[Federal Register Volume 80, Number 193 (Tuesday, October 6, 2015)]
[Proposed Rules]
[Pages 60300-60303]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25234]


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SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 125

RIN 3245-AG71


Credit for Lower Tier Small Business Subcontracting

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is 
proposing to amend its regulations to implement Section 1614 of the 
National Defense Authorization Act for Fiscal Year 2014. The proposed 
amendments authorized by this statute would allow an other than small 
prime contractor that has an individual subcontracting plan for a 
contract to receive credit towards its small business subcontracting 
goals for subcontract awards made to small business concerns at any 
tier. The prime contractor shall incorporate the lower tier 
subcontracting performance into its subcontracting plan goals. 
Currently, other than small business prime contractors establish small 
business subcontracting goals at the first tier level, and receive 
credit toward their subcontracting plan goal performance at the first 
tier level. The rule also proposes to implement the statutory 
requirements related to the subcontracting plans of all subcontractors 
that are required to maintain such plans, including the requirement to 
monitor subcontractors' performance and compliance towards reaching the 
goals set out in those plans as well as their compliance with 
subcontracting reporting requirements. SBA is also proposing to clarify 
that the size standard for a particular subcontract must appear in the 
solicitation for the subcontract.

DATES: Comments must be received on or before December 7, 2015.

ADDRESSES: You may submit comments, identified by RIN: 3245-AG71, by 
any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     For mail, paper, disk, or CD/ROM submissions: Brenda 
Fernandez, U.S. Small Business Administration, Office of Policy, 
Planning and Liaison, 409 Third Street SW., 8th Floor, Washington, DC 
20416.
     Hand Delivery/Courier: Brenda Fernandez, U.S. Small 
Business Administration, Office of Policy, Planning and Liaison, 409 
Third Street SW., 8th Floor, Washington, DC 20416.
    SBA will post all comments on www.regulations.gov. If you wish to 
submit confidential business information (CBI) as defined in the User 
Notice at www.regulations.gov, please submit the information to Brenda 
Fernandez, U.S. Small Business Administration, Office of Policy, 
Planning and Liaison, 409 Third Street SW., 8th Floor, Washington, DC 
20416, or send an email to brenda.fernandez@sba.gov. Highlight the 
information that you consider to be CBI and explain why you believe SBA 
should hold this information as confidential. SBA will review the 
information and make the final determination on whether it will publish 
the information.

FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, U.S. Small Business 
Administration, Office of Policy, Planning and Liaison, 409 Third 
Street SW., Washington, DC 20416; (202) 207-7337; 
brenda.fernandez@sba.gov.

SUPPLEMENTARY INFORMATION: The proposed rule implements Section 1614 of 
the National Defense Authorization Act for Fiscal Year 2014, Public Law 
113-66, December 26, 2013 (hereinafter NDAA 2014). Section 1614 amended 
section 8(d)(6)(D) of the Small Business Act, 15 U.S.C. 637(d)(6)(d), 
to provide that where a prime contractor has a subcontracting plan for 
a specific prime contract with an executive agency, as required by 
Section 8(d) of the Small Business Act, the prime contractor will 
receive credit towards its subcontracting plan goals for awards made to 
small business concerns at any tier under the contract. When a prime 
contractor awards a subcontract to a firm it is generally considered a 
first tier subcontract. That subcontractor may award a subcontract, 
which would be considered a second tier subcontract, and so on. 
Currently, a prime contractor generally receives credit towards its 
small business subcontracting plan goals for awards made at the first 
tier level.
    Other than small business prime contractors report on their small 
business subcontracting activity in

[[Page 60301]]

various ways. Some firms have individual subcontracting plans for each 
and every Federal prime contract that meets certain threshold 
requirements. Other firms have commercial plans, which is a plan that 
covers a firm's entire fiscal year and the firm's entire commercial 
production sold by either the entire company or a portion thereof 
(e.g., division, plant, or product line). See Federal Acquisition 
Regulation (FAR) Sec.  19.701. Some firms that do business with the 
Department of Defense have comprehensive subcontracting plans, where 
the firms' negotiate goals and report on a plant, division or company-
wide basis, instead on each individual Federal contract. See Defense 
Federal Acquisition Regulation Sec.  219.702. Section 1614 further 
provides that lower tier reporting credit shall not apply where a 
subcontracting plan applies to more than one contract or to one 
contract with more than one executive agency. Section 1614 applies only 
when determining whether or not a prime contractor has met its 
individual subcontracting plan goals. Thus, Section 1614 does not apply 
where the prime contractor has a commercial plan or comprehensive 
subcontracting plan. Section 1614 does not alter the requirement that 
lower tier subcontractors have subcontracting plans when the 
subcontracting threshold amounts are met. Section 1614 must be 
implemented so that subcontracting dollars are only reported once for 
the same award to avoid double and triple counting the dollars, 
notwithstanding the fact that a small business subcontract may be 
reported under more than one subcontracting plan. Section 1614 further 
provides that where a prime contractor or subcontractor is required to 
have an individual subcontracting plan, the prime contractor or the 
subcontractor will review and approve subcontracting plans submitted by 
their subcontractors, monitor their subcontractors' compliance with the 
subcontracting plans, ensure that reports are submitted by their 
subcontractors, acknowledge receipt of subcontractors' reports, monitor 
subcontractor performance, and discuss subcontractor performance with 
subcontractors where necessary.
    Section 1614 also requires that a subcontracting plan must contain 
a recitation of the types of records the prime contractor will maintain 
to demonstrate the procedures which have been adopted to ensure that 
subcontractors at all tiers comply with the requirements and goals in 
their respective subcontracting plans, including the establishment of 
source lists to identify small business concerns, small business 
concerns owned and controlled by veterans, small business concerns 
owned and controlled by service-disabled veterans, qualified HUBZone 
small business concerns, small business concerns owned and controlled 
by socially and economically disadvantaged individuals, and small 
business concerns owned and controlled by women, and efforts to 
identify and award subcontracts to such concerns.
    SBA is also proposing to clarify that the NAICS code and 
corresponding size standard for a particular subcontract must appear in 
the solicitation for the subcontract. The current regulations only 
reference the subcontract itself. However, the solicitation for the 
subcontract must contain the size standard that a firm must represent 
that it meets at the time of its offer for the subcontract in order to 
be considered a small business concern for that subcontract. In 
addition, SBA is proposing to allow prime contractors and 
subcontractors to accept electronic size and socioeconomic 
representations provided the solicitation and/or subcontract require 
the firm making the electronic representations to verify the accuracy 
of the representations. Compliance with Executive Orders 12866, 13563, 
12988, and 13132, the Paperwork Reduction Act (44 U.S.C. Ch. 35), and 
the Regulatory Flexibility Act (5 U.S.C. 601-612).

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a significant regulatory action for the purposes of 
Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. This is not a major rule, however, under 
the Congressional Review Act.

Regulatory Impact Analysis

1. Is there a need for the regulatory action?

    The proposed regulations implement Section 1614 of the National 
Defense Authorization Act for Fiscal Year 2014. Section 1614(c)(3) 
requires the Administrator to promulgate regulations necessary to 
implement the Act.

2. What are the potential benefits and costs of this regulatory action?

    The benefits and costs of the proposed regulations are minimal. 
Other than small business prime contractors and subcontractors already 
establish individual subcontracting plan goals and report on their 
achievements if the subcontracting plan thresholds are met. Under 
Section 1614, a prime contractor with an individual subcontracting plan 
will receive credit towards its goals for small business performance at 
lower tiers. Thus, there will be some costs to the prime contractor to 
propose subcontracting plan goals that incorporate small business 
performance at lower tiers, and there will also be costs to the 
Government to evaluate whether the prime contractor's goals adequately 
address maximum practicable small business subcontracting opportunity 
at all tiers. There may also be costs to the Government as eSRS may 
have to be modified to allow large business prime contractors to 
receive small business credit at any tier towards their subcontracting 
plan goals. There should not be any costs imposed on small business 
concerns.

3. What are the alternatives to this final rule?

    Many of the proposed regulations are required to implement specific 
statutory provisions which require promulgation of implementing 
regulations. There are no other alternatives that would meet the 
statutory requirements.

Executive Order 13563

    As part of its ongoing efforts to engage stakeholders in the 
development of its regulations, SBA has solicited comments and 
suggestions from procuring agencies on how to best implement Section 
1614. SBA has incorporated those comments and suggestions to the extent 
feasible. SBA intends to incorporate, where feasible, public input into 
the final rule.

Executive Order 12988

    For purposes of Executive Order 12988, SBA has drafted this 
proposed rule, to the extent practicable, in accordance with the 
standards set forth in section 3(a) and 3(b)(2) of that Executive 
Order, to minimize litigation, eliminate ambiguity, and reduce burden. 
This rule has no preemptive or retroactive effect.

Executive Order 13132

    For the purpose of Executive Order 13132, SBA has determined that 
this proposed rule will not have substantial direct effects on the 
States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various layers of government. Therefore, SBA has determined that this 
proposed rule has no federalism implications

[[Page 60302]]

warranting preparation of a federalism assessment.

Paperwork Reduction Act, 44 U.S.C. Ch. 35

    For purposes of the Paperwork Reduction Act (PRA), SBA has 
determined that this proposed rule, if adopted in final form, would not 
impose new government-wide reporting and record keeping requirements on 
other than small prime contractors and subcontractors. When this rule 
is implemented in the FAR, there may be a requirement to amend or 
create an information collection. Thus, any PRA implications as part of 
any proposed rulemaking implementing an SBA final rule in the FAR will 
be addressed in the FAR rule.

Regulatory Flexibility Act, 5 U.S.C. 601-612

    According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601, 
when an agency issues a rulemaking, it must prepare a regulatory 
flexibility analysis to address the impact of the rule on small 
entities. However, section 605 of the RFA allows an agency to certify a 
rule, in lieu of preparing an analysis, if the rulemaking is not 
expected to have a significant economic impact on a substantial number 
of small entities. The RFA defines ``small entity'' to include ``small 
businesses,'' ``small organizations,'' and ``small governmental 
jurisdictions.'' This proposed rule concerns various aspects of SBA's 
contracting programs. As such, the rule relates to small business 
concerns, but would not affect ``small organizations'' or ``small 
governmental jurisdictions'' because those programs generally apply 
only to ``business concerns'' as defined by SBA regulations, in other 
words, to small businesses organized for profit. ``Small 
organizations'' or ``small governmental jurisdictions'' are non-profits 
or governmental entities and do not generally qualify as ``business 
concerns'' within the meaning of SBA's regulations.
    There are approximately 290,000 concerns registered as small 
business concerns in the System for Award Management (SAM) that could 
potentially be impacted by the implementation of Section 1614. However, 
we cannot say with any certainty how many will be impacted because we 
do not know how many of these concerns participate in government 
contracting as subcontractors. A firm is required to register in SAM in 
order to participate in Federal contracting as a prime contractor, but 
not for purposes of subcontracting. However, as discussed elsewhere in 
this proposed rule, there are no new compliance or other costs imposed 
by the proposed rule on small business concerns. In sum, the proposed 
amendments would not have a disparate impact on small businesses and 
would increase their opportunities to participate in federal government 
contracting as subcontractors without imposing any additional costs. 
For the reasons discussed, SBA certifies that this proposed rule would 
not have a significant economic impact on a substantial number of small 
business concerns.

List of Subjects

13 CFR Part 121

    Government contracts, Government procurement, Small businesses, 
Size standards.

13 CFR Part 125

    Government contracts, Government procurement, Reporting and 
recordkeeping requirements, Small businesses, Small business 
subcontracting.

    For the reasons stated in the preamble, SBA proposes to amend 13 
CFR parts 121 and 125 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

0
1. The authority citation for 13 CFR part 121 continues to read as 
follows:

    Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).

0
2. Amend Sec.  121.411 by removing the second sentence in paragraph (b) 
and adding two sentences in its place to read as follows:


Sec.  121.411  What are the size procedures for SBA's Section 8(d) 
Subcontracting Program?

* * * * *
    (b) * * * Prime contractors may accept a subcontractor's electronic 
self-certification as to size, if the solicitation for the subcontract 
contains a clause which provides that the subcontractor verifies by 
submission of the offer that the size representations and 
certifications are accurate and complete. Electronic submission may 
include any method acceptable to the prime contractor including, but 
not limited to, size representations and certifications made in SAM (or 
any successor system). * * *.
* * * * *

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
3. The authority citation for 13 CFR part 125 continues to read as 
follows:

    Authority: 15 U.S.C. 632(p), (q); 634(b)(6), 637, 644, 657f, and 
657q.

0
4. Amend Sec.  125.3 as follows:
0
a. Revise paragraph (a)(1) introductory text;
0
b. Add paragraph (a)(1)(i)(C);
0
c. Revise the heading for paragraph (c);
0
d. Revise the first sentence of paragraph (c)(1)(i);
0
e. Revise paragraph (c)(1)(v);
0
f. Remove the word ``and'' at the end of paragraph (c)(1)(viii);
0
g. Add new paragraphs (c)(1)(x) and (c)(1)(xi).


Sec.  125.3  What types of subcontracting assistance are available to 
small businesses?

    (a) * * *
    (1) Subcontract--under this section the term `subcontract' means a 
legally binding agreement between a contractor that is already under 
contract to another party to perform work and a third party (other than 
one involving an employer-employee relationship), hereinafter referred 
to as the subcontractor, for the subcontractor to perform a part or all 
of the work that the contractor has undertaken.
    (i) * * *
    (C) Where the subcontracting goals pertain only to an individual 
subcontracting plan, the contractor may receive credit for small 
business concerns performing as first tier subcontractors or 
subcontractors at any tier pursuant to the subcontracting plans 
required under paragraph (c) of this section in an amount equal to the 
dollar value of work awarded to such small business concerns. Prime 
contractors must incorporate the subcontracting plan goals of their 
lower tier subcontractors in their individual subcontracting plans. 
Lower tier subcontractors must have their own individual subcontracting 
plans if the subcontract is at or above the subcontracting plan 
threshold, and are required to meet their subcontracting plan goals. 
The actual subcontracting dollars are only reported once for the same 
award to avoid double counting the dollars, notwithstanding the fact 
that a small business subcontract may be reported under more than one 
subcontracting plan.
* * * * *
    (c) Additional responsibilities of other than small contractors. 
(1) * * *
    (i) Submitting and negotiating before award an acceptable 
subcontracting

[[Page 60303]]

plan that reflects maximum practicable opportunities for small 
businesses in the performance of the contract as subcontractors or 
suppliers at all tiers of performance. * * *
* * * * *
    (v) The contractor must assign to the solicitation and the 
resulting subcontract the NAICS code and corresponding size standard 
that best describes the principal purpose of the subcontract (see Sec.  
121.410 of this chapter). The prime contractor may rely on a 
subcontractor's electronic representations and certifications, if the 
solicitation for the subcontract contains a clause which provides that 
the subcontractor verifies by submission of the offer that the size or 
socioeconomic representations and certifications are current, accurate 
and complete as of the date of the offer for the subcontract. 
Electronic submission may include any method acceptable to the prime 
contractor including, but not limited to, size or socioeconomic 
representations and certifications made in SAM (or any successor 
system). A prime contractor or subcontractor may not require the use of 
SAM (or any successor system) for purposes of representing size or 
socioeconomic status in connection with a subcontract;
* * * * *
    (x) The prime contractor must require all subcontractors (except 
small business concerns) who receive subcontracts in excess of 
$1,500,000 in the case of a subcontract for the construction of any 
public facility, or in excess of $650,000 in the case of all other 
subcontracts, and which offer further subcontracting possibilities, to 
adopt a subcontracting plan of its own consistent with this section, 
and must ensure at a minimum that all subcontractors required to 
maintain subcontracting plans pursuant to this paragraph, will review 
and approve subcontracting plans submitted by their subcontractors; 
monitor subcontractor compliance with their approved subcontracting 
plans; ensure that subcontracting reports are submitted by their 
subcontractors when required; acknowledge receipt of their 
subcontractors' reports; compare the performance of their 
subcontractors to subcontracting plans and goals; and discuss 
performance with subcontractors when necessary to ensure their 
subcontractors make a good faith effort to comply with their 
subcontracting plans; and
    (xi) The prime contractor must recite the types of records the 
prime will maintain to demonstrate procedures which have been adopted 
to ensure subcontractors at all tiers comply with the requirements and 
goals set forth in the plan established in accordance with paragraph 
(c)(1)(x) of this section, including the establishment of source lists 
of small business concerns, small business concerns owned and 
controlled by veterans, small business concerns owned and controlled by 
service-disabled veterans, qualified HUBZone small business concerns, 
small business concerns owned and controlled by socially and 
economically disadvantaged individuals, and small business concerns 
owned and controlled by women, and the efforts to identify and award 
subcontracts to such small business concerns.
* * * * *

    Dated: September 28, 2015.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2015-25234 Filed 10-5-15; 8:45 am]
 BILLING CODE 8025-01-P