[Federal Register Volume 68, Number 202 (Monday, October 20, 2003)]
[Rules and Regulations]
[Pages 59999-60006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26463]



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Part II

Department of Defense

General Services Administration

National Aeronautics and Space Administration
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48 CFR Chapter 1



Federal Acquisition Regulations--Contract Bundling and Small Entity 
Compliance Guide; Final Rules

Small Business Adminstration
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13 CFR Part 125



Small Business Government Contracting Programs; Final Rule and Proposed 
Rule

Federal Register / Vol. 68, No. 202 / Monday, October 20, 2003 / 
Rules and Regulations

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 2, 7, 8, 10, 16, 19, and 42

[FAC 2001-17; FAR Case 2002-029]
RIN 9000-AJ58


Federal Acquisition Regulation; Contract Bundling

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 Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) governing contract 
bundling. Specifically, this final rule: Revises the definition of 
contract bundling to expressly include multiple award contract vehicles 
and task and delivery orders under such contract vehicles; mandates 
that procuring activities coordinate with the Small Business Specialist 
(SBS) proposed acquisition strategies or plans contemplating awards 
above specified dollar thresholds, and that the SBS notify the agency 
Office of Small and Disadvantaged Business Utilization (OSDBU) when 
those strategies include contract bundling that is unnecessary or 
unjustified; revises the threshold and documentation required for 
substantial bundling; and requires agency OSDBUs to perform certain 
oversight functions. These amendments are intended to implement a 
number of the recommendations included in an October 2002, Office of 
Management and Budget (OMB) report on contract bundling.

DATES: Effective Date: October 20, 2003.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, (202) 501-4755, 
for information pertaining to status or publication schedules. For 
clarification of content, contact Ms. Rhonda Cundiff, Procurement 
Analyst, at (202) 501-0044. Please cite FAC 2001-17, FAR case 2002-029.

SUPPLEMENTARY INFORMATION: 

A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 68 FR 5138, January 31, 2003, to solicit comments on its 
proposal to implement several recommendations included in OMB's October 
2002 report, entitled ``Contract Bundling: A Strategy for Increasing 
Federal Contracting Opportunities for Small Business.'' (See http://www.fac.gov).
    Contract bundling is defined in the Small Business Act as the 
consolidation of two or more procurement requirements for goods and 
services previously provided or performed under separate smaller 
contracts into a solicitation of offers for a single contract that is 
``unlikely to be suitable for award to a small business concern'', 15 
U.S.C. 632(o). The President's Small Business Agenda directed OMB to 
develop a strategy for unbundling contracts, as a means of expanding 
small business access to Federal procurements.
    In response, the Office of Federal Procurement Policy (OFPP), 
within OMB, issued the October 2002 bundling report, providing a nine-
point action plan to hold agencies accountable for eliminating 
unnecessary contract bundling and for mitigating the effects of 
necessary contract bundling.
    The proposed rule detailed the changes to the FAR that would 
implement the five action items requiring regulatory amendments. In 
particular, the rule proposed to: (1) Revise the definition of bundling 
to expressly include multiple award contract vehicles and task and 
delivery orders under such contracts; (2) require procuring activities 
to coordinate with their SBS proposed acquisition strategies or plans 
contemplating awards above specified dollar thresholds and require the 
SBS to notify the agency OSDBU when those strategies include 
unnecessary and unjustified contract bundling; (3) reduce the threshold 
and revise the documentation required for substantial bundling; and (4) 
require agency OSDBUs to perform periodic oversight reviews of agency 
bundling activities.
    The proposed rule invited the public to submit comments on the 
proposed amendments by April 1, 2003. In response to the proposed rule, 
43 comment letters were received. Some respondents complained that a 
few of the proposed changes did not go far enough to curb contract 
bundling. Others, on the other hand, criticized some of the proposed 
changes for going too far with the bundling regulations.
    The Councils considered all of the comments and recommendations in 
developing this final rule. The specific comments to each proposed 
amendment and the Councils' corresponding response are summarized as 
set forth below.
    1. Comments on Clarification of Bundling Definition. Eleven 
comments were received on the proposal to implement the OMB bundling 
report recommendation to require bundling reviews for task and delivery 
order awards under multiple award contract vehicles. The proposed 
regulation adds new language (paragraph (3)) to the FAR part 2 
definition of ``bundling'' that defines a ``single contract'' to 
include: (1) multiple awards of indefinite-quantity contracts under a 
single solicitation for the same or similar supplies or services to two 
or more sources; and (2) an order placed against an indefinite quantity 
contract under a Federal Supply Schedule contract; or task-order 
contract or delivery-order contract awarded by another agency (i.e., 
Governmentwide acquisition contract or multiagency contract).
    Some respondents suggested that any change in the definition of 
bundling (e.g., to specifically include multiple award contracts and 
orders under multiple award contracts) is questionable. Another 
respondent wants expansion of the FAR case to include ``consolidated 
contract procurements on IDIQ multiple award vehicles'' so that small 
businesses will have more opportunities to compete.
    One respondent believes that the scope of bundling is unclear and 
that a consistent definition must be agreed upon and supported by a 
cost-benefit analysis before proceeding. The Councils believe that a 
cost-benefit analysis is unnecessary and that the definition is clear 
and consistent by defining the type of contract actions that fall under 
the revised bundling definition. Two respondents oppose the definition 
of ``single contract'' particularly as it applies to Indefinite 
Delivery/Indefinite Quantity (ID/IQ) contracts for A-E services and 
recommends limiting the definition to those instances in which bundling 
under ID/IQ contracts for A-E services would replace two or more 
previous contracts with small business primes with one bundled contract 
on which it is unlikely that small businesses could be competitive as a 
prime contractor. The strategy of the proposed definition is intended 
to close loopholes that otherwise would allow certain types of 
acquisitions to escape effective review.
    A number of respondents commented on the proposed definition of 
``single contract'' and ``order.'' One respondent commented that the 
definition did not fully implement OMB's bundling recommendation to 
close the loophole of bundling task and delivery order awards because 
it does not cover the orders an agency issues against its own

[[Page 60001]]

multiple award contracts. This commenter pointed out that the new 
definition only covers the orders placed against GSA's Federal Supply 
Schedules, or against an indefinite quantity contract awarded by 
another agency and urged that the definition of contract bundling 
include orders placed against indefinite quantity, multiple award 
contracts awarded by any agency. The Councils do not agree that an 
agency's orders against its own contract should be subject to 
additional bundling reviews. The underlying multiple award contract of 
an agency is subject to the requirements for Small Business Specialist 
(SBS) and procurement center representative (PCR) review for contract 
bundling and small business participation. Unlike FSS orders, 
theoretically, the SBS and PCR reviews of an agency's proposed 
acquisition strategy or plan for its multiple award contract should 
encompass that agency's anticipated orders under that contract. 
Consequently, the agency's own orders presumably were part of the 
underlying PCR and SBS review. It would therefore be duplicative to 
require yet another bundling review of each individual order the agency 
places against its already reviewed multiple award contract. As a 
result, the Councils are not adopting this recommendation, particularly 
in light of the limited resources available to conduct the reviews.
    Another respondent noted that the proposed definition of bundling 
is deficient because it does not cover ``new work.'' New work is work 
that was never performed by contract before. Therefore, it was never 
part of a separate smaller contract, and so it is not bundled, by 
definition. Bundling is a concept which describes consolidation of 
prior contracts.
    Two respondents believe that the definition should be broader to 
include ``accretive bundling,'' which occurs when dissimilar tasks are 
added onto GWACs, ID/IQs, Schedules, and multiple award type contracts. 
The Councils disagree. FAR Subpart 19.2 requires that the Offices of 
Small and Disadvantaged Business Utilization (OSDBUs) work with the 
Small Business Administration's PCR to identify proposed solicitations 
that involve bundling. Further, FAR 19.202-1(e) requires the 
contracting officer to provide a copy of the proposed acquisition 
package to the PCR at least 30 days prior to the issuance of the 
solicitation if the proposed acquisition is for a bundled requirement. 
In particular, since FAR 19.202-1 requires procuring activities to 
submit acquisitions strategies above the established threshold to PCRs, 
strategies that contemplate orders that are above the threshold and 
that are not against an agency's own multiple award contract, would be 
subject to PCR review for bundling. Second, FAR 19.202-1 requires a 
procuring activity to submit a copy of a proposed acquisition strategy 
to the PCR, whenever that strategy involves a bundled requirement. 
Because the proposed definition in FAR Part 2 defines a bundled 
requirement to include certain task and delivery orders under another 
agency's contract, agencies would be required to submit such orders to 
PCRs for review, when the orders include bundling.
    For the purposes of bundling, the proposed rule now defines a 
single contract to include orders placed against an indefinite quantity 
contract under a Federal Supply Schedule or a task-order contract or 
delivery-order contract awarded by another agency and requires strategy 
review when the estimated contract or order value reaches or exceeds 
the thresholds. After considering all of the comments on the proposed 
single contract definition within the meaning of bundling, the Councils 
believe that the amendment effectively implements OMB's recommendation 
to compel bundling reviews of task and delivery orders. The Councils 
are therefore adopting it as proposed.
    2. Comments on Requirement for Bundling Reviews. The Councils 
received several comments concerning its proposal to add FAR 
7.104(d)(1), requiring bundling reviews of proposed acquisition 
strategies or plans. As proposed, that section requires an agency to 
coordinate its acquisition strategy or plan with its SBS whenever the 
agency's contemplated strategy or plan contemplates award of a contract 
or order that exceeds the applicable agency threshold established and 
is not set-aside for small businesses. As previously stated, FAR 
19.202-1(e) provides a minimum period of no later than 30 days before 
the issuance of the solicitation for the agency to coordinate its plan 
with the SBS. In addition, under FAR 7.104(d)(1), the SBS is required 
to notify the agency OSDBU if the proposed acquisition strategy or plan 
includes bundled requirements that the agency has not identified as 
bundled or includes unnecessary or unjustified bundling of 
requirements. Several commenters proposed exemptions for certain types 
of contracts (A-E services, Federal Supply Schedules). One commenter 
disagreed with applying contract bundling reviews to contracts (not 
orders) under GSA's Multiple Award Schedules (MAS) Program. The 
Councils disagree. Contract bundling has been applicable to GSA's 
Multiple Award Schedules Program since the FAR and SBA bundling 
regulations first became effective. This final rule specifically covers 
agency orders under the MAS program and provides more detailed review 
of various contract actions at agency-specific thresholds. The strategy 
is intended to close loopholes that otherwise would allow certain types 
of acquisitions to escape effective review.
    Some respondents commented that the proposed rule adds additional 
burdens and would require additional resources or a reallocation of 
existing resources. Although agency reallocation of resources may be 
necessary, the Councils believe that this rule is in response to the 
President's Small Business Agenda and OMB's strategy for unbundling 
Federal contracts to increase Federal contracting opportunities for 
small businesses. The proposed rule provides for eliminating 
unnecessary contract bundling and mitigating the effects of necessary 
contract bundling and ensuring maximum compliance with current contract 
bundling laws by fully using the resources of the Small Business 
Administration and agency OSDBUs.
    Some commenters suggested that OSDBUs should have authority to 
block an acquisition. That comment ignores existing regulations that 
would operate in tandem with proposed FAR 7.104(d)(2). The Councils 
believe this recommended change is unnecessary. Specifically, FAR 
19.202-1(e)(4) and FAR 19.505 already provide the mechanism for 
resolving disagreements with agencies concerning contract bundling and 
small business participation in procurements. FAR 19.202-1(e)(4) 
requires the contracting officer to document the basis for the 
rejection and notify the PCR in accordance with 19.505 if the 
contracting officer rejects the PCR's recommendation, made in 
accordance with 19.402(c)(2). FAR 19.505 allows the PCR to appeal the 
contracting officer's rejection to the head of the contracting activity 
(or designee).
    The proposed rule, specifically FAR 19.201 and FAR Subpart 19.4, 
encourages SBSs and OSDBUs to cooperate with PCRs in reviewing 
procurements and in identifying possible small business contracting 
opportunities. SBSs and OSDBUs therefore can work with PCRs in using 
the PCR appeal mechanism to challenge unnecessary and unjustified 
contract bundling.

[[Page 60002]]

    Accordingly, the Councils believe that the proposed FAR 7.104(d)(2) 
properly balances the need for SBS reviews of acquisition strategies 
with the need for operational efficiency in the procurement process. In 
adopting FAR 7.104(d)(2), the Councils have made minor revisions. The 
first is a technical change to clarify that the proposed strategies 
include ``acquisitions'' meeting the dollar threshold. The second is 
the inclusion of additional language reinforcing the SBS's 
responsibility to assist in identifying alternative strategies when an 
acquisition plan involves substantial bundling.
    3. Comments on Acquisition Dollar Thresholds. FAR 7.104(d)(2) 
establishes three agency-specific dollar thresholds that would trigger 
the bundling reviews required under FAR 7.104(d)(1). The three-tiered 
dollar threshold proposed is: $7 million or more for the Department of 
Defense (DoD); $5 million or more for the National Aeronautics and 
Space Administration (NASA), the Department of Energy (DoE) and the 
General Services Administration (GSA); and $2 million or more for all 
other agencies.
    The Councils received numerous comments on FAR 7.104(d)(2). Several 
respondents suggested increasing the agency review thresholds by 
doubling or tripling them or raising the threshold as applied to a 
particular agency. A few respondents recommended lowering the 
thresholds, either for review of Federal Supply Schedule orders or as 
applied to a particular agency. Of these respondents, some believed 
that adopting different thresholds for different agencies would 
unnecessarily complicate the acquisition process. They recommended 
adoption of a single Governmentwide threshold that would apply to all 
agencies equally. One of these respondents suggested that the Councils 
consider keeping the threshold already provided in FAR 7.107(e) for 
documenting substantial bundling ($10 million). Another respondent 
indicated that close monitoring of DOD's procurement is essential to 
limiting the adverse impact of contract bundling on small businesses. 
Another commenter also believed that the three-tiered approach is too 
complicated. This commenter suggested one threshold of $1 million. The 
proposed dollar amounts of the thresholds are based on a comparative 
analysis of the number and size of the contracting actions of the major 
procuring activities. The objective of the tiered approach is two-fold: 
(1) to target those contracting actions for individual agencies that 
would most likely involve significant contract bundling as well as 
opportunities for small business contracting; and (2) to minimize the 
extent to which the bundling reviews would disrupt the procurement 
process of individual agencies. The Councils continue to believe that 
the proposed three-tiered threshold will best achieve those objectives. 
The Councils therefore decline to adopt the recommendations for a 
single Governmentwide threshold to trigger bundling reviews. The 
respondents' expressed diverse opinions as to the appropriate structure 
and amount of the thresholds were not persuasive enough to divert from 
the proposed range in the strategy (i.e., $2 million, $5 million, and 
$7 million) or the proposed regulatory approach (three thresholds). The 
Councils are instead adopting the proposed threshold of $7 million for 
DoD, $5 million for NASA, DoE and GSA, and $2 million for all other 
agencies. These agency-specific levels will capture those procurements 
that would most likely involve contract bundling for individual 
agencies, will minimize the disruption to the procurement process, and 
will properly account for the limited resources and contracting 
personnel to conduct the bundling reviews.
    One respondent recommended that the rule clearly state the basis 
for determining review levels on orders placed against GSA, NASA, and 
DoE contracts by other agencies with lower thresholds and recommends 
that the specific agency threshold apply to that agency regardless of 
whether another agency's contract is used. An agency's threshold 
applies to that agency regardless of whether another agency's contract 
is being used.
    4. Comments on Additional Requirements for Acquisitions Involving 
Bundling. Two respondents disagreed with the proposed requirement to 
identify alternative strategies and recommended deleting that 
requirement. The Councils disagree. The proposed language is intended 
to require agencies to fully investigate all alternatives to bundling 
during the acquisition planning stage.
    Several respondents did not agree with thresholds proposed for 
substantial bundling. However, these comments were not persuasive 
enough to divert from the proposed thresholds. The Councils recognize 
that lowering the threshold for ``substantial bundling'' would mean 
enlarging the number of procurements that would require the additional 
written justification under FAR 7.107. However, the Councils continue 
to believe that this change will simplify the application by using the 
same three-tiered dollar threshold to trigger the bundling reviews and 
the required supporting analysis for substantial bundling. Also, the 
changes in the requirement for written justifications are consistent 
with OMB's report recommendations relating to the identification of 
alternative acquisition strategies.
    Finally, one respondent recommended that FAR 7.105 be changed to 
require any requirement previously procured be identified and an 
explanation given if it was satisfied by a separate smaller contract or 
order and is now planned for consolidation into contract or order. The 
Councils agree and have added the following language: ``When the 
proposed acquisition strategy involves bundling, identify the incumbent 
contractors and contracts affected by the bundling''.
    5. Comments on Part 8--Required Sources of Supplies and Services. 
Three comments were received for this part. The first respondent 
believes that clarifying that FSS contracts must comply with bundled 
contracts is helpful but the proposed requirement at 19.202-
1(e)(1)(iii) cited in 8.404(a)(1) is unnecessary. The Councils believe 
that this reference is appropriately placed and is necessary in Part 8 
in order to advise those contracting officers utilizing Part 8 to know 
what is applicable and not applicable to orders placed against Federal 
Supply Schedules. The second respondent recommends caution in opening 
the Schedules program to mandatory compliance without considering the 
impact on meeting agency needs. The strategy of the definition is 
intended to include orders placed against the Schedules program in 
order to close loopholes that otherwise would allow acquisitions to 
escape effective review. Finally, the third respondent believes that 
federal statutes specifically provide that task and delivery orders 
issued under a Schedules contract satisfy statutory competition 
requirements. While FSS contracts meet the statutory competition 
requirements, the bundling statute is silent on orders placed against 
these contracts. Including Schedule orders in the definition of 
bundling will close loopholes that currently allow those orders to 
escape effective review.
    6. Comments on Part 16--Types of Contracts. Two comments were 
received. The first respondent opposes the requirement in FAR 2.101 
whereby the definition affects the contract and task order requirements 
in 16.505(a)(7) and believes it would be devastating to the 
Government's procurement of surveying and mapping services, disruptive 
to emergency response activities (e.g., war efforts), and urges

[[Page 60003]]

that A-E services as defined in FAR Part 36 be exempt from these 
provisions. The Councils disagree. As previously stated, the strategy 
of the definition is intended to include orders to close loopholes that 
otherwise would escape effective review. The second respondent believes 
that the addition of FAR 16.505(a)(7)(iii) may conflict with statutory 
provisions. The Councils do not believe that this rule conflicts with 
statutory provisions but merely is intended as strategy to close 
loopholes that otherwise would allow certain types of acquisitions to 
escape effective review.
    7. Comments on Part 19--Small Business Programs, Subpart 19.2, 
Policies. Two comments were received for FAR 19.201 General policy. 
Both respondents recommended including a timeframe for periodic 
reviews. The Councils adopted the recommendation and amended the 
language to require annual reviews rather than periodic reviews.
    Three comments were received for FAR 19.202, Specific policies. The 
first respondent wants to ensure that OSDBU offices in all agencies 
have the necessary authority, resources, and independence to perform 
their function and wants to require written notification to agency 
OSDBUs early in the requisition stage of all GWAC and bundled 
proposals.
    The second respondent recommends revisions to require the 
negotiation of two-part goals for contracts awarded to the various 
types of small business concerns, with agency specific goals set for 
prime contracts and subcontracts awarded to small business concerns and 
for the OSDBU, in performing assessments of contracts awarded to small 
business concerns, to identify and track the number of Federal 
contracting dollars going to the various small business categories. The 
Councils believe that this comment is outside the scope of this rule.
    The third respondent questions the language ``Agencies shall 
establish procedures including dollar thresholds for review of 
acquisitions'' and questions who will decide the agency thresholds for 
review. These agency procedures would be issued as other agency 
regulations, orders, and procedures are, by the agency head or his 
designee. That person would decide what the agency review thresholds 
are. The FAR Council is adopting the proposed rule as final.
    Three comments were received for FAR 19.202-1, Encouraging small 
business participation in acquisitions. The first respondent believes 
that additional language requiring the contracting officer to provide 
all information relative to the justification of contract bundling is 
inappropriate because release of information must be decided on a case-
by-case basis in accordance with existing laws and regulations (i.e., 
Procurement Integrity, FOIA, and the FAR) and may be in conflict with 
existing laws. The Councils believe that this requirement complies with 
the Procurement Integrity Act.
    The second respondent comments that when the OSDBU directors 
undertake new responsibilities that the regulations further require an 
assessment of the impact and that they should also review the impact of 
any such decision on effective competition and on proven technical 
capabilities available in the marketplace. The final respondent 
suggests that the OSDBUs review and consider alternative strategies 
that maximize the use of small and mid-size firms in procurements. The 
Councils believe that with the additional responsibilities placed on 
OSDBUs with this rule, no additional responsibilities are necessary at 
this time.
    8. Comments on Subpart 42.15, Contractor Performance Information. 
Eighteen respondents commented on the proposed revision to FAR 42.1502 
that requires an assessment of agency contractor compliance with the 
goals identified in the small business subcontracting plan when the 
contract includes the clause at FAR 52.219-9, Small Business 
Subcontracting Plan. Although the comments applauded the intent of the 
proposed language added to FAR 42.1502, the majority of the comments 
indicated that it is insufficient to monitor and ensure compliance with 
subcontracting plans. The primary issues of the respondents were 
general comments pertaining to subcontracting plans and performance 
evaluations both of which are addressed as follows:
    (a) Comments on the Subcontracting Plans. Four general comments 
were received regarding subcontracting plans. Two of the three 
respondents recommended that subcontracting plans include other 
information, such as a description of the nature of the work to be 
subcontracted and the efforts the offeror will make to ensure that 
small businesses have an equitable opportunity to compete for 
subcontracts. These requirements are already in FAR 19.704(a) and no 
further change is necessary. The third respondent recommended that the 
regulations mandate that PCRs share their compliance assessments with 
SBA's breakout PCRs, who are assigned to major contracting centers. 
This commenter also recommended that SBA develop a system to enable 
PCRs and breakout PCRs to submit their assessments to the cognizant 
contracting office. The fourth respondent recommended inserting a 
clause in each contract requiring a prime contractor to prove it has 
met its original subcontracting plan and requiring a prime's 
subcontracting partners to sign off on a joint statement of compliance 
before the prime gets paid.
    (b) Comments on Performance Evaluations. Two respondents expressed 
the need for further guidance on evaluating compliance with 
subcontracting plans and a contractor's ``good faith'' efforts to 
achieve its small business goals. One of these two respondents further 
indicated that Government agencies should be required to ``evaluate 
large businesses on the same basis and understanding of the small 
business subcontracting plan regulations.'' This respondent also 
complained that large businesses need additional guidance in completing 
commercial plans, which cover a commercial contractor's entire fiscal 
year and commercial production.
    One respondent commented that performance evaluations are 
inadequate, penalties have never been assessed, and the proposed change 
does not link performance evaluations to the penalty. The FAR already 
provides for liquidated damages for noncompliance with subcontracting 
plans. Under FAR 19.705-7, a prime contractor is liable for such 
damages for failing to make a ``good faith effort'' to comply with its 
subcontracting plans. Since governing regulations already provide 
monetary consequences for noncompliance with subcontracting plans, the 
Councils are not adopting this recommendation. Another commenter 
recommended that large businesses that are awarded task and delivery 
orders under the Federal Supply Schedules should be subject to the 
requirement for subcontracting plans under 8(d) of the Small Business 
Act, 15 U.S.C. 637(d). The Councils agree that effective procedures to 
mitigate the effects of contract bundling on small businesses 
necessitates more stringent requirements for monitoring compliance with 
subcontracting plans to ensure that small businesses receive the 
maximum practical opportunity to participate as subcontractors in large 
Federal contracts. Many of the commenters recommended amendments that 
require further consideration to evaluate their likely effectiveness 
and impact on the procurement process. As a result, concurrent with 
publication of this FAR final rule, the Small Business Administration 
(SBA) is issuing a final

[[Page 60004]]

rule to incorporate parallel changes in 13 CFR part 125. At the same 
time, SBA is issuing a proposed rule to provide more guidance on 
subcontracting, including guidelines for evaluating a company's good 
faith efforts to comply with subcontracting plan requirements. When the 
SBA proposed rule becomes final, the Councils will consider 
incorporating appropriate provisions in the FAR.
    This is a significant regulatory action and, therefore, was subject 
to review under Section 6(b) of Executive Order 12866, Regulatory 
Planning and Review, dated September 30, 1993. This rule is not a major 
rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., applies to 
this final rule. A Final Regulatory Flexibility Analysis (FRFA) has 
been prepared and is as follows:

Final Regulatory Flexibility Analysis

FAR Case 2002-029, Contract Bundling

    This Final Regulatory Flexibility Analysis has been prepared 
consistent with the criteria of 5 U.S.C. 604.
    1. Reasons for the final rule:
    This rule amends the Federal Acquisition Regulation (FAR) to 
implement the recommendations of the Office of Management and Budget 
(OMB) in its report entitled ``A Strategy for Increasing 
Opportunities for Small Business.'' The FAR changes will: (1) 
Clarify the definition of ``bundling'' to indicate it applies to 
orders placed against Federal Supply Schedules and another agency's 
Governmentwide Acquisition Contracts or Multi-agency Contracts when 
those orders otherwise meet the parameters of the definition; (2) 
require the small business specialist to coordinate on agency 
acquisition strategies at specified dollar thresholds and notify the 
agency Office of Small and Disadvantaged Business Utilization when 
those strategies include contract bundling that is unnecessary, 
unjustified, or not identified as such by the agency; (3) reduce the 
threshold for ``substantial bundling''; (4) revise the documentation 
requirements for substantial bundling to include identification of 
alternative acquisition strategies that would result in the bundling 
of fewer requirements, along with justification for not choosing 
those alternatives; (5) require contracting officers to provide 
bundling justification documentation to the agency Office of Small 
and Disadvantaged Business Utilization when substantial bundling is 
involved; (6) require contractor performance evaluations to include 
an assessment of contractor compliance with small business 
subcontracting goals; and (7) require the Office of Small and 
Disadvantaged Utilization to be responsible for conducting annual 
reviews to assess agency contract bundling requirements and the 
extent to which small businesses are receiving a fair share of 
Federal procurements.
    2. Objectives of and legal basis for this rule:
    The objective of this final rule is to further the 
Administration's commitment of creating a Government strategy to 
increase Federal contracting opportunities for small business. In 
order to accomplish this commitment this final rule provides FAR 
coverage that implements the recommendations of the Office of 
Management and Budget (OMB) in its report entitled ``A Strategy for 
Increasing Opportunities for Small Business.''
    3. Description of and estimate of the number of small entities 
to which the rule will apply, or an explanation if such estimate is 
not available:
    The final rule will indirectly apply to all large and small 
entities that seek award of Federal contracts. The rule should have 
a positive economic impact on small prime contractors and 
subcontractors by providing more Federal contracting opportunities 
for small businesses. In the SBA's 2001 State of Small Business 
Report filed with the House and Senate Small Business Committees, 
SBA identified only four material bundling cases with a total value 
of $60 million for the first three quarters of Fiscal Year (FY) 
2001. This represents 0.0004% of Federal contract dollar activity 
($60 million divided by $150 billion for the first three quarters of 
the fiscal year). Based on FY 2001 data, the final rule will impact 
approximately $3 billion in orders placed against FSS contracts, 
Governmentwide acquisition contracts, and multiagency contracts. 
Applying the contract bundling estimate of 0.0004% to these 
unreviewed orders, SBA expects approximately $1 million will be 
identified as bundled. This rule establishes a three-tiered dollar 
threshold of $7 million for DOD, $5 million for NASA, DOE and GSA, 
and $2 million for all other civilian agencies. The dollar amount is 
based on a comparative analysis of the number and size of the 
contracting actions of the major procuring activities and is 
intended to target reviews of the contracting actions that would 
most likely involve contract bundling, without undue disruption to 
the acquisition process.
    4. Description of the projected reporting, recordkeeping, and 
other compliance requirements of the rule, including an estimate of 
the classes of small entities which will be subject to the 
requirement and the type of professional skills necessary for 
preparation of the report or record.
    The final rule imposes no reporting, recordkeeping, or other 
compliance requirements.
    5. Relevant Federal rules that may duplicate, overlap, or 
conflict with the rule:
    Simultaneously with the publication of this final rule, SBA is 
publishing its final rule on contract bundling to implement the 
required action items in OMB's October 2002 report, entitled 
``Contract Bundling: A Strategy for Increasing Federal Contracting 
Opportunities for Small Business.'' In some instances, SBA's final 
rule duplicates language in the FAR final rule.
    6. Description of any significant alternatives to the final rule 
which accomplish the stated objectives of applicable statutes and 
which minimize the rule's economic impact on small entities.
    Currently, there are no practical alternatives that will 
accomplish the objectives of this final rule.

    Interested parties may obtain a copy of the FRFA from the FAR 
Secretariat. The FAR Secretariat has submitted a copy of the FRFA to 
the Chief Counsel for Advocacy of the Small Business Administration.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose information collection requirements that require 
the approval of the Office of Management and Budget under 44 U.S.C. 
3501, et seq.

List of Subjects in 48 CFR Parts 2, 7, 8, 10, 16, 19, and 42

    Government procurement.

    Dated: October 16, 2003.
Laura Auletta,
Director, Acquisition Policy Division.

Federal Acquisition Circular

    Federal Acquisition Circular (FAC) 2001-17 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.
    Unless otherwise specified, all Federal Acquisition Regulation 
(FAR) and other directive material contained in FAC 2001-17 is 
effective October 20, 2003.

    Dated: October 9, 2003.

Deidre A. Lee,

Director, Defense Procurement and Acquisition Policy.

    Dated: October 2, 2003.

David A. Drabkin,

Deputy Associate Administrator, Office of Acquisition Policy, 
General Services Administration.

    Dated: October 2, 2003.

Tom Luedtke,

Assistant Administrator for Procurement, National Aeronautics and 
Space Administration.

0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 7, 8, 10, 16, 19, 
and 42 as set forth below:
0
1. The authority citation for 48 CFR parts 2, 7, 8, 10, 16, 19, and 42 
is revised to read as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 2--DEFINITIONS OF WORDS AND TERMS

0
2. Amend section 2.101(b)(2) in the definition ``Bundling'' by 
redesignating paragraph (3) as paragraph (4) and

[[Page 60005]]

adding a new paragraph (3) to read as follows:


2.101  Definitions.

* * * * *
    Bundling means--
* * * * *
    (3) Single contract, as used in this definition, includes--
    (i) Multiple awards of indefinite-quantity contracts under a single 
solicitation for the same or similar supplies or services to two or 
more sources (see FAR 16.504(c)); and
    (ii) An order placed against an indefinite quantity contract under 
a--
    (A) Federal Supply Schedule contract; or
    (B) Task-order contract or delivery-order contract awarded by 
another agency (i.e., Governmentwide acquisition contract or multi-
agency contract).
* * * * *

PART 7--ACQUISITION PLANNING

0
3. Amend section 7.104 by adding paragraph (d) to read as follows:


7.104  General procedures.

* * * * *
    (d)(1) The planner shall coordinate the acquisition plan or 
strategy with the cognizant small business specialist when the strategy 
contemplates an acquisition meeting the dollar amounts in paragraph 
(d)(2) of this section unless the contract or order is entirely 
reserved or set-aside for small business under part 19. The small 
business specialist shall notify the agency Office of Small and 
Disadvantaged Business Utilization if the strategy involves contract 
bundling that is unnecessary, unjustified, or not identified as bundled 
by the agency. If the strategy involves substantial bundling, the small 
business specialist shall assist in identifying alternative strategies 
that would reduce or minimize the scope of the bundling.
    (2)(i) The strategy shall be coordinated with the cognizant small 
business specialist in accordance with paragraph (d)(1) of this section 
if the estimated contract or order value is--
    (A) $7 million or more for the Department of Defense;
    (B) $5 million or more for the National Aeronautics and Space 
Administration, the General Services Administration, and the Department 
of Energy; and
    (C) $2 million or more for all other agencies.
    (ii) If the strategy contemplates the award of multiple contracts 
or orders, the thresholds in paragraph (d)(2)(i) of this section apply 
to the cumulative maximum potential value, including options, of the 
contracts and orders.

0
4. Amend section 7.105 in paragraph (b)(1) by adding a sentence after 
the third sentence to read as follows:


7.105  Contents of written acquisition plans.

* * * * *
    (b)(1) * * * When the proposed acquisition strategy involves 
bundling, identify the incumbent contractors and contracts affected by 
the bundling. * * *
* * * * *

0
5. Amend section 7.107 in the third sentence of paragraph (a) by 
removing ``an agency'' and adding ``an agency or the Government'' in 
its place; in paragraphs (b)(1), (b)(2), and (d) by removing the word 
``contract'' and adding ``contract or order'' in its place; by revising 
the introductory text of paragraph (e), paragraphs (e)(4) and (e)(5); 
and by adding paragraph (e)(6) to read as follows:


7.107  Additional requirements for acquisitions involving bundling.

* * * * *
    (e) Substantial bundling is any bundling that results in a contract 
or order that meets the dollar amounts specified in 7.104(d)(2). When 
the proposed acquisition strategy involves substantial bundling, the 
acquisition strategy must additionally--
* * * * *
    (4) Specify actions designed to maximize small business 
participation as subcontractors (including suppliers) at any tier under 
the contract, or order, that may be awarded to meet the requirements;
    (5) Include a specific determination that the anticipated benefits 
of the proposed bundled contract or order justify its use; and
    (6) Identify alternative strategies that would reduce or minimize 
the scope of the bundling, and the rationale for not choosing those 
alternatives.
* * * * *

PART 8--REQUIRED SOURCES OF SUPPLIES AND CONTRACTS

0
6. Amend section 8.404 in the introductory text of paragraph (a)(1) by 
removing the period at the end of the first sentence and adding ``and 
the requirement at 19.202-1(e)(1)(iii).'' in its place; and revising 
paragraph (a)(2) to read as follows:


8.404  Using schedules.

    (a) * * *
    (2) Orders placed under a Federal Supply Schedule contract--
    (i) Are not exempt from the development of acquisition plans (see 
subpart 7.1), and an information technology acquisition strategy (see 
part 39); and
    (ii) Must comply with all FAR requirements for a bundled contract 
when the order meets the definition of ``bundled contract'' (see 
2.101(b)).

PART 10--MARKET RESEARCH

0
7. Amend section 10.001 by revising the introductory text of paragraph 
(c)(2) to read as follows:


10.001  Policy.

* * * * *
    (c) * * *
    (2) At least 30 days before release of the solicitation or 30 days 
prior to placing an order without a solicitation--
* * * * *

PART 16--TYPES OF CONTRACTS

0
8. Amend section 16.505 by removing the word ``and'' from the end of 
paragraph (a)(7)(i); removing the period at the end of paragraph 
(a)(7)(ii) and adding ``; and'' in its place; and adding paragraph 
(a)(7)(iii) to read as follows:


16.505  Ordering.

    (a) * * *
    (7) * * *
    (iii) Must comply with all FAR requirements for a bundled contract 
when the order meets the definition of ``bundled contract'' (see 
2.101(b)).
* * * * *

PART 19--SMALL BUSINESS PROGRAMS

0
9. Amend section 19.201 by removing the period at the end of paragraph 
(d)(10) and adding a semicolon in its place; and adding paragraphs 
(d)(11) and (d)(12) to read as follows:


19.201  General policy.

* * * * *
    (d) * * *
    (11) Conduct annual reviews to assess the--
    (i) Extent to which small businesses are receiving a fair share of 
Federal procurements, including contract opportunities under the 
programs administered under the Small Business Act;
    (ii) Adequacy of contract bundling documentation and 
justifications; and
    (iii) Actions taken to mitigate the effects of necessary and 
justified contract bundling on small businesses.
    (12) Provide a copy of the assessment made under paragraph (d)(11) 
of this

[[Page 60006]]

section to the Agency Head and SBA Administrator.
* * * * *
0
10. Amend section 19.202 by adding a new sentence after the first 
sentence to read as follows:


19.202  Specific policies.

    * * * Agencies shall establish procedures including dollar 
thresholds for review of acquisitions by the Director or the Director's 
designee for the purpose of making these recommendations. * * *

0
11. Amend section 19.202-1 by revising paragraph (e)(1)(iii) to read as 
follows:


19.202-1  Encouraging small business participation in acquisitions.

* * * * *
    (e)(1) * * *
    (iii) The proposed acquisition is for a bundled requirement. (See 
10.001(c)(2)(i) for mandatory 30-day notice requirement to incumbent 
small business concerns.) The contracting officer shall provide all 
information relative to the justification of contract bundling, 
including the acquisition plan or strategy, and if the acquisition 
involves substantial bundling, the information identified in 7.107(e). 
When the acquisition involves substantial bundling, the contracting 
officer shall also provide the same information to the agency Office of 
Small and Disadvantaged Business Utilization.
* * * * *

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

0
12. Amend section 42.1502 by adding a new sentence to the end of 
paragraph (a) to read as follows:


42.1502  Policy.

    (a) * * * These procedures shall require an assessment of 
contractor performance against, and efforts to achieve, the goals 
identified in the small business subcontracting plan when the contract 
includes the clause at 52.219-9, Small Business Subcontracting Plan.
* * * * *
[FR Doc. 03-26463 Filed 10-17-03; 8:45 am]
BILLING CODE 6820-EP-P