[Federal Register Volume 71, Number 1 (Tuesday, January 3, 2006)]
[Rules and Regulations]
[Pages 221-223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-24551]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 8, 19, 25, 42, and 52

[FAC 2005-07; FAR Case 2003-023; Item VI]
RIN 9000-AJ91


Federal Acquisition Regulation; Purchases From Federal Prison 
Industries--Requirement for Market Research

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) to implement Section 
637 of Division H of the Consolidated Appropriations Act, 2005. Section 
637 provides that no funds made available under the Consolidated 
Appropriations Act for fiscal year 2005, or under any other Act for 
fiscal year 2005 and each fiscal year thereafter, shall be expended for 
purchase of a product or service offered by Federal Prison Industries, 
Inc., unless the agency making the purchase determines that the offered 
product or service provides the best value to the buying agency.

DATES: Effective Date: January 3, 2006.

FOR FURTHER INFORMATION CONTACT: For clarification of content, contact 
Ms. Linda Nelson, Procurement Analyst, at (202) 501-1900. The TTY 
Federal Relay Number for further information is 1-800-877-8973. Please 
cite FAC 2005-07, FAR case 2003-023. For information pertaining to 
status or publication schedules, contact the FAR Secretariat at (202) 
501-4755.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 637 of Division H of the Consolidated Appropriations Act, 
2005 (Public Law 108-447) provides that none of the funds made 
available under that or any other Act for fiscal year 2005 and each 
fiscal year thereafter shall be expended for the purchase of a product 
or service offered by Federal Prison Industries, Inc. (FPI), unless the 
agency making the purchase determines that the offered product or 
service provides the best value to the buying agency pursuant to 
Governmentwide procurement regulations issued pursuant to 41 U.S.C. 
421(c)(1) that impose procedures, standards, and limitations of 10 
U.S.C. 2410n. Section 637 of Division F of the Consolidated 
Appropriations Act, 2004 (Public Law 108-199), contained a similar 
requirement that applied only to fiscal year 2004 funds.
    DoD, GSA, and NASA published an interim rule in the Federal 
Register at 70 FR 18954, April 11, 2005, with a request for comments. 
Five respondents submitted comments. A discussion of the comments is 
provided below. As a result of comment 1 below, the final rule contains 
changes at FAR 8.602 to clarify that the requirements of the rule do 
not apply to items for which FPI has eliminated its mandatory source 
status.
    1. Comment: In the preamble to the interim rule published on April 
11, 2005, the response to Comment 3 states that, if an agency chooses 
to make a purchase at or below $2,500 from FPI, the agency must first 
conduct market research to comply with Section 637 of Public Law 108-
447. This is inconsistent with the statement under SUPPLEMENTARY 
INFORMATION that FAR 8.602(b) (market research) does not apply to the 
purchase of any service or item of supply that FPI has been authorized 
by its Board of Directors to offer exclusively on a competitive (non-
mandatory) basis. Since the FPI Board of Directors has eliminated its 
mandatory source status for purchases of $2,500 or less, it would 
logically follow that purchases from FPI up to $2,500 should also be 
exempt from market research requirements.
    Councils' response: The Councils agree that the rule should provide 
equal treatment for all items for which FPI has eliminated its 
mandatory source status. The final rule amends FAR 8.602 to state that 
its procedures do not apply to the ``non-mandatory'' items identified 
in FAR 8.605(b)-(g). These items, therefore, will be acquired using the 
policies and procedures otherwise specified in the FAR.
    2. Comment: There appears to be confusion as to whether the 
requirement for market research applies to services as well as supplies 
provided by FPI. This confusion stems from the inclusion of FPI as a 
mandatory source at FAR 8.002(a), which applies to both supplies and 
services.
    Councils' response: FPI is not a mandatory source for services and, 
therefore, market research in accordance with FAR 8.602(b) is not 
required for services, as indicated at FAR 8.602(c). This is consistent 
with the order of

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priorities at FAR 8.002(a)(2), which places FPI on an equal footing 
with commercial sources with regard to services. The policy at FAR 
8.002(a)(1), which lists FPI as a mandatory source, applies only to 
supplies.
    3. Comment: There may be a need in the future to provide more 
clarification of the definition of the term ``comparability'' and to 
further emphasize that the competitive solicitation process must occur 
after completion of the required comparability determination; and only 
in cases where FPI is deemed to be not comparable. FPI is still seeing 
instances where agencies are inappropriately combining comparability 
determinations with competitive procedures.
    Councils' response: Further clarification of these issues is 
considered unnecessary at this time. However, as suggested by the 
respondent, the Councils will re-evaluate the need for clarification in 
the future if implementation problems persist.
    4. Comment: While FAR 8.607 prohibits agencies from requiring a 
contractor to use FPI as a subcontractor, this language cannot be 
interpreted to circumvent an agency's obligation where a product made 
by FPI could be used in a project if it is deemed to be comparable. 
Regardless of whether the product is provided to the agency directly or 
indirectly, the same comparability determination and competitive 
procedures are required any time products offered for sale by FPI are 
purchased by or for Government agencies.
    Councils' response: Do not agree that the comparability 
determination and competitive procedures of FAR 8.602(b) are required 
any time products offered for sale by FPI are purchased for the 
Government. 10 U.S.C. 2410n (e) specifically prohibits the Government 
from requiring a contractor to use FPI as a subcontractor or supplier. 
The rule is clear with regard to an agency's obligation when purchasing 
FPI products directly. Purchasing items through a prime contractor 
merely to circumvent the requirements of the rule clearly would be 
inappropriate. Therefore, it is the responsibility of the acquiring 
agency to ensure compliance with the requirements of the rule if the 
acquisition involves items of supply on FPI's Schedule.
    5. Comment: FPI should not be permitted to participate in small 
business set-asides.
    Councils' response: FPI may participate in small business set-
asides in only those situations where an FPI ``mandatory'' item has 
been found to be non-comparable to private sector items and the 
subsequent competition is limited to FPI and small business concerns. 
This policy is actually intended to increase opportunities for small 
business concerns since (1) prior to this policy, FPI was the sole 
source provider of items that are now being acquired competitively; and 
(2) given the current statutory requirement to include FPI in the 
competition if an FPI item is determined to be non-comparable to 
private sector items, the alternative to FPI's participation in a small 
business set-aside would be an unrestricted (non-set-aside) competition 
that includes FPI.
    6. Comment: In FAR 8.601(e), remove ``and services'' from the 
statement ``Agencies are encouraged to purchase FPI supplies and 
services to the maximum extent practicable.'' FPI does not have 
mandatory source status for services, nor has it ever been given the 
statutory right to branch out into services.
    Councils' response: The rule makes it clear that FPI is not a 
mandatory source for services. The statement at 8.601(e) is consistent 
with the policy previously included at FAR 8.602(b), which encouraged 
agencies to use the facilities of FPI to the maximum extent practicable 
in purchasing both supplies and services. This text was inadvertently 
excluded from the revision to FAR Subpart 8.6 published at 69 FR 16147 
on March 26, 2004, and was reinstated in the interim rule published on 
April 11, 2005.
    This is not a significant regulatory action and, therefore, was not 
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. The Councils prepared a Final Regulatory Flexibility 
Analysis (FRFA), and it is summarized as follows:
    The rule implements the Consolidated Appropriations Act, 2005, 
Division H, Section 637 (Public Law No: 108-447). The Act imposes 
the procedures, standards, and limitation of 10 U.S.C. 2410n on all 
federal agencies. 10 U.S.C. 2410n requires market research before 
purchasing a product listed in the Federal Prison Industries 
catalog, to determine whether the FPI product is comparable to 
products available from the private sector that best meet the 
agency's needs in terms of price, quality, and time of delivery. If 
the FPI product is not comparable, the agency must use competitive 
procedures to acquire the product or must make an individual 
purchase under a multiple award contract. In conducting such a 
competition or making such a purchase, the agency must consider a 
timely offer from FPI.
    The rule is expected to benefit small business concerns that 
offer products comparable to those listed in the FPI catalog, by 
permitting those concerns to compete for federal contract awards. 
However, the rule could also have a negative impact on those small 
business concerns that supply goods or services to FPI.
    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 8, 19, 25, 42, and 52

    Government procurement.

    Dated: December 22, 2005.
Gerald Zaffos,
Director, Contract Policy Division.

0
Interim Rule Adopted as Final with Changes
0
Accordingly, DoD, GSA, and NASA adopt the interim rule amending 48 CFR 
parts 8, 19, 42, and 52, which was published in the Federal Register at 
69 FR 16148, March 26, 2004, and the interim rule amending 48 CFR parts 
8 and 25, which was published in the Federal Register at 70 FR 18954, 
April 11, 2005, as a final rule with the following changes:
0
1. The authority citation for 48 CFR parts 8, 19, 25, 42, and 52 
continues 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 8--REQUIRED SOURCES OF SUPPLIES AND SERVICES

0
2. Amend section 8.602 by--
0
a. Removing paragraph (a);
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b. Redesignating paragraphs (b), (c), (d), and (e) as (a), (b), (c), 
and (d) respectively;
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c. Revising the introductory text of the newlydesignated paragraph (a);
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d. Revising the newly designated paragraph (b);
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e. Removing from the newly designated paragraph (c)(2) ``paragraph 
(b)'' and adding ``paragraph (a)'' in its place; and
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f. Removing from the newly designated paragraph (d) ``paragraph

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(b)(1)'' and adding ``paragraph (a)(1)'' in its place.
0
The revised text reads as follows:


8.602  Policy.

    (a) In accordance with 10 U.S.C. 2410n and Section 637 of Division 
H of the Consolidated Appropriations Act, 2005 (Pub. L. 108-447), and 
except as provided in paragraph (b) of this section, agencies shall--
* * * * *
    (b) The procedures in paragraph (a) of this section do not apply if 
an exception in 8.605(b) through (g) applies.
* * * * *


8.605  [Amended]

0
3. Amend section 8.605 by removing from paragraph (a)(2) 
``8.602(b)(4)'' and adding ``8.602(a)(4)'' in its place.

PART 19--SMALL BUSINESS PROGRAMS


19.504  [Amended]

0
4. Amend section 19.504 by removing ``8.602(b)(4)'' and adding 
``8.602(a)(4)'' in its place.
[FR Doc. 05-24551 Filed 12-30-05; 8:45 am]
BILLING CODE 6820-EP-S