, and consumer protection laws would be part of a 
satisfactory record of integrity and business ethics.'' 65 FR 40830. 
Under the proposed amendments, as modified by the FAR Council, FAR 
9.104-1(d) would state that a prospective contractor shall ``Have a 
satisfactory record of integrity and business ethics including 
satisfactory compliance with Federal laws including tax laws, labor and 
employment laws, environmental laws, antitrust laws, and consumer 
protection laws. (See 9.104-3(c).)'' The concluding reference to FAR 
9.104-3(c) was to add new language, contained in the FAR Council's 
amended proposal, that would assist contracting officers by providing 
them with a framework for their evaluation of a prospective 
contractor's ``record of compliance with laws'':

    ``(c) Integrity and business ethics. In making a determination 
of responsibility based upon integrity and business ethics (see 
9.104-1(d)), contracting officers may consider all relevant credible 
information. Contracting officers should give greatest weight to 
decisions within the past three years preceding the offer as 
follows--
    ``(1) Convictions of or civil judgments rendered against the 
prospective contractor for:
    ``(i) Commission of Fraud or a criminal offense in connection 
with obtaining, attempting to obtain or performing a public 
(Federal, State or local) contract or subcontract;
    ``(ii) Violation of Federal or State antitrust statutes relating 
to the submission of offers;
    ``(iii) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
tax evasion, or receiving stolen property;
    ``(iv) Any other Federal or State felony convictions or pending 
Federal or State felony indictments; and
    ``(v) Federal court judgments in civil cases brought by the 
United States against the contractor.
    ``(2) Federal decisions by Federal Administrative Law Judges or 
Federal Administrative Judges and adjudicatory decisions, orders, or 
complaints issued by any Federal agency, board, or commission, 
indicating the contractor has been found to have violated Federal 
tax, labor and employment, antitrust, or consumer protection law.''

    In connection with this proposed framework, the FAR Council also 
proposed a corresponding amendment to the existing contractor 
responsibility certification in FAR Part 52. This amended certification 
would provide information that the contracting officer would need in 
conducting the evaluation in proposed FAR 9.104-3(c). Under the FAR 
Council's proposal, a prospective contractor would certify whether it 
``has'' or ``has not''--

    ``within the past three years, been convicted of any felonies 
(or has any felony indictment currently pending against them) 
arising from any Federal tax, labor and employment, environmental, 
antitrust, or consumer protection laws, had any adverse court 
judgments in civil cases against them arising from any Federal tax, 
labor and employment, environmental, antitrust, or consumer 
protection laws in which the United States brought the action, or 
been found by a Federal Administrative Law Judge, Federal 
Administrative Judge, agency, board or commission to have violated 
any Federal tax, labor and employment, environmental, antitrust, or 
consumer protection law. If the respondent has answered ``has'' to 
the above question, please explain the nature of the violation and 
whether any fines, penalties, or damages were assessed.''

    Finally, as the preamble explained, the FAR Council proposed to 
amend FAR Parts 14 and 15 to ``ensure that if non-responsibility is the 
basis for rejection of [a party] from the competition, then the 
contracting officer must provide the reasons for the non-responsibility 
determination in the notification'' that is provided to that 
unsuccessful bidder and offeror (65 FR 40831, June 30, 2000).
    The FAR Council provided the public with 60 days in which to submit 
comments on the revised proposal. Substantially fewer comments were 
submitted on the June 2000 proposal than had been submitted on the July 
1999 proposal. Whereas more than 1500 comment letters were submitted on 
the original proposal, only about 300 comments were received on the 
revised proposal (and a substantial number of these 300 comments were 
an essentially identical form letter). Again, as with the original 
proposal, some commenters expressed strong support for the revised 
proposal, while others strongly opposed it. Moreover, commenters on 
both sides focused on what they viewed as problems with the specific 
regulatory language in the revised proposal and, in some cases, they 
suggested alternative language.

4. The June 2000 Proposal to Amend Part 31

    In addition to the revised proposals to amend FAR Parts 9, 14, 15, 
and 52 on the contractor responsibility determination, the June 2000 
notice also proposed amendments to FAR Part 31 to address the 
allowability, in the context of cost-based Federal contracts, of costs 
relating to labor relations and to legal and other proceedings (65 FR 
40833, June 30, 2000). These proposed amendments to Part 31 were a 
revision of the amendments that had been proposed in the July 9, 1999 
notice (65 FR 37361). As the preamble to the June 2000 notice 
explained, the FAR Council revised its proposed Part 31 amendments in 
response to the concerns that were expressed by the 135 commenters who 
had addressed the Part 31 proposal in the July 1999 notice. Id. at 
40831.

[[Page 80258]]

    In sum, the June 2000 notice proposed that the following costs 
would not be allowable (i.e., the Federal Government would not pay for 
them): costs incurred ``for activities that assist, promote, or deter 
unionization'' and costs incurred in ``a civil or administrative 
proceeding'' brought by a government where there has been ``a finding 
that the contractor violated, or failed to comply with, a law or 
regulation.'' Id. at 40833. The purpose of these amendments was to 
ensure consistency with Federal ``neutrality'' in labor relations (id. 
at 40831) and with the principle that ``[t]axpayers should not have to 
pay the legal defense costs associated with adverse decisions against 
contractors'' (64 FR at 37360-61).

B. The Final Rule

1. Summary of the Final Rule

    Based on its consideration of the comments received on both 
proposed rules, the FAR Council is issuing this final rule. It provides 
both clearer guidance than in earlier proposals and additional 
procedural protection for contractors, to ensure that contracting 
officer discretion is fairly employed. The following changes are being 
made to the FAR:
    FAR Part 9. Language has been added to FAR Part 9 that:
--Clarifies that contracting officers should coordinate 
nonresponsibility determinations based upon integrity and business 
ethics with agency legal counsel (FAR 9.103(b)).
--Clarifies that a satisfactory record of integrity and business ethics 
includes satisfactory compliance with the law including tax, labor and 
employment, environmental, antitrust, and consumer protection laws (FAR 
9.104-1(d)).
--Provides an expanded guidance statement to contracting officers that 
(1) reinforces the link between a satisfactory record of integrity and 
business ethics, compliance with law and the Government's interest in 
contracting with responsible reliable, honest and law abiding 
contractors; in sum, contractors it can trust; (2) requires contracting 
officers to consider all relevant credible information but states that 
the greatest weight must be given to offenses adjudicated within the 
past three years; (3) explains that a single violation of law will not 
``normally'' give rise to a determination of non-responsibility, and 
that the focus of the assessment should be on ``repeated, pervasive or 
significant'' violations of law; and (4) requires the contracting 
officer to take into account any administrative agreements entered into 
between the prospective contractor and the Government (FAR 9.104-3(c)).
    FAR Parts 14 and 15. New language has been added to modify FAR 
14.404-2(i) and 15.503(a)(1) that provides for notification to 
unsuccessful bidders and offerors promptly after a nonresponsibility 
determination is made. The modification would ensure that if 
nonresponsibility is the basis for rejection of the bid or elimination 
of an offer from the competition, then the contracting officer must 
provide the reasons for the nonresponsibility determination in the 
notification. If the prospective contractor disagrees with the 
contracting officer's decision, the prospective contractor may seek an 
independent review of that decision by filing suit in Federal District 
court under the Administrative Procedures Act; or by filing a bid 
protest with the General Accounting Office, the agency protest 
official, the Court of Federal Claims or the Federal District Court. If 
an agency receives notice of a protest from the GAO prior to award, a 
contract may not be awarded unless specifically authorized by 31 U.S.C. 
3553. If an agency receives notice of a protest from the GAO within the 
later of ten days after award, or five days after the debriefing date 
offered to an unsuccessful offeror for any debriefing that is requested 
and, when requested, is required, contracting officers shall 
immediately suspend performance or terminate the award of the contract 
unless specifically authorized by 31 U.S.C. 3553.
    FAR Part 31. Language has been added to FAR Part 31 on the 
following points:
     FAR 31.205-21, Labor Relations Costs. This rule makes 
unallowable those costs incurred for activities that assist, promote or 
deter unionization.
     FAR 31.305-47, Costs related to legal and other 
proceedings. This rule makes unallowable those costs incurred in civil 
or administrative proceedings brought by a government where the 
contractor violated, or failed to comply with a law or regulation.
    FAR Part 52. Language has been added to FAR Part 52 on the 
following points:
     FAR 52.209-5, Certification Regarding Debarment, 
Suspension, Proposed Debarment, and Other Responsibility Matters. The 
current certification is amended to require offerors to certify 
regarding violations of tax, labor and employment, environmental, 
antitrust, or consumer protection laws adjudicated within the last 
three years. This certification will impose less burden on contractors 
than the certification that had been proposed in June 2000. It is a 
check-the-box certification under which a contractor will have to 
provide additional detailed information only upon the request of the 
contracting officer, and this is expected to occur generally only when 
that contractor is the apparently successful offeror.
     FAR 52.212-3(h), Certification Regarding Debarment, 
Suspension or Ineligibility for Award (Executive Order 12549). The 
existing certification is amended to require offerors to certify 
regarding violations of tax, labor and employment, environmental, 
antitrust, or consumer protection laws adjudicated within the last 
three years. This certification will impose less burden on contractors 
than the certification that had been proposed in June 2000. It is a 
check-the-box certification under which a contractor will have to 
provide additional detailed information only upon the request of the 
contracting officer, and this is expected to occur generally only when 
that contractor is the apparently successful offeror.

2. Comments on the June 2000 Proposal and Changes in the Final Rule

    As noted above, some commenters on the June 2000 notice expressed 
strong support for the revised proposal, while others strongly opposed 
it. Moreover, commenters on both sides focused on what they viewed as 
problems with the specific regulatory language in the revised proposal 
and, in some cases, they suggested alternative language. The following 
summarizes the significant comments received on the June 2000 proposal, 
outlines the FAR Council's responses to those comments, and explains 
the significant changes that have been made to the amendments that were 
proposed in June 2000.
    A number of commenters who opposed the proposed revisions argued 
that the proposal would provide contracting officers with excessive 
discretion to eliminate prospective contractors from Federal 
contracting opportunities, and that this would result in arbitrary 
responsibility decisions. We believe that the final rule addresses this 
concern. As has been noted earlier in this notice, and in the two 
proposals, the purpose behind this rulemaking is to provide contracting 
officers with additional guidance to assist them in making the 
``integrity and business ethics'' responsibility determination. In 
addition to providing this guidance, the FAR Council has added a number 
of safeguards that are discussed elsewhere in this notice. The FAR 
Council believes

[[Page 80259]]

that the guidance and safeguards in the final rule will help to ensure 
that contracting officers make responsibility determinations in a non-
arbitrary manner that, in accord with the statutory purpose, protects 
the Government's interest. Of course, if a contracting officer 
determines that a prospective contractor does not have a ``satisfactory 
record of integrity and business ethics,'' and the prospective 
contractor disagrees with that determination, the prospective 
contractor may seek an independent review of that decision by filing 
suit in Federal District court under the Administrative Procedures Act; 
or by filing a bid protest with the General Accounting Office, the 
agency protest official, the Court of Federal Claims or the Federal 
District Court.
    Many of the commenters who expressed opposition to the proposed FAR 
amendments on the ``integrity and business ethics'' responsibility 
determination made arguments that, in one way or another, essentially 
questioned the underlying premise of this rulemaking and advocated that 
no revisions be made to the FAR in this area. These commenters asserted 
that there is no evidence of a ``problem'' which this rulemaking would 
``solve''; they argued that there is no ``nexus'' between a prospective 
contractor's record of compliance with the law and the contracting 
officer's ``responsibility'' determination; they argued that a non-
responsibility determination, based on a prospective contractor's lack 
of compliance with legal requirements, is an impermissible ``extra 
penalty'' for the violations; they argued that contracting officers are 
not qualified to evaluate a prospective contractor's record of 
compliance with the law; they argued that the proposed revisions to FAR 
Part 9 would not have the effect of clarifying the responsibility 
determination, and in this regard they argued that the proposed 
language was vague; and they contended that proposed language (and, in 
particular, the proposed certification) would not improve the 
efficiency of the procurement process and, in this regard, they argued 
that a ``cost-benefit'' analysis of the proposal should be conducted.
    These arguments had also been raised in comments that opposed the 
July 1999 proposal, and the FAR Council continues to disagree with 
them. This rulemaking is intended to provide contracting officers with 
additional guidance on making an ``integrity and business ethics'' 
determination that, by statute, contracting officers are already 
required to make. As noted above, the FAR has previously not provided 
any elaboration on what it means to have ``a satisfactory record of 
integrity and business ethics'' the FAR has simply restated the 
statutory language that a ``responsible source'' is one that has ``a 
satisfactory record of integrity and business ethics.'' The fundamental 
premise of the two prior proposals, and this final rule, is that an 
evaluation of a prospective contractor's ``record of integrity and 
business ethics'' necessarily needs to include an evaluation of its 
``record of compliance with laws and regulations.'' (64 FR 37360, July 
9, 1999.) This is an eminently reasonable proposition. Operating in a 
law-abiding (as opposed to law-breaking) manner is an essential 
component of having ``integrity'' and ``ethics'' and, therefore, of 
meeting the overall requirement of responsibility that businesses 
contracting with the Government--and with private businesses--must 
meet.'' Thus, while the statutory criterion of ``integrity and business 
ethics'' is not limited to (i.e., it is not exhausted by) the inquiry 
into whether a firm operates within the boundaries of the law, an 
irreducible element of what it means for a prospective contractor to 
have ``a satisfactory record of integrity and business ethics'' is that 
the prospective contractor is, essentially, law-abiding. We therefore 
believe, and many commenters expressed their strong agreement, that it 
would be entirely proper for a contracting officer to reach the 
conclusion, for example, that a company does not have a ``satisfactory 
record of integrity and business ethics'' when the facts show that the 
company has engaged, within the past three years, in ``repeated, 
pervasive, or significant violations'' of legal requirements.
    Scrutinizing a prospective contractor's record of compliance with 
the law, and making satisfactory compliance an express element of the 
responsibility determination, is both consistent with practices outside 
the Government and serves the Government's interests. First, by 
ensuring that its contractors possess a satisfactory record of 
compliance with law, the Government increases its confidence that a 
contractor is a responsible, reliable company that will perform the 
contract in an efficient, responsible and timely manner. It should also 
reduce the risk that compliance issues will interfere with performance 
of the contract.
    A justification for this rulemaking, then, is that it provides 
contracting officers with guidance that will assist them in evaluating 
a prospective contractor's record of compliance with laws and, thus, in 
making the statutory determination of whether the prospective 
contractor has ``a satisfactory record of integrity and business 
ethics.'' We believe that the final rule provides useful clarifying 
guidance, and it has been improved through the rulemaking process, in 
response to the comments that were submitted on the two proposals. In 
particular, by establishing a hierarchy of violations of legal 
requirements (and obtaining factual information on such violations), 
the final rule provides a more refined and objective framework for 
making this determination than simply having contracting officers make 
determinations about ``integrity and business ethics''--as they have 
done in the past--without the benefit of any clarifying guidance. We 
believe that contracting officers, guided by the amended regulation and 
in consultation with agency legal counsel, are in a better position to 
make the ``integrity and business ethics'' determination. In sum, we 
believe that the final rule represents a considerable improvement over 
the existing rule, which has required contracting officers to make an 
``integrity and business ethics'' determination, but has not provided 
them with any guidance on how they should make that determination.
    Another objection to the June 2000 proposal was the argument by 
some commenters that the proposed rule, in their view, does not provide 
prospective contractors with ``due process.'' This was also raised by 
those commenters who argued that the Federal agencies should rely 
instead on the debarment process, which they argued is sufficient to 
address the problem posed by prospective contractors who do not comply 
with the law. On the debarment issue, some commenters also argued that 
a nonresponsibility determination that is based on a prospective 
contractor's unsatisfactory record of complying with legal requirements 
constitutes a ``de facto debarment'' and, as such, is inappropriate.
    The FAR Council does not agree with these objections. Contrary to 
the commenters who argued otherwise, prospective contractors will have 
at least as much (if not more) ``due process'' than they have enjoyed 
up to now with respect to the responsibility determination of whether 
they have ``a satisfactory record of integrity and business ethics.'' 
In summary, prospective contractors know, in advance, the general 
substantive standard that they are being evaluated under i.e., whether 
they have ``a satisfactory record of integrity and business ethics.'' 
They also know, in advance, that the contracting officer will

[[Page 80260]]

focus on the prospective contractor's record of compliance with legal 
requirements and, in doing so, the contracting officer will be aided by 
a framework that establishes a hierarchy of violations and a 
certification that obtains information, from the prospective 
contractor, on such violations. When a contracting officer makes a 
nonresponsibility determination, he or she is required to notify the 
unsuccessful bidder or offeror, and state the reasons for the 
determination. If the prospective contractor does not agree with a 
determination of nonresponsibility, then it may file suit in Federal 
District Court under the Administrative Procedures Act; or the 
prospective contractor may file a bid protest with the General 
Accounting Office, the agency protest official, the Court of Federal 
Claims, or the Federal District Court. The prospective contractor may 
present its arguments against the non-responsibility determination, and 
the determination will be reviewed by the independent body.
    In response to the arguments in the comments about the debarment 
process, we do not agree that the separate debarment process is a 
substitute for a responsibility determination on ``integrity and 
business ethics.'' The fact that a prospective contractor is not found 
on the list of debarred entities does not mean, ipso facto, that the 
prospective contractor therefore has a ``satisfactory record of 
integrity and business ethics.'' Contracting officers are required, by 
statute and the FAR, to make an ``affirmative determination of 
responsibility'' (FAR 9.103(b)), which must include a determination by 
the contracting officer that the prospective contractor has a 
``satisfactory record of integrity and business ethics.'' As we have 
explained, the ``integrity and business ethics'' responsibility 
determination needs to include an evaluation by the contracting officer 
of the prospective contractor's record of compliance with legal 
requirements. We also do not agree with those commenters who argued 
that a nonresponsibility determination, based on a prospective 
contractor's violation of legal requirements, would necessarily 
constitute a ``de facto debarment.'' The fact that a contracting 
officer has determined that a prospective contractor is nonresponsible 
does not mean that the prospective contractor has therefore been 
subject to a ``de facto debarment.'' As the case law makes clear, the 
determination of whether a prospective contractor has been subject to a 
``de facto debarment'' is fact-sensitive and depends on the 
circumstances of each case. Moreover, if a prospective contractor 
believes that it has been subject to a ``de facto debarment,'' then it 
will continue to have the same remedy that it has had up to now: it may 
seek an independent review of the contracting officer's non-
responsibility determination. The final rule does not diminish the 
remedies that are available to prospective contractors for challenging 
what they believe are ``de facto debarments.''
    Finally, a number of commenters raised concerns about the impact of 
the proposed rule, or about the scope of the guidance in FAR 9.104-3(c) 
or the scope of the certification. Some commenters stated their belief 
that the proposal would have a significant, and disproportionately 
adverse, impact on the ability of small businesses to obtain Federal 
contracts. As is explained below in connection with the Regulatory 
Flexibility Act, the FAR Council does not believe that the final rule 
will have a significant economic impact on a substantial number of 
small entities. Apart from the certification requirement, the final 
rule does not impose any new obligations, of any kind, on prospective 
contractors; they already have an obligation to comply with the law. 
This is not a regulation that, for example, requires a company to 
install certain equipment, prescribes how a company shall carry out its 
operations, or prohibits a company from operating in any particular 
way. Rather, the final rule provides guidance to contracting officers 
on how they are to make their statutory determination of whether a 
prospective contractor has a ``satisfactory record of integrity and 
business ethics.'' In addition, the FAR Council does not believe that 
the guidance in the final rule will have a significant or 
disproportionate adverse impact on small businesses generally. The FAR 
Council believes that, as a class, small businesses are generally law-
abiding and, furthermore, the FAR Council is not aware of any evidence 
that would indicate (and the FAR Council has no reason to believe) that 
small businesses are any less law-abiding than large businesses. The 
FAR Council, therefore, does not expect that there will be a 
substantial number of small businesses that will be found, by a 
contracting officer, to have an unsatisfactory ``record of integrity 
and business ethics.'' Finally, for the reasons set forth in the 
Regulatory Flexibility Act and Paperwork Reduction Act discussions, 
below, the FAR Council does not believe that responding to the 
certification in the final rule will require small businesses to expend 
a significant amount of effort and resources.
    A number of commenters addressed the fact that the proposed 
certification included only violations of Federal law. Some commenters 
argued that the certification should also address violations of State 
law. Commenters also argued that the certification should include 
adverse civil judgments that arose in cases that are brought by private 
parties, as well as in cases brought by governmental authorities. Other 
commenters raised the concern that the proposed certification, by 
focusing on violations of Federal law, could harm U.S.-based firms, as 
opposed to foreign-based firms. In response to these comments, it is 
helpful to distinguish between the standard that is set forth in FAR 
9.104-1(d) and 9.104-3(c), and the implementing certification that has 
been added to FAR Part 52. Under the standard in FAR 9.104, the 
contracting officer ``must consider all relevant credible information'' 
regarding the prospective contractor's compliance with laws (the 
proposal stated that the contracting officer ``may consider'' such 
information; in response to comments, this was made mandatory rather 
than permissive). Although the final rule establishes a hierarchy of 
violations of law, some of which are also referenced in the 
certification, the contracting officer is not limited to considering 
only the listed violations. Again, the contracting officer ``must 
consider all relevant credible information,'' and such information 
relates to the prospective contractor's record of compliance with laws 
and regulations. The FAR Council expects that, as a practical matter, 
such information will generally pertain to compliance with Federal and 
State laws, but a prospective contractor's record of compliance with 
foreign laws and regulations can also constitute ``relevant credible 
information.''
    The final certification that has been added to Part 52, however, is 
not as broad as the standard in FAR 9.104. The certification is an 
implementation measure, designed to provide the contracting officer 
with the information that the FAR Council anticipates will be most 
useful in making the responsibility determination (e.g., felony 
convictions and indictments), while at the same time avoiding the 
imposition of undue reporting burdens on prospective contractors. In 
response to comments, the final certification has been broadened to 
include violations of State felony law as well as Federal law. In both 
cases, the certification focuses on cases that have been brought by

[[Page 80261]]

governmental authorities. The final certification, however, has not 
been broadened to include adverse judgments in civil cases brought by 
private parties or to include violations of foreign law. In addition, 
in response to comments, the certification in the final rule has been 
clarified to exclude administrative ``complaints'' (as opposed to 
adjudicated administrative actions); the final certification, 
therefore, addresses ``adverse decisions by Federal administrative law 
judges, boards, or commissions indicating willful violations.'' The 
fact that administrative complaints, private civil cases, and 
violations of foreign law have been not included in the final 
certification, however, does not mean that they cannot be taken into 
the contracting officer's consideration in making the responsibility 
determination; to the extent that the contracting officer becomes aware 
of such cases, and they constitute ``relevant credible information,'' 
the contracting officer must consider them in making the responsibility 
determination. Rather, the relatively narrow focus of the certification 
(as opposed to the general standard) reflects the FAR Council's attempt 
to craft a certification that is clear and that does not impose an 
undue reporting burden on prospective contractors. Finally, in an 
attempt to reduce the reporting burden on prospective contractors, the 
final certification requires a prospective contractor to supply 
additional detailed information only if requested to do so by the 
contracting officer, whereas the proposed certification would have 
required all prospective contractors who responded affirmatively to 
supply additional information (e.g., ``explain the nature of the 
violation and whether any fines, penalties, or damages were 
assessed'').

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. Section 601, et seq. In accordance with the 
requirements of 5 U.S.C. Section 605, the FAR Council is publishing the 
following statement in support of its certification. A copy of this 
certification and supporting statement has been forwarded to the Chief 
Counsel for Advocacy of the Small Business Administration.

Statement in Support of Certification

FAR Part 31

    With regard to the changes to Part 31 cost principles, this rule 
will not have a significant economic impact on a substantial number 
of small entities, because most contracts and subcontracts with 
small entities are awarded using simplified acquisition procedures 
or are awarded on a competitive fixed price basis, and do not 
require application of the cost principles contained in this rule.

FAR Parts 9, 14, 15, and 52

    With regard to the changes to Parts 9, 14, 15, and 52, this rule 
will not have a significant economic impact on a substantial number 
of small entities for the following reasons:

Background

    The law requires contracting officers to award contracts to 
responsible sources defined, in part, to be prospective contractors 
who have a record of integrity and business ethics. 41 U.S.C. 253b, 
10 U.S.C. 2305(b) and 41 U.S.C. 403. The objective of this final 
rule is to provide an objective basis for making this judgment. The 
rule makes clear that contracting officers must consider violations 
of laws in determining whether a prospective contractor has met that 
standard.
    A satisfactory record of integrity and business ethics is one 
that indicates that the prospective contractor possesses basic 
honesty, and that the Government can trust or rely on the contractor 
to perform the contract. A satisfactory record is one that includes 
satisfactory compliance with laws. Five categories of laws are 
identified--tax, labor and employment, environmental, antitrust and 
consumer protection laws.
    In assessing whether the contractor has a record of satisfactory 
compliance with laws, the rule directs the contracting officer to 
focus on a pattern of repeated, pervasive, or significant violations 
of the law rather than single violations and to give the greatest 
weight to matters adjudicated within the last three years.
    To facilitate the transfer of information between the 
prospective contractor and contracting officer, a new certification 
has been added, requiring the prospective contractor to certify 
regarding certain violations adjudicated within the last three 
years.
    It is estimated that the rule will apply to approximately 
171,000 small entities.

Discussion

    In considering whether the rule would have a significant 
economic impact on a substantial number of small entities, the FAR 
Council viewed the impact in two ways: first, by application of the 
statutory standard and implementing guidance for assessing a 
prospective contractor's record of integrity and business ethics; 
and two, through the requirement of a non statutory certification.
    The following summarizes the significant comments received from 
small businesses, the basic assumptions made regarding the potential 
impact, and changes made in the rule to address the two areas of 
impact outlined above.

Response to Significant Comments

    1. ``The rule would punish a wrongdoer's employer, the small 
business entity employees and their local communities through the 
loss of work.'' The purpose of this rule is not to ``punish'' 
prospective contractors for violations of law. Instead, the purpose 
of this rule is to provide contracting officers with additional 
guidance to assist them in making the determination, that they are 
required by statute to make, that a prospective contractor has a 
``satisfactory record of integrity and business ethics.'' A 
prospective contractor's record of complying with legal requirements 
is a necessary component of its ``record of integrity and business 
ethics.'' No change in the rule was made as a result of this 
comment.
    2. ``The rule assumes that large and small business entities 
will be treated equally under the rule.'' Concern was expressed that 
the rule does not place small entities on a level playing field with 
large businesses because small entities lack the resources to defend 
potential lawsuits and the flexibility to mitigate the impact of 
adverse judgments. The FAR Council is not in a position to know what 
factors may motivate a particular business, in any particular case, 
to defend itself (or not) against charges of legal wrongdoing. 
However, we believe that the final rule addresses the thrust of the 
commenters' concern. For example, through the hierarchy of 
violations and the certification, the rule focuses the contracting 
officer on criminal felony convictions and indictments, on adverse 
civil judgments in cases brought by the Federal Government, and on 
adjudicated administrative decisions, not simply unadjudicated 
complaints. The hierarchy of violations and the certification thus 
focuses on judicial and administrative processes that have their own 
inherent procedural protections. The FAR Council therefore has no 
reason for concluding that these judicial and administrative 
processes are inherently unfair as applied to small businesses. In 
addition, the guidance in the final rule instructs the contracting 
officer to focus on ``repeated, pervasive, or significant'' 
violations of law, rather than on isolated infractions. We therefore 
believe that, under the final rule, there is a ``level playing 
field'' between large and small businesses. No change in the rule 
was made based on size of the business offering to the Government.
    3. ``Lack of adequate guidance to contracting officers and their 
legal counsel to determine satisfactory compliance with law will/
could cause the improper elimination of small business concerns from 
a contract award.'' In response to this comment, an extended 
guidance statement has been added that will assist the contracting 
officer making this determination. However, as with any business 
decision, this is a judgment call requiring the contracting officer 
to review and analyze the facts and make a determination based on 
those facts. Also, the SBA Certification of Competency program 
remains intact requiring nonresponsibility determinations to be 
referred to SBA.
    4. ``The rule does not provide any guidance how small entities, 
offering as prime contractors, are to deal with responsibility 
determinations of their prospective

[[Page 80262]]

subcontractors. Nor does the rule provide guidance how small 
entities offering as subcontractors will be affected by the rule.'' 
Currently, a prime contractor is responsible for determining the 
responsibility of its prospective subcontractors; the only 
requirement imposed is that the prime contractor assure the 
Government that each first tier subcontractor is not debarred, 
suspended, or proposed for debarment. This rule does not change that 
requirement. It will still be up to the prime contractor, large or 
small, to assure the capability and honesty of the potential 
subcontractor to fulfill the Government's needs. We assume some kind 
of due diligence on the part of the prime contractor.
    5. ``The burden on small businesses is not minimized by only 
requiring the certification over $100,000; small businesses will 
still have to demonstrate their responsibility under $100,000 and 
the absence of a certification will deny them the opportunity to do 
so.'' The Federal Acquisition Streamlining Act provided for the use 
of simplified acquisition procedures under $100,000. For example, 
oral solicitations are permitted under that threshold. In 
establishing the certification as an implementation measure, the FAR 
Council had to balance the need to obtain information that will be 
useful to the contracting officer in making the responsibility 
determination with the need to avoid imposing undue reporting burden 
on prospective contractors. The FAR Council believes that the 
$100,000 acquisition level is an appropriate threshold for 
imposition of the certification.

Basic Assumptions

    In developing the policies and procedures contained in the final 
rule, the FAR Council considered available alternative approaches 
and impacts of each of the alternatives on small entities. To start, 
however, the FAR Council was bound by statutory requirements and 
made certain assumptions regarding the impact on small businesses 
that narrowed the scope of alternatives available for consideration.
    By law, a contracting officer must already make an affirmative 
determination of responsibility in order for a prospective 
contractor to be eligible for award. That determination must include 
an assessment of the contractor's record of integrity and business 
ethics. By law, a contracting officer must already make an 
affirmative determination of responsibility in order for a 
prospective contractor to be eligible for award. That determination 
must include an assessment of the contractor's record of integrity 
and business ethics. Until this point the FAR has merely restated 
the law and has not provided any guidance to the contracting officer 
on what constituted a record of integrity and business ethics. This 
rule intends to fill that gap and provide contracting officers with 
a road map for use in that decision-making process.
    One alternative would be to exempt small businesses from the 
rule. But because the rule assists the contracting officer in making 
the basic statutory assessment, the FAR Council concluded that 
exempting small businesses would actually remove the beneficial 
aspect of the rule to small businesses. In addition, the FAR council 
believes that a prospective contractor's record of complying with 
legal requirements is a relevant consideration for evaluating its 
record of integrity and business ethics--regardless of the size of 
the business. Under the procurement statutes, small and large 
business are subject to the same ``integrity and business ethics'' 
responsibility determination. Thus, the rule does not exempt small 
businesses from the statutory ``integrity and business ethics'' 
determination, and the rule does not exempt small businesses from 
the final rule's clarifying guidance on how contracting officers 
should evaluate a prospective contractor's legal compliance when 
making this determination.
    The basic policy of the Government is to award a fair share of 
contracts to small entities. It is not the intent of the final rule 
to interfere with that policy. Sufficient procedures are in place to 
ensure this policy is not altered and that the essence of the final 
rule is carried out in an equitable manner. For example, the 
contracting officer will still be required to forward 
nonresponsibility determinations for small entities to the Small 
Business Administration (SBA) in accordance with the certificate of 
competency program.
    A Certificate of Competency (COC) is the certificate issued by 
the Small Business Administration (SBA) stating that the holder is 
responsible (with respect to all elements of responsibility, 
including, but not limited to, integrity) for the purpose of 
receiving and performing a specific Government contract. In 
accordance with FAR 19.602, upon determining and documenting that an 
apparent successful small business offeror lacks certain elements of 
responsibility, the contracting officer must refer the matter to the 
cognizant SBA area office. Contract award must be withheld for a 
period of at least 15 days while SBA reviews the referral. The SBA 
at that point is authorized to overturn the decision of the 
contracting officer and issue a COC determining that the small 
offeror is responsible and, therefore, eligible for award.
    The FAR Council has long believed that small entities are 
generally law-abiding. This rulemaking process has not given the FAR 
Council any reason to change this view. Neither the public comment 
nor internal agency data indicate that a substantial number of small 
entities have violated applicable legal requirements in a manner 
that would result in a contracting officer determining that they are 
nonresponsible under this rule.
    For example, for fiscal year 2000, the Department of Labor is 
reporting 536 violations of the Service Contract Act by small 
businesses with less than 100 employees. (For the same year, the 
Federal Procurement Data System shows 46,205 (through the third 
quarter) contract awards to small entities.) After consideration of 
violations of all laws by small businesses, agencies made only 20 
nonresponsibility determinations based on a lack of integrity and 
business ethics for fiscal years 1996 through 1999 which were 
referred to SBA for a COC. Of that number, the SBA declined to issue 
a COC in 10 cases. Given these numbers, we cannot conclude that 
violations of laws by small entities occur in such a number as to 
render a substantial number nonresponsible under the provisions of 
this rule.
    Another alternative considered was to exempt small businesses 
from the requirement of the certification. The FAR Council did not 
adopt this alternative either, for several reasons. First, the FAR 
Council could not conclude that the new certification (requiring all 
offerors for contracts greater than $100,000 to certify regarding 
certain violations of law adjudicated within the past three years) 
represented a significant economic burden to small entities. This is 
a check-the-box certification requiring detailed information only 
from offerors that respond affirmatively to the certification, and 
normally only from the apparent awardee. The average time required 
of a small business to respond to the certification should be much 
lower than that of a large business and most small businesses should 
require minimal recordkeeping. Second, the certification is a 
streamlined method of securing information upon which the 
contracting officer would make the determination that the 
prospective contractor has a satisfactory record of integrity and 
business ethics. Ultimately, this should be beneficial to small 
businesses in assuring that the contracting officer has the correct 
information upon which to make this determination.
    In assessing the potential economic impact of the certification 
on small businesses, the FAR Council also considered the fact that 
the new requirement is simply an amendment to an existing 
certification. The current certification already requires 
prospective contractors to certify regarding violations adjudicated 
within the last three years of a number of laws at the Federal, 
state and local levels. The current certification already applies to 
both criminal and civil actions, as well as convictions and 
indictments. The new certification merely adds five new categories 
of laws and also extends to administrative actions. Consequently, 
the FAR Council concluded that the new requirement would not result 
in a significant economic impact on a substantial number of small 
entities.
    Thus, while we believe that the rule will apply to a substantial 
number of small entities, we are unable to conclude that it will 
have a significant economic impact on a substantial number of small 
entities.

Changes Made to the Rule

    Notwithstanding the above, alternatives to language in the 
proposed rules were considered which the FAR Council believes would 
achieve the Government's goal and minimize the impact of small 
entities. Those areas were the following:
    1. Link to honesty and trustworthiness. Some commenters were 
concerned that the rule does not contain an overarching policy 
statement thereby creating a vagueness for contracting officers 
trying to assess a contractor's record of integrity and business 
ethics. They expressed concern that

[[Page 80263]]

inadvertent violations of laws could form the basis for 
nonresponsibility determinations. The rule now reflects that a 
satisfactory record of integrity and business ethics is one that 
indicates that the prospective contractor possesses basic honesty 
and trustworthiness, and that the Government can trust or rely on 
the contractor to perform the contract.
    2. Additional guidance has been added for how contracting 
officers should weigh the evidence. Some commented that the rule did 
not contain guidance on how contracting officers should weigh 
evidence. The final rule provides a hierarchy of violations for 
consideration by the contracting officers. First, the hierarchy 
focuses on Federal and state offenses (convictions, civil judgments, 
administrative rulings, indictments). Second, criminal violations 
are limited to felonies. Third, although the contracting officer may 
consider relevant credible information, the hierarchy focuses on 
five new categories of laws: tax, labor and employment, antitrust, 
environmental and consumer protection laws. Fourth, violations 
adjudicated within the last three years are to be given the greatest 
weight.
    3. Comments were received that the proposed rule will establish 
vague, ambiguous and subjective standards. To the contrary, this 
rule provides an objective basis for making a determination that 
otherwise is subjective. Some expressed concern that a series of 
minor violations could form the basis for a non-responsibility 
determination. To respond to those comments, an extended guidance 
statement has been added. The rule directs the contracting officer 
to give the greatest weight to adjudicated matters where there is a 
history of repeated, pervasive and significant violations. A single 
violation normally will not be cause for a determination of 
nonresponsibility.
    4. Certification. Some commented that the certification 
requirement was burdensome. In response to those commentors, the new 
certification is a check-the-box certification requiring detailed 
information only upon request by the contracting officer and not 
from all offerors. Normally, this will be where the apparent awardee 
has responded affirmatively to the certification.

Conclusion

    Based on the above, the FAR Council has concluded, and thereby 
certifies, that the rule will not have a significant economic impact 
on a substantial number of small entities.

C. Executive Order 12866

    This rule is not regarded as a significant rule subject to Office 
of Management and Budget review under Section 6(b) of the Executive 
Order 12866, Regulatory Planning and Review, dated September 30, 1993. 
This rule is not considered a major rule under 5 U.S.C. Section 804.

D. Non-Statutory Certification Approval

    In accordance with Section 29 of the Office of Federal Procurement 
Policy Act, 41 U.S.C. Section 425, the FAR Council has requested 
approval from the Administrator for Federal Procurement Policy for 
inclusion of a non-statutory Certification in the Federal Acquisition 
Regulation. In the absence of an Administrator, that approval has been 
granted by the Director of the Office of Management and Budget in 
accordance with the Federal Vacancies Reform Act of 1998, 5 U.S.C. 
3348(b)(2).

E. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 104-13) applies because the 
FAR changes to Parts 9 and 52 increase the information collection 
requirements that have been approved by the Office of Management and 
Budget (OMB) under OMB Control Number 9000-0094. OMB had previously 
approved an annual reporting burden of 91,667 hours based on 1,100,000 
respondents and 1,100,000 annual responses. The information collection 
provisions of this rule have been submitted to OMB but will not take 
effect prior to OMB approval of these provisions under the Paperwork 
Reduction Act.
    The FAR Council analysis for the proposed rule estimated that the 
annual reporting burden for OMB Control Number 9000-0094 applied to 
only 89,995 respondents, of which approximately 50,000 would be 
affected by the new certification requirement. The FAR Council further 
estimated that the addition of this new certification requirement would 
increase the total burden hours by 515,000 hours, for a new total of 
606,667 hours. This was based on an estimate that the additional 
certification would take an average of 3 hours each for 50,000 initial 
responses and .5 hours each for 450,000 subsequent responses that year, 
for a composite average of .75 hours per response. In addition, the FAR 
Council estimated that in 50,000 cases the contracting officer would 
request additional information from the respondent in accordance with 
FAR 9.408(a), requiring an additional 4 hours each for 30,000 initial 
responses, and 1 hour each for each of 20,000 subsequent responses for 
a composite average of 2.8 hours per response.
    Several commenters addressed the estimated paperwork burden. The 
FAR Council considered these comments in formulation of the final rule 
and in the final paperwork burden analysis.

1. Estimates of burden

    One commenter argued that the PRA burden estimate for the proposed 
rule was low, and the commenter pointed to an earlier (and higher) 
draft burden estimate that had been prepared. The higher estimate cited 
by the commenter reflected an earlier (unpublished) draft version of 
the collection of information. The FAR Council believes that its burden 
estimate for the proposed rule was correct. In this case, the burden 
estimate was being updated as the collection was being developed. It is 
not uncommon for an agency to revise its burden estimate as the agency 
develops a collection of information. Under the PRA, it is entirely 
appropriate for agencies, in their development of a collection of 
information, to seek to identify ways to decrease its burden or 
increase its practical utility through modifications to the collection. 
In addition, during the development of a collection of information, 
agencies often review their methodology and analysis for estimating its 
burden, and this review can also result in revisions to a burden 
estimate (this can occur even when the collection itself has not 
changed). In this case, after a draft (higher) burden estimate was 
prepared, clarifying changes were made to the collection, and it was 
this revised collection that was published for comment. In the course 
of updating the burden estimate for the collection, to take into 
account these clarifications, the FAR Council also reviewed its 
methodology and analysis for estimating the collection's burden. As a 
result of the clarifications and review, the burden estimate for the 
proposed rule was lower than the draft (informal) burden estimate that 
had been prepared for the prior draft of the collection. Similarly, in 
response to comments that were received on the proposed rule, the 
collection of information has been subsequently modified, and this has 
resulted in the burden estimate being further revised.

2. Number of Respondents and Responses.

    The paperwork burden justification for the final rule retains the 
estimate of 50,000 respondents and 500,000 responses per year.
    One commenter states that the FAR Council's estimate appears based 
on suspension and debarment actions. This is incorrect. This new 
certification requirement has been added to the provision at 52.209-5, 
Certification Regarding Debarment, Suspension, Proposed Debarment, and 
Other Responsibility Matters and 52.212-3, Offeror Representations and 
Certifications--Commercial Items. One of these provisions is included 
in all solicitations where the contract value is expected to exceed the 
simplified acquisition threshold (SAT). Therefore, the same 50,000 
respondents must answer all parts of the certification, whether or not 
they have been debarred,

[[Page 80264]]

suspended, or convicted of various violations. As previously stated, 
the 39,995 subcontractors that respond to inquiries from the prime 
contractor regarding debarment, suspensions, or proposed debarment are 
not affected by the new certification requirements.
    Most of the 171,000 small business entities that may be affected by 
the new responsibility standards are not affected by the certification 
requirement. Only offerors responding to solicitations that exceed the 
simplified acquisition threshold are affected. Such small businesses 
are already included in the estimate of 50,000 respondents. This new 
certification cannot increase the number of respondents, but only 
increase the burden hours per respondent.
    Another commenter cites Federal Procurement Data System data that 
the Government undertook 11.6 million procurement actions in FY 1998. 
The number of procurement actions is much greater than the number of 
contract awards that exceed the SAT. Most contract actions are under 
the SAT. In addition, contract actions also include orders, funding 
actions, additional work, or change orders. These contract actions 
would not require certification. For example, DoD is responsible for 
about half of all FPDS contract actions. In FY 1998, DoD only awarded 
22,549 definitive contracts that exceeded the simplified acquisition 
threshold. The estimate of 500,000 responses considered the fact that 
each offeror, not just the ultimate awardee, must complete the required 
certificate.

3. Burden Hours.

    The proposed rule required each offeror that responded 
affirmatively to the new certification to explain the nature of the 
violation and whether any fines, penalties, or damages were assessed 
and also permitted the contracting officer to request additional 
information. The paperwork burden estimate for the proposed rule 
included 375,000 hours for response to the certification (3 hours per 
initial response, 0.5 hours per subsequent response) and 140,000 hours 
to supply additional information requested by the contracting officer 
(4 hours per initial response and 1 hour per subsequent response).
    The final rule does not require any information other than the 
certification, unless requested by the contracting officer. Therefore, 
we have reduced the estimated hours per response to 1 hour per initial 
response and 0.3 hours per subsequent response, for a total of 185,000 
hours for the certification itself, a reduction of 190,000 hours. We 
estimate that in many acquisitions, the contracting officer will only 
request additional information if the otherwise apparently successful 
offeror has certified affirmatively. However, in some source 
selections, the contracting officer may request such information from 
all offerors in the competitive range that certified affirmatively. 
Therefore, we still estimate 50,000 additional requests for information 
from 30,000 respondents. We have retained the burden estimate of 4 
hours per initial response and 1 hour per subsequent response, for a 
total of 140,000 hours for providing additional information.
    Several commenters state that businesses wishing to do business 
with the Government in excess of the SAT will have to establish a 
system to track compliance and keep it current. As one commenter 
stated, no single official at any but the smallest companies is 
presently able to keep track of its compliance with all applicable 
laws, nor would they have reason to do so. We concur that most large 
businesses and some small businesses will probably establish a new 
system or augment a current system to track such compliance. Such a 
system would be required in any complex organization to obtain the 
significant reductions that we have built into estimates of subsequent 
response time. Therefore, we have included an estimated average of 6 
hours per year for recordkeeping for each of the 30,000 respondents to 
the request for additional information, for a total of 180,000 annual 
recordkeeping hours.
    The revised annual reporting burden is estimated as follows:
    Respondents: 89,995.
    Responses per respondent: 12.8.
    Total annual responses: 1,150,000.
    Average hours per response: \1\ 0.362 hours.
    Recordkeepers: 30,000.
    Average annual hours per recordkeeper: 6 hours.
    Additional burden hours: 505,000.
    Total burden hours: 596,667 hours.
    The Paperwork Reduction Act does not apply to the changes to FAR 
Part 31, Contract Cost Principles and Procedures, because these changes 
do not impose information collection requirements that require Office 
of Management and Budget approval under 44 U.S.C. 3501, et seq.
---------------------------------------------------------------------------

    \1\ Average hours per response is calculated by dividing total 
nonrecordkeeping burden hours by total annual responses.
---------------------------------------------------------------------------

List of Subjects in 48 CFR Parts 9, 14, 15, 31, and 52

    Government procurement.

    Dated: December 15, 2000.
Al Matera,
Acting Director, Federal Acquisition Policy Division.

Federal Acquisition Circular

    Federal Acquisition Circular (FAC) 97-21 is issued under the 
authority of the Secretary of Defense, the Administrator of General 
Services, and the Administrator for the National Aeronautics and Space 
Administration.
    All Federal Acquisition Regulation (FAR) changes and other 
directive material contained in FAC 97-21 are effective January 19, 
2001.

    Dated: December 15, 2000.
David A. Drabkin,
Deputy Associate Administrator, Office of Acquisition Policy, General 
Services Administration.
    Dated: December 15, 2000.
Michael E. Sipple,
Acting Director, Defense Procurement.
    Dated: December 15, 2000.
Tom Luedtke,
Associate Administrator for Procurement, National Aeronautics and Space 
Administration.
    Therefore, DoD, GSA, and NASA amend 48 CFR parts 9, 14, 15, 31, and 
52 as set forth below:

    1. The authority citation for 48 CFR parts 9, 14, 15, 31, and 52 
continues to read as follows:

    Authority:  40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 9--CONTRACTOR QUALIFICATIONS

    2. Amend section 9.103 to add a new sentence after the second 
sentence in paragraph (b) to read as follows:


9.103  Policy.

* * * * *
    (b) * * * Contracting officers should coordinate nonresponsibility 
determinations based upon integrity and business ethics with legal 
counsel. * * *

    3. Revise paragraph (d) of section 9.104-1 to read as follows:


9.104-1  General standards.

* * * * *
    (d) Have a satisfactory record of integrity and business ethics 
including satisfactory compliance with the law including tax laws, 
labor and employment laws, environmental laws, antitrust laws, and 
consumer protection laws.
* * * * *

    4. In section 9.104-3, redesignate paragraphs (c) and (d) as (d) 
and (e)

[[Page 80265]]

respectively; and add a new paragraph (c) to read as follows:


9.104-3  Application of standards.

* * * * *
    (c) Integrity and business ethics. (1) Prospective contractors must 
have a satisfactory record of integrity and business ethics in order to 
receive a Government contract. This determination can be made by 
examining a prospective contractor's record of compliance with the law. 
A satisfactory record of compliance with the law indicates that the 
prospective contractor possesses basic honesty, integrity and 
trustworthiness, and that the Government can trust or rely on the 
contractor to perform the contract in a timely manner. In making a 
determination of responsibility based upon integrity and business 
ethics, contracting officers must consider all relevant credible 
information. However, contracting officers should give the greatest 
weight to violations of laws that have been adjudicated within the last 
three years preceding the offer. Normally, a single violation of law 
will not give rise to a determination of nonresponsibility, but 
evidence of repeated, pervasive, or significant violations of the law 
may indicate an unsatisfactory record of integrity and business ethics. 
Also, contracting officers should give consideration to any 
administrative agreements entered into with prospective contractors who 
take corrective action after disclosure of law violations. These 
contractors, despite findings of law violations, may continue to be 
responsible contractors because they have corrected the conditions that 
led to the misconduct. On the other hand, failure to comply with the 
terms of an administrative agreement is evidence of a lack of integrity 
and business ethics. Contracting officers must consider information 
based on the following which are listed in descending order of 
importance:
    (i) Convictions of and civil judgments rendered against the 
prospective contractor for--
    (A) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public (Federal, state 
or local) contract or subcontract;
    (B) Violation of Federal or state antitrust statutes relating to 
the submission of offers;
    (C) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statement, tax 
evasion, or receiving stolen property.
    (ii) Indictments for the offenses listed in 9.104-3(c)(1)(i).
    (iii) Relative to tax, labor and employment, environmental, 
antitrust, or consumer protection laws:
    (A) Federal or state felony convictions.
    (B) Adverse Federal court judgments in civil cases brought by the 
United States.
    (C) Adverse decisions by a Federal administrative law judge, board, 
or commission indicating violations of law.
    (D) Federal or state felony indictments.
    Also, contracting officers may consider other relevant information 
such as civil or administrative complaints or similar actions filed by 
or on behalf of a federal agency, board or commission, if such action 
reflects an adjudicated determination by the agency.
* * * * *

PART 14--SEALED BIDDING

    5. Revise paragraph (i) of section 14.404-2 to read as follows:


14.404-2  Rejection of individual bids.

* * * * *
    (i) The contracting officer must reject low bids received from 
concerns determined to be nonresponsible pursuant to subpart 9.1 (but 
if a bidder is a small business concern, see subpart 19.6 with respect 
to certificates of competency). The contracting officer must promptly 
notify the bidder of the nonresponsibility determination and the basis 
for it.
* * * * *

PART 15--CONTRACTING BY NEGOTIATION

    6. Revise paragraph (a)(1) of section 15.503 to read as follows:


15.503  Notifications to unsuccessful offerors.

    (a) Preaward notices--(1) Preaward notices of exclusion from 
competitive range. The contracting officer must notify offerors 
promptly in writing when their proposals are excluded from the 
competitive range or otherwise eliminated from the competition. The 
notice must state the basis for the determination and that a proposal 
revision will not be considered. When the exclusion or elimination of a 
proposal is based on a nonresponsibility determination, the contracting 
officer must state the basis for the determination.
* * * * *

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

    7. Amend section 31.205-21 by designating the existing paragraph as 
paragraph (a) and adding paragraph (b) to read as follows:


31.205-21  Labor relations costs.

* * * * *
    (b) Costs incurred for activities that assist, promote, or deter 
unionization are unallowable.

    8. Amend section 31.205-47 in paragraph (a) by removing the 
definition ``Fraud''; and revising paragraph (b)(2) to read as follows:


31.205-47  Costs related to legal and other proceedings.

* * * * *
    (b) * * *
    (2) In a civil or administrative proceeding, a finding that the 
contractor violated, or failed to comply with, a law or regulation;
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    9. In section 52.209-5--
    a. Revise the date of the clause;
    b. In paragraph (a)(1)(i)(B), remove ``a 3-year'' and add ``the 
three-year'' in its place; and remove ``and'' at the end of the 
paragraph;
    c. In paragraph (a)(1)(i)(C), at the end of the paragraph remove 
the period and add ``; and'' in its place; and
    d. Redesignate paragraph (a)(1)(ii) as (a)(1)(iii) and add a new 
(a)(1)(ii) to read as follows:


52.209-5  Certification Regarding Debarment, Suspension, Proposed 
Debarment, and Other Responsibility Matters.

* * * * *

Certification Regarding Debarment, Suspension, Proposed Debarment, and 
Other Responsibility Matters (Jan. 2001)

* * * * *
    (a) * * *
    (1) * * *
    (ii)(A) The offeror, aside from the offenses enumerated in 
paragraphs (a)(1)(i)(A), (B), and (C) of this provision, has [ ] has 
not [ ] within the past three years, relative to tax, labor and 
employment, environmental, antitrust, or consumer protection laws--
    (1) Been convicted of a Federal or state felony (or has any 
Federal or state felony indictments currently pending against them); 
or
    (2) Had a Federal court judgment in a civil case brought by the 
United States rendered against them; or
    (3) Had an adverse decision by a Federal administrative law 
judge, board, or commission indicating a willful violation of law.

[[Page 80266]]

    (B) If the offeror has responded affirmatively, the offeror 
shall provide additional information if requested by the Contracting 
Officer; and
* * * * *

    10. In section 52.212-3--
    a. Revise the date of the clause;
    b. Revise the introductory text of paragraph (h);
    c. In paragraph (h)(1), remove ``, and'' and add ``;'' in its 
place; and
    d. Revise paragraph (h)(2);
    e. Add new paragraphs (h)(3) and (h)(4) to read as follows:


52.212-3  Offeror Representations and Certifications--Commercial Items.

* * * * *

Offeror Representations and Certifications--Commercial Items (Jan. 
2001)

* * * * *
    (h) Certification Regarding Debarment, Suspension or 
Ineligibility for Award (Executive Order 12549). (Applies only if 
the contract value is expected to exceed the simplified acquisition 
threshold.) The offeror certifies, to the best of its knowledge and 
belief, that--
* * * * *
    (2) [ ] Have, [ ] have not, within the three-year period 
preceding this offer, been convicted of or had a civil judgment 
rendered against them for: commission of fraud or a criminal offense 
in connection with obtaining, attempting to obtain, or performing a 
Federal, state or local government contract or subcontract; 
violation of Federal or state antitrust statutes relating to the 
submission of offers; or commission of embezzlement, theft, forgery, 
bribery, falsification or destruction of records, making false 
statements, tax evasion, or receiving stolen property;
    (3) [ ] Are, [ ] are not presently indicted for, or otherwise 
criminally or civilly charged by a government entity with, 
commission of any of these offenses; and
    (4)(i) The offeror, aside from the offenses enumerated in 
paragraphs (1), (2), and (3) of this paragraph (h), [ ] has [ ] has 
not within the past three years, relative to tax, labor and 
employment, environmental, antitrust, or consumer protection laws--
    (A) Been convicted of a Federal or state felony (or has any 
Federal or state felony indictments currently pending against them); 
or
    (B) Had a Federal court judgment in a civil case brought by the 
United States rendered against them; or
    (C) Had an adverse decision by a Federal administrative law 
judge, board, or commission indicating a willful violation of law.
    (ii) If the offeror has responded affirmatively, the offeror 
shall provide additional information if requested by the Contracting 
Officer.
* * * * *
[FR Doc. 00-32429 Filed 12-19-00; 8:45 am]
BILLING CODE 6820-EP-P