[Federal Register Volume 81, Number 104 (Tuesday, May 31, 2016)]
[Rules and Regulations]
[Pages 34243-34265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12494]
[[Page 34243]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126 and 127
RIN 3245-AG58
Small Business Government Contracting and National Defense
Authorization Act of 2013 Amendments
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: This rule amends the U.S. Small Business Administration's (SBA
or Agency) regulations to implement provisions of the National Defense
Authorization Act of 2013, which pertain to performance requirements
applicable to small business and socioeconomic program set-aside
contracts and small business subcontracting. This rule also amends
SBA's regulations concerning the nonmanufacturer rule and affiliation
rules. Further, this rule allows a joint venture to qualify as small
for any government procurement as long as each partner to the joint
venture qualifies individually as small under the size standard
corresponding to the NAICS code assigned in the solicitation.
DATES: This rule is effective on June 30, 2016.
FOR FURTHER INFORMATION CONTACT: Michael McLaughlin, Office of Policy,
Planning and Liaison, 409 Third Street SW., Washington, DC 20416; (202)
205-5353; [email protected].
SUPPLEMENTARY INFORMATION:
Introduction
SBA published a proposed rule regarding these changes in the
Federal Register on December 29, 2014 (79 FR 77955), inviting the
public to submit comments on or before February 27, 2015. This comment
period was extended through April 6, 2015, by notice in the Federal
Register published on March 9, 2015 (80 FR 12353). SBA also conducted
tribal consultations in Washington, DC (February 26, 2015), Catoosa, OK
(April 20, 2015), and Anchorage, AK (April 22, 2015), in which SBA
accepted comments on the proposed rule. Transcripts of these
consultations are in the rule docket (SBA-2014-0006, viewable on
Regulations.gov using the docket number). SBA received a total of 216
comments on the proposed rule. Twenty-eight comments were supportive of
the rule generally without referencing specific sections of the rule.
Seventeen of those generally supportive comments advocated for fast
implementation of the rule. Several of these commenters suggested that
SBA issue this rule as an interim final rule. Once SBA has published a
proposed rule, the next step in the process is to analyze public
comments and publish a final rule. Publishing an ``interim final rule''
after publishing a proposed rule would not expedite the process to
finalize the provisions contained in the proposed rule. As such, SBA
has not followed that recommendation and is publishing this rule as a
final rule. Sixteen comments requested an extension of time for the
submission of comments. An extension of the comment period was provided
through April 6, 2015, and SBA believed that a further extension was
not needed. Seven comments did not support the rulemaking generally and
did not reference specific sections that were opposed. Some of these
comments were related to regulations not subject to changes in the
proposed rule and were considered outside the scope of this rulemaking.
SBA's discussion below summarizes the proposed rule, the comments
related to each section of the proposed rule and SBA's responses.
Summary of Proposed Rule, Comments, and SBA's Responses
Procurement Center Representative Responsibilities
Section 1621 of the National Defense Authorization Act of 2013
(NDAA), Public Law 112-239, 126 Stat. 1632 (Jan. 2013), revised the
Small Business Act regarding the responsibilities of Procurement Center
Representatives (PCRs). Section 1621 clarifies that PCRs have the
ability to review barriers to small business participation in Federal
contracting and to review any bundled or consolidated solicitation or
contract in accordance with the Small Business Act. SBA proposed to
amend 13 CFR 125.2(b)(1)(i)(A), based on the changes in Section
1621(c)(6)(H) of the NDAA. SBA also proposed to add language to Sec.
125.2(b)(1)(i)(A) and to Sec. 125.2(b)(1)(ii), which clarifies that
PCRs advocate for the maximum practicable utilization of small business
concerns in Federal contracting, including advocating against the
unjustified consolidation or bundling of contract requirements.
Pursuant to Section 1621(c)(6)(G) of the NDAA, SBA proposed new
Sec. 125.2(b)(1)(iv), which states that PCRs will consult with the
agency's Office of Small and Disadvantaged Business Utilization (OSDBU)
and Office of Small Business Program (OSBP) Director regarding an
agency's decision to convert an activity performed by a small business
concern to an activity performed by a Federal employee. SBA also
proposed new Sec. 125.2(b)(1)(v) pursuant to the language enacted by
Section 1621(c)(6)(F) of the NDAA, which allows PCRs to receive
unsolicited proposals from small business concerns and to provide those
proposals to the appropriate agency's personnel for review and
disposition.
SBA proposed to amend Sec. 125.2(b)(1) and (2), which pertain to
Breakout PCRs (BPCRs). Sections 1621(e) and (f) of the NDAA effectively
eliminate the statutory authority for the separate BPCR role. As a
result, SBA proposed to reassign the responsibilities currently held by
BPCRs to PCRs. SBA proposed to add Sec. 125.2(b)(1)(i)(F), which
states that PCRs also advocate full and open competition in Federal
contracting and recommend the breakout for competition of items and
requirements which previously have not been competed. SBA also proposed
to eliminate Sec. 125.2(b)(2) that provided guidance on the role and
responsibilities of BPCRs, and redesignate current Sec. 125.2(b)(3) as
the new Sec. 125.2(b)(2) and remove any reference to BPCRs from that
paragraph.
SBA received 13 comments regarding its proposed changes to Sec.
125.2. Ten of these comments were supportive of the changes to this
section. One commenter suggested that SBA clarify the proposed language
in Sec. 125.2(b)(1)(i)(A), which states ``This review includes
acquisitions that are Multiple Award Contracts where the agency has not
set-aside all or part of the acquisition or reserved the acquisition
for small businesses.'' This commenter suggested that SBA delete the
words ``or part'' to make it clear that PCRs can review any Multiple
Award Contract that is not 100% set-aside for small business
competition. SBA is not adopting this recommendation because the
proposed language states that PCRs can review Multiple Award Contracts
that are not entirely set aside for small businesses, meaning partially
set-aside. Furthermore, if SBA eliminated ``or part'' it would indicate
that PCRs cannot review Multiple Award Contracts that are entirely set
aside for small businesses, which is within the PCRs responsibilities.
Another commenter suggested that SBA should meet with contracting
officers to assist with setting aside contracts for small businesses.
It is the role of the PCR to review procurements that are not set aside
for small businesses. PCRs are often located at the procuring activity
and routinely interface with contracting officers regarding whether to
set aside
[[Page 34244]]
acquisitions for small business competition. It is already part of
their responsibilities to meet with contracting officers and discuss
acquisition planning. As such, it is not necessary to adopt this
suggested change.
Another commenter suggested that the term ``acquisition'' as used
in Sec. 125.2 should be changed to ``acquisition, including bridge,
interim, and follow-on contracts.'' The term ``acquisition'' is defined
broadly in section 2.101 of the Federal Acquisition Regulation (FAR) to
include ``award of contracts.'' The commenter is referencing specific
types of contracts that are included in the FAR definition of
``acquisition.'' SBA believes that this clarification is not necessary
and does not adopt it in this final rule.
Another commenter suggested that PCRs should unbundle sole source
contracts that are made to incumbent vendors in order to allow the
agency time to competitively re-procure the goods or services. The
proposed rule directly addresses this concern by providing PCRs with
the ability to advocate against consolidation or bundling of contract
requirements and reviewing any justification provided for such bundling
or consolidation. The same commenter also suggested that a prime
contract not be awarded on a sole source basis unless the prime
contractor agrees to retain its subcontractors under the previous award
and incorporates the small business plan associated with the previous
award. SBA does not have the authority to mandate which subcontractors
a prime contractor chooses to include in a subcontracting plan or to
mandate that a prime contractor incorporate a particular subcontracting
plan into its offer, and therefore SBA is not adopting this suggestion.
One commenter requested clarification of the language proposed in
Sec. 125.2(b)(1)(i)(F) stating, ``PCRs also advocate competitive
procedures and recommend the breakout for competition when
appropriate.'' The commenter raised concerns that this language will
discourage contracting officers from utilizing the sole source
authority provided for the 8(a) Business Development (BD) program, the
Women-Owned Small Business (WOSB) program and the HUBZone program. The
commenter suggests that SBA clarify what a PCR would consider as
``appropriate'' in the decision to recommend competition, and if such a
decision is made, that contracting officers and PCRs document this
decision in the contract file along with an explanation for why
competition is considered more appropriate than a small business
program sole source award. The language referenced by the commenter is
a BPCR responsibility that SBA is transferring to PCRs due to the
statute's elimination of the BPCR role. In addition, PCRs provide
contracting officers with guidance on the availability of sole source
and competitive options, but the contracting officer has the discretion
to choose an acquisition program or method, in accordance with SBA's
guidance on parity.
Another commenter noted that PCRs will have to coordinate with
agency officials to implement the NDAA's requirement, set forth at
Sec. 125.2(b)(1)(iv), that PCRs consult with agency OSDBUs regarding
an agency's decision to convert an activity performed by a small
business concern to an activity performed by a Federal employee. The
statute provides that the PCR will consult with the OSDBU. SBA
understands that the PCR and OSDBU will consult with other agency
officials, as necessary. However, SBA does not believe that additional
clarification is necessary and therefore SBA adopts the proposed
language in this final rule.
Section 1623 of the NDAA requires that each Federal department or
agency provide opportunities for the participation of small business
concerns during acquisition planning processes and in acquisition
plans. This section also requires that each Federal department or
agency invite the participation of the appropriate OSDBU Director in
acquisition planning processes and provides that Director with access
to acquisition plans. SBA incorporates the exact statutory text from
Section 1623 of the NDAA into 13 CFR 125.2(c)(1) by adding new
paragraphs (vi) and (vii).
Limitations on Subcontracting
Section 1651 of the NDAA, as codified at 15 U.S.C. 657s, requires
that the limitations on subcontracting for full or partial small
business set-aside contracts, HUBZone contracts, 8(a) BD contracts,
Service-Disabled Veteran-Owned (SDVO) Small Business Concern (SBC)
contracts, and WOSB and Economically Disadvantaged Women Owned Small
Business (EDWOSB) contracts, be evaluated based on the percentage of
the overall award amount that a prime contractor spends on its
subcontractors. Significantly, the NDAA excludes from the limitations
on subcontracting calculation the percentage of the award amount that
the prime contractor spends on similarly situated entity
subcontractors. Specifically, the NDAA deems work done by similarly
situated entities not to be subcontracted work for purposes of
complying with the limitations on subcontracting requirement. Thus,
work done by a similarly situated entity is counted in determining
whether the applicable limitation on subcontracting is met. When a
contract is awarded pursuant to a small business set-aside or
socioeconomic program set-aside or sole source authority, a similarly
situated entity subcontractor is a small business concern subcontractor
that is a participant of the same SBA program that qualified the prime
contractor as an eligible offeror and awardee of the contract.
Currently, SBA's regulations contain different terms for compliance
with the performance of work requirements based on the type of small
business program set-aside at issue. The method for calculating
compliance not only varies by program set-aside type, but also based on
whether the acquisition is for services, supplies, general
construction, or specialty trade construction. Section 1651 of the NDAA
creates a shift from the concept of a required percentage of work to be
performed by a prime contractor to the concept of limiting a percentage
of the award amount to be spent on subcontractors. The goal is the
same: To ensure that a certain amount of work is performed by a small
business concern (SBC) that qualified for a small business program set-
aside or sole source procurement due to its socioeconomic program
status. The Government's policy of promoting contracting opportunities
for small businesses, HUBZone SBCs, SDVO SBCs, WOSBs/EDWOSBs, and 8(a)
SBCs is seriously undermined when firms pass on work in excess of
applicable limitations to firms that are other than small or that are
not otherwise eligible for specific types of small business contracts.
SBA has revised all references to ``performance of work'' requirements
found in parts 121, 124, 125, 126, and 127 to ``limitations on
subcontracting.''
SBA proposed to totally revise Sec. 125.6 to take into account the
new definition and calculation for the limitations on subcontracting as
described in Section 1651 of the NDAA. Additionally, SBA reorganized
and simplified this section for easier use. Proposed Sec. 125.6(a)
explains how to apply the limitations on subcontracting requirements to
small business set-aside contracts. Instead of providing different
methods of determining compliance based on the type of small business
set-aside program at issue and the type of good or service sought,
Section 1651(a) of the NDAA provides one method for determining
compliance that is shared by almost all
[[Page 34245]]
applicable small business set-aside programs, but varies based on
whether the contract is for services, supplies or products, general
construction, specialty trade construction, or a combination of both
services and supplies.
The approach described in Sections 1651(a) and (d) of the NDAA is
to create a limit on the percentage of the award amount received by the
prime contractor that may be spent on other-than-small subcontractors.
Specifically, the NDAA provides that a small business awarded a small
business set-aside, 8(a), SDVO small business, HUBZone, or WOSB/EDWOSB
award ``may not expend on subcontractors'' more than a specified
amount. However, as noted below, work done by ``similarly situated
entities'' does not count as subcontracted work for purposes of
determining compliance with the limitation on subcontracting
requirements. Proposed Sec. 125.6(a)(1) and (a)(2) addressed the
limitations on subcontracting applicable to small business set-aside
contracts requiring services or supplies. The limitation on
subcontracting for both services and supplies is statutorily set at 50%
of the award amount received by the prime contractor. See 15 U.S.C.
657s(a).
Proposed Sec. 125.6(a)(3) addressed how the limitation on
subcontracting requirement would be applied to a procurement that
combines both services and supplies. This provision intended to clarify
that the contracting officer's (CO) selection of the applicable NAICS
code will determine which limitation of subcontracting requirement
applies. Proposed Sec. 125.6(a)(4) and (5) addressed the limitations
on subcontracting for general and specialty trade construction
contracts. SBA proposed to keep the same percentages that currently
apply: 15% for general construction and 25% for specialty trade
construction.
SBA received 115 comments regarding proposed Sec. 125.6(a). The
overwhelming majority of these comments requested that SBA allow
contractors to exclude the ``cost of materials'', as that term is
currently defined in Sec. 125.1(i), from the limitations on
subcontracting calculation for all contracts. SBA notes that the cost
of materials has never been, and was not proposed to be, a term that
applies to service contracts. Historically and as proposed, the term
cost of materials is applicable to supply, construction, or specialty
trade construction set-aside contracts. ``Cost of materials'' is
currently excluded from the performance of work requirements and SBA
did not intend to remove this exclusion in proposed paragraph 125.6(a).
The exclusion of ``cost of materials'' from the limitations on
subcontracting for supply, construction, and specialty trade
construction procurements is included in this final rule. Several
commenters suggested that SBA extend this exclusion to procurements
assigned a service NAICS code, but, SBA does not believe that this
change is needed. As discussed below, because the limitations on
subcontracting for a services contract apply only to the services
portion of the contract, any ``cost of materials'' would not be part of
the services to be provided through the contract and, thus, would be
excluded from the limitations on subcontracting analysis on that basis.
For a mixed contract (i.e., one in which both supplies and services
are being procured), commenters believed that the limitation on
subcontracting should apply only to that portion of the requirement
identified as the primary purpose of the contract. In other words,
where, for example, a contracting officer has assigned a services NAICS
code to a requirement that has both a services and supply component,
the commenters believed that the limitation on subcontracting should
apply only to the services portion of the work to be performed. In our
view, Section 46(a)(3) of the Small Business Act, 15 U.S.C. 657s(a)(3),
which was established by Section 1651 of the NDAA, provides the
necessary guidance for mixed contracts. The CO must first determine
which category, services or supplies, has the greatest percentage of
the contract value, and then assign the appropriate NAICS code. The
corresponding limitations on subcontracting will apply to the contract,
depending on whether the CO has selected a supply NAICS code or a
services NAICS code. Thus, the statutory authority authorizes that the
limitations on subcontracting apply only to that portion of the
requirement identified as the primary purpose of the contract. SBA has
clarified that intent in this final rule, and has moved the
requirements pertaining to mixed contracts to Sec. 125.6(b).
Therefore, where a procurement combines supplies and services, the
limitations on subcontracting apply only to subcontracts that
correspond to the principal purpose of the prime contract. For a
contract principally for services, but which also requires supplies,
this means that the prime contractor or its similarly situated
subcontractors cannot subcontract more than 50 percent of the services
to other than small concerns. However, the prime contractor can
subcontract all of the supply components to any size business.
Several commenters also recommended that SBA change the current
definition of ``cost of materials'' to include any service or product
that cannot be procured from a small business. Other commenters
recommended that very specific types of services be included in the
definition of ``cost of materials'' such as transportation when
procured in the performance of an environmental remediation
procurement. SBA did not propose to change the definition of ``cost of
materials'' and does not believe that a change is necessary or required
to implement NDAA 2013.
One commenter requested clarity on whether contractors can exclude
from the limitations on subcontracting the non-service costs associated
with a procurement for services. As noted above, SBA believes that only
the services portion of a requirement identified as a services
requirement are considered in determining compliance with the
limitation on subcontracting requirements. This means that any costs
associated with supply items are excluded from that analysis. However,
all costs associated with providing the services, including any
overhead or indirect costs associated with those services, must be
included in determining compliance. This final rule clarifies this
application. SBA has also added another example to Sec. 125.6(a)(3)
that involves both supplies and services to clarify how the limitations
on subcontracting apply in these circumstances.
As noted above, the NDAA prohibits subcontracting beyond a certain
specified amount for any small business set-aside, 8(a), SDVO small
business, HUBZone, or WOSB/EDWOSB contract. Section 1651(b) of the NDAA
creates an exclusion from the limitations on subcontracting for
``similarly situated entities.'' In effect, the NDAA deems any work
done by a similarly situated entity not to constitute
``subcontracting'' for purposes of determining compliance with the
applicable limitation on subcontracting. A similarly situated entity is
a small business subcontractor that is a participant of the same small
business program that the prime contractor is a certified participant
and which qualifies the prime contractor to receive the award.
Subcontracts between a small business prime contractor and a similarly
situated entity subcontractor are excluded from the limitations on
subcontracting calculation because it does not further the goals of
SBA's government contracting and business development programs to
penalize small business prime contract recipients that benefit
[[Page 34246]]
the same small business program participants through subcontract
awards.
The proposed rule identified SBA's concern with determining
compliance with the limitations on subcontracting by looking solely to
the first tier of the contracting process (agreements between the prime
contractor and its direct subcontractors). If all that was looked at
was the first tier subcontract, that first tier subcontractor could in
turn pass all of its performance on to a large or otherwise not
similarly situated entity through a second subcontract. SBA believes
that the intent of the changes in the NDAA were to ensure that the
benefits of set-aside contracts flow to the intended beneficiaries. SBA
does not believe that an intended consequence of the change was to make
it easier to divert these benefits to ineligible entities by merely
moving contracts down one or two tiers in the contracting process. As
such, the proposed rule retained a requirement that firms benefiting
from contracts, and their similarly situated subcontractors perform a
required amount of work on the contract themselves. SBA believes that
requiring firms to perform significant portions of the work, as well as
to retain a significant portion of the contract award, will continue to
help ensure that the benefits from these contracts flow to the intended
parties.
SBA requested comments on this issue, including whether there may
be unintended consequences, as well as comments about SBA's proposed
solution. SBA also requested comments on whether prime contractors
should be required to report to the contracting officer concerning
meeting the performance of work requirements, and comments concerning
the frequency and method of reporting.
SBA received three comments regarding SBA's proposal to apply the
limitations on subcontracting collectively to all similarly situated
entities that are performing work on the contract and that are counted
toward the prime contractor's percentage of performance. Two commenters
supported SBA's proposed approach and one commenter opposed this
approach, and suggested that SBA apply the limitations on
subcontracting only to the prime contractor and the first tier
subcontractor. Applying the limitations on subcontracting to only the
prime contractor and first tier subcontractor creates the possibility
that the first tier subcontractor may subcontract 100% of the work it
received from the prime to an entity that is not similarly situated as
the prime contractor. SBA remains concerned that this would create a
loophole for entities that are not small business concerns and would
not have qualified to receive the prime contract to benefit, as
subcontractors, from government contracts that are set aside for
performance by small business concerns. To address these concerns, SBA
will apply the limitations on subcontracting collectively to the prime
and any similarly situated first tier subcontractor, and any work
performed by a similarly situated first tier subcontractor will count
toward compliance with the applicable limitation on subcontracting. Any
work that a similarly situated first tier subcontractor subcontracts,
to any entity, will count as subcontracted to a non-similarly situated
entity for purposes of determining whether the prime/sub team performed
the required amount of work. In other words, work that is not performed
by the employees of the prime contractor or employees of first tier
similarly situated subcontractors will count as subcontracts performed
by non-similarly situated concerns.
Proposed Sec. 125.6(b)(1) required prime contractors to enter a
written agreement with each similarly situated entity that identifies
the similarly situated entity and the percentage of work to be
performed by that entity. The proposed rule provided that the written
agreement must be signed by the similarly situated entity and provided
to the contracting officer with the prime contractor's offer. Proposed
Sec. 125.6(b)(2) stated that it is immaterial whether the specific
subcontractors identified in the written agreement satisfy the
percentage of work identified, as long as all similarly situated
entities collectively, along with the prime contractor, satisfy the
performance of work requirements. Proposed Sec. 125.6(b)(3) stated
that a prime contractor may be debarred for a violation of the spirit
and intent of this paragraph.
SBA received forty-seven comments related to its proposed Sec.
125.6(b), which described how subcontracts to similarly situated
entities will be excluded from the prime contractor's limitations on
subcontracting. Eight of these comments generally supported Sec.
125.6(b) as proposed. Four of these comments were considered outside
the scope of this rulemaking as they advocated for an interim final
rule to apply the exclusion of subcontracts to similarly situated
entities from the limitations on subcontracting. One comment generally
opposed proposed Sec. 125.6(b), but did not have any suggested
alternatives.
Twenty-three of the forty-seven comments received were related to
proposed Sec. 125.6(b)(1), which discussed the details that must be
included in the required written agreements between the prime
contractor and its similarly situated entity subcontractors. Six of
these commenters supported the concept of a required written agreement
but disagreed with specific aspects of the agreement such as
identifying the proposed similarly situated entity subcontractors and
identifying the percentage of work to be performed by those
subcontractors. Seventeen of the commenters opposed the requirement for
any written agreement between a prime contractor and a similarly
situated entity subcontractor because it would be impossible to know
their identity and possible percentage of performance in advance of the
award and because it would be unnecessarily burdensome on small
business prime contractors to draft and enter these agreements. SBA
also received comments concerning how to address the substitution of
one subcontractor for another, or a decision by the prime contractor
after award to either perform the work itself or subcontract work to a
similarly situated entity.
In response to these comments, SBA has decided not to require a
written agreement in order for a prime contractor to rely on the work
to be performed by similarly situated entities. For many years SBA's
rules have allowed similarly situated entities to be counted towards
the limitations on subcontracting requirements under SDVO or HUBZone
set-asides or sole source awards, without also requiring a separate
written agreement. There is no evidence that this long-standing policy
has been difficult to understand or administer, and the rule change
that limits subcontracting without regard to cost incurred for
personnel should make it easier to track and identify subcontracts,
especially in light of other existing requirements to report on
subcontracts, such as FAR 52.204-10 (48 CFR 52.204-10). (Reporting
Executive Compensation and First-Tier Subcontract Awards). In addition,
SBA is concerned that requiring a written agreement would cause an
administrative burden on small business concerns, which would in turn
cause them to utilize this tool less often, for fear of violating the
written agreement or because they would need to constantly amend the
agreement based on modifications with respect to team members or to
percentages of work performed by individual team members. Further,
requiring a written agreement prior to offer would limit a firm's
ability to decide to utilize a similarly situated entity after award
and during contract
[[Page 34247]]
performance. Many of the commenters pointed out that it may be
difficult to determine whether a subcontractor will or will not be used
on certain contracts, especially indefinite delivery indefinite
quantity task or delivery order contracts. Small business concerns
should have the discretion to run their business and perform contracts
as they see fit, and the discretion to subcontract or not subcontract
at any point during contract performance, provided they comply with the
overall performance requirements. Further, SBA and agencies do not have
the resources to review agreements or amendments to those agreements.
SBA received several comments in response to its request for
comments on whether prime contractors should be required to report to
the contracting officer on their compliance with the limitations on
subcontracting. Eight commenters supported mandatory compliance
reporting, and five of those commenters recommended that the reporting
be made at the end of the contract term. Three of the supportive
commenters recommended compliance reporting on a quarterly or annual
basis. Three commenters opposed mandatory compliance reporting because
it would be too burdensome on small business concerns. One commenter
suggested that SBA use its auditing and investigating authority to
determine compliance rather than requiring contractors to report their
compliance. Another commenter suggested that the only necessary
compliance reporting should be made in the offer.
In addition to the requirement for a written agreement, SBA also
proposed to require compliance reporting from small business concerns
that rely on similarly situated entities to meet their performance
obligations under a set aside contract. Notably, SBA did not propose to
require compliance reporting from all small business concerns (i.e.,
firms that do not rely on similarly situated small business concerns to
meet their performance obligations). Upon further review, SBA believes
that this proposal would create a disincentive to utilize this new
statutory authority. Compliance reporting was not required by the
statute, and in fact, reliance on similarly situated entities to help
meet their performance requirements actually makes it easier these
firms to comply with their obligations. Moreover, requiring a prime
contractor to report on compliance with the limitations on
subcontracting when it uses one or more similarly situated entities
could hamper flexibility for firms during contract performance. For
example, a firm may initially intend to comply on its own, but may find
during contract performance that it must rely on one or more similarly
situated subcontractors to meet its performance obligations. In
addition, a firm may intend to use one or more similarly situated
entities to help it meet its performance obligations, but then may
decide during contract performance that it will perform all of the
required work with its own employees. These practical realities have
led us to remove the compliance reporting requirement with respect to
similarly situated entities. SBA may, in the future, propose a rule
that requires compliance reporting from all small business concerns,
not just those that rely on similarly situated entities. However, such
a change would require notice and a request for public comment that is
not part of this rulemaking.
For many years, SBA's regulations have allowed similarly situated
entities to count towards fulfilling the limitations on subcontracting
requirements under a HUBZone or SDVO set-aside or sole source contract,
without a requirement to report to the CO. As discussed above, prime
contractors are already required to report on subcontracting pursuant
to FAR clause 52.204-10 (48 CFR 52.204-10). Thus, because SBA is not
requiring written agreements in this final rule, at this time SBA has
decided not to require compliance reports from firms that are utilizing
similarly situated subcontractors. SBA believes that to the extent
compliance reporting should be required, it should be required from all
small businesses, not just those that team with similarly situated
subcontractors. Thus, SBA intends to issue a proposed rule to request
public comment on the issue of whether all small businesses (and not
only those that are using similarly situated entities to perform a
contract) should be required to report on compliance with the
limitations on subcontracting on set-aside contracts. SBA understands
the recommendations made by the Government Accountability Office to
strengthen the monitoring and oversight of the required performance
percentages for all small businesses that receive set-aside awards,
including 8(a) contractors, and believes that a separate rulemaking
should address that issue more appropriately.
SBA's proposed Sec. 125.6(b) explained that work subcontracted to
similarly situated entities may be excluded from a prime contractor's
calculation of its limitation on subcontracting. SBA proposed to
include three examples to Sec. 125.6(b) to demonstrate how a small
business concern or Federal agency should apply the exclusion for
similarly situated entities and determine compliance with the
limitations on subcontracting. The final rule has redesignated proposed
Sec. 125.6(b) as Sec. 125.6(c). As mentioned above, in response to
comments, SBA is adding three more examples to redesignated Sec.
125.6(c) to clarify how the limitations on subcontracting apply when
the procurement involves a mix of services and supplies.
SBA received six comments in response to proposed Sec.
125.6(b)(3). All six commenters opposed SBA's ability to consider a
party's failure to comply with the spirit and intent of the subcontract
with a similarly situated entity as a basis for debarment. These
commenters argued that the proposed regulation is too vague because it
is unclear how SBA would demonstrate a violation of the spirit and
intent, and that the penalty of debarment is too severe. SBA clarifies
that a contractor's violation of the spirit and intent of a subcontract
with a similarly situated entity is something SBA may consider as a
basis for debarment, but is not required to consider for debarment. SBA
does not take debarment and suspension lightly and understands fully
the implications of such an action. As such, SBA would not initiate any
debarment or suspension action unless SBA believed that the
government's interests needed to be protected. This would happen where,
for example, a small business prime contractor had no intent to
actually use similarly situated entities. In such a case, the firm's
certification would be a misrepresentation to the government, and the
government could no longer rely on any representations made by the
firm. SBA would not consider a debarment or suspension action where a
firm made a good faith representation that it, along with one or more
similarly situated entities, would meet the performance of work
requirements and through unforeseen circumstances it failed to do so.
Additionally, should SBA choose to consider this as a basis for
debarment, the entity at issue would have an opportunity to respond to
any allegation with its own arguments and evidence. SBA believes this
provision is necessary to deter potential fraud, waste, and abuse of
the prime contractor's ability to exclude similarly situated entity
work from its limitations on subcontracting. SBA has moved the
discussion of debarment to redesignated Sec. 125.6(h).
SBA proposed to relocate the definitions that are relevant to the
limitations on subcontracting that are currently found in Sec.
125.6(e) to Sec. 125.1
[[Page 34248]]
with the other definitions that are applicable to part 125. Section
1651(e) of the NDAA provides the definitions of ``similarly situated
entity'' and ``covered small business concern.'' Proposed Sec.
125.1(x) interprets the statutorily prescribed definition for similarly
situated entity.
SBA received 34 comments about its proposed definition of similarly
situated entity. Fifteen of these comments opposed SBA's proposition
that a small business concern qualifies as a similarly situated entity
if it qualifies as small for the NAICS code assigned to the prime
contractor's procurement, in addition to the other requirements
included in the definition of ``similarly situated entity.'' Three
commenters requested further clarification of the definition. Two
commenters supported the definition as proposed. The remaining comments
were questions regarding the application of the proposed definition to
procurements for specific types of services or were comments that were
considered outside the scope of this rulemaking, as they suggested
changes that were not proposed and are not authorized by the statute.
For example, one commenter recommended that when a solicitation
requires the use of a specific subcontractor, that entity should
qualify as a similarly situated entity, regardless of the
subcontractor's size or small business program participation. SBA
believes that this would conflict with the statutory intent that only
entities that would be eligible as prime contractors may qualify as
similarly situated entity subcontractors. Another commenter recommended
that all individuals classified by the Internal Revenue Service as
independent contractors should be included in the definition of
similarly situated entity. Again, this would conflict with the
statutory intent that only contractors who would qualify for the prime
contract are eligible to count toward the prime contractor's
performance of work as similarly situated entity provisions. However,
SBA has clarified in Sec. 125.6(e)(3) that performance by an
independent contractor is considered a subcontract, and may qualify as
a similarly situated entity if the contractor meets the relevant
criteria.
The majority of the questions related to the application of the
definition to procurements for architecture and engineering services.
Often the prime contract is assigned the NAICS code representing
architecture services and has a size standard that is less than the
size standard for engineering services. In these cases, the engineering
services are often subcontracted and commenters were concerned about
how the engineering firm could qualify as a similarly situated entity
if it were required to comply with the size standard assigned to the
prime contract. SBA received other comments which described complex
procurements involving multiple services. Firms that are small for
certain types of services would not qualify as small for the NAICS
assigned to the contract. In response to the comments received, SBA is
not adopting its proposed definition of ``similarly situated entity''
and instead will allow an entity to qualify as a similarly situated
entity if it is small for the NAICS code that the prime contractor
assigns to the subcontract. SBA believes that this alteration to the
definition will address the concerns raised about specific types of
service procurements. Requiring the subcontractors to be small for the
size standard assigned to the prime contract would unduly restrict the
ability of prime contractors to find and use similarly situated
entities to satisfy the limitations on subcontracting. SBA believes the
approach adopted in this final rule will increase the ability of small
business prime contractors to utilize similarly situated entity
subcontractors. In addition, this approach is consistent with SBA's
rules which require a prime contractor to assign the NAICS code to a
subcontract which describes the principal purpose of the subcontract.
13 CFR 125.3(c)(1)(v).
In Sec. 125.6(c), SBA proposed to require a certification
requirement in connection with the limitations on subcontracting
requirement. However, existing regulations require firms to agree to
comply with the limitations on subcontracting in connection with a set-
aside contract, including firms that are utilizing similarly situated
entities, and it is SBA's intent to continue that practice.
Consequently, SBA's rules do not specifically require certification
from the prime contractor when utilizing similarly situated entities.
In order to be awarded a set-aside contract as a small business, the
prime contractor must agree to comply with the limitations on
subcontracting in connection with the offer, whether that entails using
similarly situated entities or not.
Proposed Sec. 125.6(f) and (h) contained language that is included
in the current rule and did not contain any proposed changes to that
language aside from adding new headings to these paragraphs and
reorganizing this language. These provisions have been redesignated as
Sec. 125.6(d) and (e) in this final rule. Proposed Sec. 125.6(f)
discussed HUBZone procurements of commodities. SBA did not receive any
comments within the scope of this rulemaking that relate to proposed
Sec. 125.6(f) and SBA is adopting the language of proposed Sec.
125.6(f) in Sec. 125.6(d). Proposed Sec. 125.6(g) discussed how to
request a change in the applicable limitation on subcontracting for a
particular industry. SBA received two comments related to proposed
Sec. 125.6(g). One comment supported the language and the other
comment was a question regarding the transition period for industries
where the limitations on subcontracting percentages do not align with
industry practices. It is unclear what the commenter is requesting as
this paragraph does not reference a transition period. This final rule
adopts the language of proposed Sec. 125.6(g).
Proposed Sec. 125.6(h) discussed the period of time used to
determine compliance with the limitations on subcontracting. While SBA
did not propose a change to the time period used to determine
compliance, SBA received 15 comments related to this paragraph. Twelve
of the comments contained suggestions for how to modify the proposed
language to be less burdensome on small business prime contractors and
allow prime contractors to have the maximum flexibility to choose and
manage subcontractors. The majority of these commenters suggested that
SBA use the entire contract term, the base and all option periods, to
determine whether the prime contractor has complied with the
limitations on subcontracting. Other commenters suggested that periodic
checks of compliance would suffice in addition to checking compliance
during contract close-out. The remaining commenters believed that the
current requirement was too onerous on prime contractors to check
compliance for each task order issued under an IDIQ contract.
In response to these comments, SBA again emphasizes that
redesignated paragraph (e) is not a change in policy. It recites the
policy set forth in a prior SBA rulemaking on multiple award
contracting, as set forth at Sec. 125.2(e)(2)(iv), but clarifies that
this policy applies to single award task and delivery order contracts,
not just multiple award contracts. SBA believes that this provides
contracting officers with the maximum flexibility to determine the time
period that will be used for determining compliance with the
limitations on subcontracting for performance of a task or delivery
order contract. SBA does not believe it is appropriate for compliance
to be determined at the end of the contract term, including all option
periods,
[[Page 34249]]
because it would eliminate the ability to monitor compliance during
performance and request a proposed corrective action from the
contractor in order to satisfy the limitations on subcontracting during
the performance period. When compliance is monitored per base period
and each option period, or per order in some cases, it helps ensure
that the intended benefits are flowing to the intended recipients. If
the policy were to wait until performance was concluded, the remedies
would be much more limited.
Proposed Sec. 125.6(i) addressed how the limitations on
subcontracting apply to members of a Small Business Teaming Arrangement
(SBTA) that are exempt from affiliation according to Sec.
121.103(b)(9). Proposed Sec. 125.6(i) stated that the limitations on
subcontracting apply to the combined effort of the SBTA members, not to
the individual members of the SBTA separately. However, SBTAs only
apply to bundled contracts, and a bundled contract is a contract that
is not suitable for award to a small business concern. The Small
Business Act allows small businesses to team together on a bundled
contract and requires the agency to consider the capabilities of
subcontractors on the team, and exempt those team members from
affiliation. 15 U.S.C. 644(e)(4). If a contract contains a reserve, it
is suitable for award to a small business, and thus the contract is not
bundled and the SBTA would not apply. Thus, SBA is removing language
concerning reserves from Sec. 121.109(b)(9) and language concerning
SBTAs from Sec. 125.6, because the limitations on subcontracting do
not apply. SBTAs with respect to bundled and consolidation contracts
are discussed in depth at Sec. 125.2(b)(iii)(G).
SBA proposed to add new Sec. 125.6(j), which exempted small
business set-aside contracts valued between $3,500 and $150,000 from
the limitations on subcontracting requirements. Section 46 of the Small
Business Act mandates that the statutory performance of work
requirements (limitations on subcontracting) apply to small business
set-aside contracts with values above $150,000, and contracts of any
amount awarded to socioeconomically disadvantaged contracting programs,
such as 8(a), WOSB/EDWOSB, HUBZone, and SDVO set-aside contracts. 15
U.S.C. 657s. Although the limitations on subcontracting apply to all of
these contracts, Section 46 does not specifically cite Section 15(j) of
the Small Business Act, which is the statutory authority for non-
socioeconomically disadvantaged small business set-asides between
$3,500 and $150,000. Further, Section 15(j) of the Small Business Act
does not mention any limitation on subcontracting requirements in
connection with the performance of set-aside contracts under Section
15(j). Thus, the FAR provides that ``[t]he contracting officer shall
insert the clause at 52.219-14, Limitations on Subcontracting, in
solicitations and contracts for supplies, services, and construction,
if any portion of the requirement is to be set aside or reserved for
small business and the contract amount is expected to exceed
$150,000.'' FAR 19.508(e) (48 CFR 19.508(e)). SBA proposed not to
expand the application of the limitations on subcontracting to apply to
small business set-asides below $150,000, but rather to adopt what the
FAR has done. The limitation on subcontracting requirements would
continue to apply to all 8(a), HUBZone, SDVO, and WOSB/EDWOSB set-aside
contract awards regardless of value, including but not limited to
contracts with values between $3,500 and $150,000. SBA requested
comments regarding whether the limitations on subcontracting should
apply to small business set-aside contracts valued between $3,500 and
$150,000. In addition, SBA requested comments on whether, for policy
reasons and for purposes of consistency, the performance of work/
subcontracting limitation requirements should apply to a small business
set-aside contract with a value between $3,500 and $150,000.
SBA received thirteen comments regarding proposed Sec. 125.6(j).
Ten of these comments supported SBA's proposed approach to exclude
procurements with a value between $3,500 and $150,000 from the
limitations on subcontracting. One commenter opposed this approach and
stated that eliminating the application of the nonmanufacturer rule
(NMR) to procurements of this value would open itself up to direct
competition with non-U.S., other than small manufacturers. Another
commenter suggested that SBA should exclude all small business program
set-aside procurements valued between $3,500 and $150,000 from the
limitations on subcontracting rather than just small business set-aside
procurements. The remaining comment received was outside the scope of
this rule-making.
In response to these comments, SBA notes that the limitations on
subcontracting rule and the NMR as set forth in the Small Business Act
do not exclude set-asides under other authorities from those
requirements based on the value of the contract. 15 U.S.C. 657s. The
only set-aside authority that is not cited in the limitations on
subcontracting provision is Section 15(j) of the Small Business Act,
which is the statutory authority for small business set-asides valued
between $3,500 and $150,000. SBA is adopting the proposed language of
Sec. 125.6(j), in redesignated Sec. 125.6(f), as the majority of
comments supported this approach and it is supported by the Small
Business Act and consistent with the existing FAR.
Section 1652 of the NDAA, codified at 15 U.S.C. 645 (Section 16 of
the Small Business Act), prescribes penalties for concerns that violate
the limitations on subcontracting requirements. SBA proposed to add new
Sec. 125.6(k) to incorporate these penalties into the regulations.
Proposed Sec. 125.6(k) stated that concerns that violate the
limitations on subcontracting are subject to the penalties listed in 15
U.S.C. 645(d) except that the fine associated with these penalties will
be the greater of either $500,000 or the dollar amount spent in excess
of the permitted levels for subcontracting.
SBA received twenty-nine comments related to proposed Sec.
125.6(k). Twenty-eight of these comments requested that SBA alter this
paragraph to lower the penalties and allow a good faith exception for a
violation of the limitations on subcontracting. Most of these
commenters were concerned that by violating the limitations on
subcontracting by even $1, possibly due to a miscalculation or a change
in the Service Contract Act wage rates, a prime contractor could be
exposed to a minimum fine of $500,000. Many commenters requested that
SBA change the language from imposing a minimum fine of $500,000 to
imposing a fine that is the lesser of $500,000 or the amount spent in
excess of the permitted levels. Several commenters requested that the
fine be imposed on the subcontractor that is not qualified to receive
the funds, as it is likely that the prime contractor relied in good
faith on a misrepresentation of the subcontractor's small business or
small business program participation status. Other commenters requested
that SBA allow a contractor that has violated the limitations on
subcontracting to submit a mitigation plan and provide the contracting
officer with discretion to apply the penalty when appropriate and in an
amount proportional to the severity of the violation. One commenter
supported the penalty language as proposed.
In response to these comments, SBA notes that the language of
proposed Sec. 125.6(k) mirrors the language of Section 1652 of the
NDAA. The penalty
[[Page 34250]]
provision is statutory and the use of the $500,000 fine as the minimum
amount to be applied is also statutory. SBA believes that the penalty
provision will deter contractors from agreeing to comply with the
limitations on subcontracting without a practical plan for compliance
because it provides a strong enforcement mechanism. It is critical that
firms that obtain set-aside and preferential contracts comply with
applicable subcontracting limitations. The government's policy of
promoting contracting opportunities for small and socioeconomically
disadvantaged businesses is seriously undermined when firms pass on
work in excess of applicable limitations to firms that are other than
small or that are not disadvantaged. SBA is adopting the proposed
language into redesignated Sec. 125.6(h).
This rule also proposed to revise Sec. 121.103(h)(4). Paragraph
(h) discusses the circumstances under which SBA will find affiliation
among joint venturers for size purposes. Paragraph (h)(4) addresses the
ostensible subcontractor rule, which is the concept that a
subcontractor who performs the majority of the primary and vital
requirements of a contract or whom the prime contractor is unusually
reliant upon may be considered a joint venturer with the prime
contractor and thus affiliated with the prime contractor for size
determination purposes. SBA proposed to revise this paragraph to
exclude subcontractors that are similarly situated subcontractors, as
that term is defined in 13 CFR 125.1, from affiliation under the
ostensible subcontractor rule. Such a position clearly flows from the
NDAA's treatment of similarly situated subcontractors.
SBA received eleven comments in response to proposed Sec.
121.103(h)(4). All eleven comments supported the exclusion of similarly
situated entity subcontractors from the application of the ostensible
subcontractor rule, as discussed in Sec. 121.103(h)(4). As such, SBA
is adopting the language in Sec. 121.103(h)(4) as proposed.
SBA proposed to amend Sec. 124.510(a), (b), and (c) to reflect the
limitations on subcontracting rules with respect to the 8(a) Business
Development (BD) program. Part 124 addresses the 8(a) BD program and
the limitations on subcontracting that apply to procurements set aside
for competition among 8(a) BD participants. SBA proposed to delete
paragraphs (a) and (b) and add new paragraph (a). Currently, paragraphs
(a) and (b) discuss how 8(a) BD participants can comply with the
performance of work requirements even though these specifications are
also discussed in Sec. 125.6. To eliminate confusion and repetition,
SBA proposed to remove current paragraph (b) and add a new paragraph
(a), which will direct 8(a) BD participants to comply with the
limitations on subcontracting set forth in Sec. 125.6. The proposed
rule would redesignate current paragraph (c) as paragraph (b) and
include references to the limitations on subcontracting as opposed to
the performance of work requirements in newly redesignated paragraph
(b). The NDAA uses the term ``limitations on subcontracting'' to
describe the concept that is currently referred to as ``performance of
work requirements.'' This change provides consistency throughout the
rules.
SBA received seventeen comments in response to the proposed
language in Sec. 124.510. Ten of these commenters opposed the proposed
language and specifically disagreed with providing contracting officers
the discretion to apply the limitations on subcontracting to 8(a)
contracts per order. Commenters also opposed SBA's proposed Sec.
124.510(b)(2), which allows the SBA District Director the ability to
waive the applicable limitations on subcontracting in certain
circumstances. Three of the comments received were suggestions to
modify the language of proposed Sec. 124.510(b) to clarify that
subcontracts awarded to similarly situated entities for an 8(a)
procurement are not counted toward that 8(a) prime contractor's
limitations on subcontracting but are counted toward their non-8(a)
revenue for purposes of meeting their business activity targets. Two
commenters supported the language of Sec. 124.510(b) as proposed.
For purposes of counting 8(a) revenue, the dollar amount of a prime
contract award is credited towards the revenue of the prime contractor.
Thus, to the extent an 8(a) prime decides to utilize a subcontractor
for purposes of meeting the limitations on subcontracting provisions,
any amount subcontracted is not deducted from the prime's 8(a) revenue.
SBA notes that the language in Sec. 124.510(b) is not new, and as
such, no changes to this language were proposed. Nonetheless, several
commenters expressed their opposition to a District Director's ability
to waive compliance with the limitations on subcontracting in certain
circumstances and disagreed with the time period used to determine
compliance with the limitations on subcontracting for 8(a)
procurements. In response to these comments, SBA is eliminating this
provision. SBA has not received any comments or input indicating this
provision has benefited specific 8(a) concerns. In addition, this
exemption is not based on any statutory authority. Thus, in accordance
with the intent of the section to make the performance requirements
uniform across all programs, SBA is eliminating paragraphs (c)(4) and
(c)(5) of Sec. 124.510.
SBA proposed to revise Sec. 125.15(a)(3) and (b)(3), which address
the requirements for an SDVO SBC to submit an offer on a contract. SBA
proposed to revise paragraph (a)(3) to state that a concern that
represents itself as an SDVO SBC must also represent that it will
comply with the limitations on subcontracting, as set forth in Sec.
125.6, as part of its initial offer, including price. SBA proposed to
revise paragraph (b)(3) to state that joint ventures that represent
themselves as an SDVO SBC joint venture must comply with the applicable
limitations on subcontracting, as set forth in Sec. 125.6. SBA
received no comments related to these paragraphs and as such is
adopting the language as proposed.
HUBZone Program
SBA also proposed to revise Sec. 126.200(b)(6). This paragraph
addresses the requirements that a concern must meet in order to receive
SBA's certification as a qualified HUBZone SBC. Paragraphs (b)(6) and
(d) are repetitive as both address the requirement that HUBZone SBCs
must comply with the relevant performance of work requirements. SBA
proposed to delete paragraph (d) and revise paragraph (b)(6).
Specifically, proposed paragraph (b)(6) would state that the concern
must represent in its application for the HUBZone program that it will
comply with the applicable limitations on subcontracting requirements
with respect to any procurement that it receives as a qualified HUBZone
SBC. SBA received one comment related to proposed Sec. 126.200(b)(6),
which was a request to clarify whether a HUBZone similarly situated
entity subcontractor must meet the 35% residency requirement for
HUBZone program participation. In response, SBA clarifies that a
HUBZone similarly situated entity subcontractor must be able to qualify
for the prime HUBZone procurement in order to be considered a similarly
situated entity. This means that it must also be HUBZone certified and
be considered small for the NAICS code assigned to its subcontract. SBA
is adopting the language in Sec. 126.200(b)(6) as proposed.
SBA proposed to revise Sec. 126.700 in its entirety, including
revision of paragraph (a) and removal of paragraphs (b) and (c). This
section currently
[[Page 34251]]
addresses the performance of work requirements for HUBZone contracts.
SBA proposed to retitle the section to include the terminology
``limitations on subcontracting''; remove references to the
``performance of work'' requirements; and replace the deleted text with
a reference to 13 CFR 125.6 for guidance on the applicable limitations
on subcontracting for HUBZone contracts. SBA believes that it would be
confusing to have each section of SBA's set-aside program regulations
repeat the relevant limitations on subcontracting, and therefore SBA
proposed to list all of the limitations on subcontracting requirements
at Sec. 125.6 and provide references to that section in each of the
various small business government contracting and business development
program sections. SBA did not receive comments related to this
paragraph and is adopting the language as proposed.
SBA proposed to revise Sec. 127.504(b), which addresses the
requirements a concern must satisfy to submit an offer for an EDWOSB or
WOSB requirement. Paragraph (b) states that the concern must meet the
performance of work requirements in Sec. 125.6. SBA proposed to revise
this paragraph to replace the reference to ``performance of work
requirement'' with ``limitations on subcontracting.'' SBA did not
receive comments related to this paragraph and is adopting the language
as proposed.
SBA proposed to revise Sec. 127.506(d), which addresses the
requirements that a joint venture must satisfy in order to submit an
offer for an EDWOSB or WOSB requirement. SBA proposed to revise this
paragraph by replacing the reference to ``performance of work
requirement'' with ``limitations on subcontracting.'' SBA did not
receive comments related to this paragraph and is adopting the language
as proposed.
Subcontracting Plans
Section 1653 of the NDAA, as codified at 15 U.S.C. 637(d) (Section
8(d) of the Small Business Act), addresses amendments to the
requirements for subcontracting plans. Section 1653(a)(2) of the NDAA
states that the head of the contracting agency shall ensure that the
agency collects, reports, and reviews data on the extent to which the
agency's contractors meet the goals and objectives set out in their
subcontracting plans. SBA proposed to add a new Sec. 125.3(f)(8) to
incorporate these provisions. SBA received three comments on this
addition. Two were positive, and the one negative comment felt that the
statutory language may be too burdensome for contracting officers and
prime contractors. This final rule adopts the proposed language.
Section 1653(a)(3) of the NDAA modifies the Small Business Act to
state that a contractor that fails to provide a written corrective
action plan after receiving a marginal or unsatisfactory rating for its
subcontracting plan performance or that fails to make a good faith
effort to comply with its subcontracting plan will not only be in
material breach of the contract, but such failure shall also be
considered in any past performance evaluation of the contractor. SBA
proposed to revise Sec. 125.3(f)(5) to incorporate this language. SBA
also proposed adding a new sentence to the end of Sec. 125.3(f)(5),
which would prescribe the process for a Commercial Market
Representative (CMR) to report firms that are found to have acted
fraudulently or in bad faith to the SBA's Area Director for the Office
of Government Contracting Area Office where the firm is headquartered.
SBA received eight comments on this proposed change. One of the
comments wanted SBA to ensure that there was a definitive statement
that contracting officers shall take into consideration ratings on
performance of past subcontracting plans when evaluating past
performance. SBA agrees with this position, but believes that it is
already clear in the regulatory text. The provisions of the NDAA make
clear that contracting officers shall take into consideration previous
performance of its subcontracting plans. The remaining comments were
generally supportive of the changes. Two negative comments were related
to requirements of the Act itself which can be modified or changed only
by another Act passed of Congress. Thus, SBA is not making any changes
to the proposed rule.
Section 1653(a)(4) of the NDAA modifies the Small Business Act to
state that contracting agencies also perform evaluations of a prime
contractor's subcontracting plan performance, and that SBA's
evaluations of subcontracting plan performance are completed as a
supplement to the contracting agency's review. SBA proposed to revise
Sec. 125.3(f)(1) to incorporate this language. SBA did not receive any
comments on this change and will be keeping the proposed language.
Section 1653(a)(5) of the NDAA requires that if an SBC is
identified as a potential subcontractor in a proposal, offer, bid or
subcontracting plan in connection with a covered Federal contract, the
prime contractor shall notify the SBC prior to such identification.
Section 1653(a)(5) also requires that the Administrator establish a
reporting mechanism that allows potential subcontractors to report
fraudulent activity or bad faith behavior by a prime contractor with
respect to a subcontracting plan. SBA proposed to incorporate these
requirements in new Sec. 125.3(c)(8) and (9). SBA received eight
comments on these changes. Several comments asked for clarification on
how the notification requirements can be met. SBA believes that rule is
very clear. There are two requirements: First that the notification is
in writing; and second that it be given to the party in question.
Ensuring that it is in writing and has been received is the
responsibility of the contractor. SBA is not making any changes with
regard to this requirement. Several commenters requested that
additional requirements be added that would also require notification
to SBA or another government party that the contract has provided the
written notification that is required. SBA does not believe that this
additional step is required by the statute, or that the additional
burden on contractors is necessary to ensure compliance with the other
provision.
Affiliation
SBA proposed to make changes to its regulations in Sec.
121.103(f), which defines affiliation based on an identity of interest.
Paragraph 121.103(f) discusses the circumstances where an identity of
interest between two or more persons leads to affiliation among those
persons and their interests are aggregated. SBA proposed to add
additional guidance on how to analyze affiliation due to an identity of
interest. SBA believed that the additional clarifications will better
enable concerned parties to understand and determine when they are
affiliated.
SBA proposed to divide paragraph (f) into two paragraphs. Paragraph
(f)(1) will include further clarification regarding the type of
relationships between individuals that will create a presumption of
affiliation due to an identity of interest. Specifically, SBA proposed
to insert language clarifying that a presumption of affiliation exists
for firms that conduct business with each other and are owned and
controlled by persons who are married couples, parties to a civil
union, parents and children, and siblings. SBA proposed that the
presumption would be a rebuttable presumption. The proposed rule is
based on size appeal decisions that have been issued interpreting this
regulation.
SBA received several comments with respect to identity of interest
based on family relationships. Four commenters thought that the list of
family relationships was not exhaustive enough and should include all
relationships, such as grandparents and
[[Page 34252]]
cousins. These commenters believed that all familial relationships
should create the presumption, and that other information such as
estrangement or distance could be used in rebuttal. Two commenters
agreed that the clarity SBA was providing was helpful and agreed with
the changes. Two commenters did not believe that affiliation should
ever be found based on familial relationships.
As noted in SBA's proposed rule, the enumerated family
relationships are relationships in which SBA's Office of Hearings and
Appeals (OHA) has consistently found affiliation in the past. See Size
Appeal of Knight Networking & Web Design, Inc., SBA No. SIZ-5561
(2014); Size Appeal of RGB Group, Inc., SBA No. SIZ-5351 (2012); and
Size Appeal of Jenn-Kans, Inc., SBA No. SIZ-5114 (2010). The rule is
intended to take this knowledge and precedent and provide it in the
rule itself in order to make compliance and understanding easier for
small businesses. SBA believes the proposed rule accurately encompassed
the precedential history of SBA size decisions and that it will be
beneficial in providing some clarity to small businesses. Thus, SBA is
adopting the language in (f)(1) in the final rule.
In paragraph (f)(2), SBA proposed adopting a presumption of
affiliation based on economic dependence. Specifically, if a firm
derives 70% or more of its revenue from another firm over the previous
fiscal year, SBA will presume that the one firm is economically
dependent on the other and, therefore, that the two firms are
affiliated. Currently there is no fixed percentage that SBA applies
when evaluating this criteria. However, OHA size appeal decisions have
provided the 70% figure as a guide. SBA believes that providing clarity
on this issue will be beneficial for firms, and will enable them to
more easily identify their affiliates. Further, this presumption is
rebuttable, such as when a firm is new or a start-up and has only
received a few contracts or subcontracts. Often new firms will not have
as many partners and clients, and therefore will normally be generating
more of their revenue from a much smaller number of other companies.
Over time these firms should diversify and become less dependent on one
entity.
SBA received 26 comments on this section. Several commenters
pointed out that SBA should use a three-year time frame rather than a
one year time frame because SBA already uses a three-year time frame
when averaging annual receipts for size purposes. SBA agrees, and has
adopted a three-year measuring period in the final rule. Several
commenters were also concerned that this new rule and its
interpretation could adversely impact ``start-ups'' that have low
revenues to begin with and fewer contracts. SBA does not want this new
rule to negatively impact start-ups or any other company that operates
in a unique industry. That is precisely why this is not a bright line
rule, but a rebuttable presumption. This rebuttable presumption is
based on OHA cases, and OHA has in fact rebutted the presumption in
appropriate circumstances. For instance, OHA has held that the
mechanical application of the economic dependence rule is erroneous
when a startup has only been able to secure one or two contracts. Size
Appeal of Argus & Black, Inc., SBA No. SIZ-5204 (2011). In addition,
OHA has held that where the receipts from an alleged affiliate are not
enough to sustain a firm's business operations, and the firm is able to
look to other financial support from its Alaska Native Corporation
(ANC) affiliates to remain viable, the fact that the firm received more
than 70% of its receipts from its alleged affiliate is not sufficient
to establish affiliation. Size Appeal of Olgoonik Solutions LLC, SBA No
SIZ-5669 (2015). In response to the comments and in an effort to
provide greater clarity, this final rule specifies that the presumption
of affiliation based on economic dependence may be rebutted by a
showing that despite the contractual relations with another concern,
the concern at issue is not solely dependent on that other concern. In
addition, SBA has provided examples in the regulatory text for
clarification. Several comments asked for a specific list of acceptable
rebuttals, and one commenter requested that Tribally-owned firms be
granted an explicit exception. SBA does not believe that providing a
list of acceptable rebuttals may have the unintended consequence of
limiting the types of rebuttals that are acceptable. Instead SBA
believes that firms should be permitted to make any arguments and
provide any evidence that they believe demonstrates that no affiliation
should be found. In addition, SBA has clarified that SBA will not find
affiliation between two concerns owned by an Indian Tribe, ANC, Native
Hawaiian Organization (NHO) or Community Development Corporation (CDC)
based solely on the contractual relations of the two concerns. The
Small Business Act and SBA's rules clearly recognize that ANC, NHO,
CDC, and Tribally-owned concerns will provide assistance to sister
entities, and it does not make sense to find affiliation based on
economic dependence among such concerns.
Joint Ventures
SBA proposed to amend Sec. 121.103(h) to broaden the exclusion
from affiliation for small business size status to allow two or more
small businesses to joint venture for any procurement without being
affiliated with regard to the performance of that procurement
requirement. Currently, in addition to the exclusion from affiliation
given to an 8(a) prot[eacute]g[eacute] firm that joint ventures with
its SBA-approved mentor for any small business procurement, there is
also an exclusion from affiliation between two or more small businesses
that seek to perform a small business procurement as a joint venture
where the procurement is bundled or large (i.e., greater than half the
size standard for a procurement assigned a NAICS code with a receipts-
based size standard and greater than $10 million for a procurement
assigned a NAICS code with an employee-based size standard). SBA
proposed to remove the restriction on the type of contract for which
small businesses may joint venture without being affiliated for size
determination purposes. SBA proposed this change for several reasons.
First, the proposed change would encourage more small business joint
venturing, in furtherance of the government-wide goals for small
business participation in federal contracting. Second, the proposed
change is consistent with the results from the Small Business Teaming
Pilot Program indicating there is a need for more small business
opportunities and firms have greater success on small contracts than on
large contracts. Third, this proposed change would better align with
the new provisions of the NDAA governing the limitations on
subcontracting, which allow a small business prime contractor to
subcontract to as many similarly situated subcontractors as desired. If
a small business prime contractor can subcontract significant portions
of that contract to one or more other small businesses and, in doing
so, meet the performance of work requirements for small business
(without being affiliated with the small business subcontractor(s)), it
is SBA's view that similar treatment should be afforded joint
ventures--so that a joint venture of two or more small businesses could
perform a procurement requirement as a small business when each is
individually small.
SBA received 43 comments on this section. The comments were
overwhelmingly supportive of the change. As such, this final rule
adopts
[[Page 34253]]
the proposed language requiring only that each member of a joint
venture individually qualify as small. Several commenters also
suggested that SBA provide additional guidance regarding joint ventures
that perform contracts as similarly situated entities. This final rule
clarifies that a joint venture of two or more business concerns may
submit an offer as a small business for a Federal procurement,
subcontract or sale so long as each concern is small under the size
standard corresponding to the NAICS code assigned to the contract.
Calculation of Annual Receipts
SBA proposed to amend Sec. 121.104, which explains how SBA
calculates annual receipts when determining the size of a business
concern. SBA proposed to clarify that receipts include all income, and
the only exclusions from income are the ones specifically listed in
paragraph (a). It was always SBA's intent to include all income, except
for the listed exclusions; however, SBA has found that some business
concerns misinterpreted the current definition of receipts to exclude
passive income. SBA's proposed change clarifies the intent to include
all income, including passive income, in the calculation of receipts.
SBA received 15 comments on this section. The majority of the
comments were supportive. Several commenters believed that SBA should
not count certain expenses to subcontractors as revenue. The comments
were asking SBA to consider new exemptions. The proposed change was not
intended to fundamentally change the meaning of SBA's regulation, but
merely ensure that small businesses are aware that all income is
considered including passive income. Thus, SBA is adopting the proposed
language in this final rule.
Recertification
SBA proposed to amend Sec. 121.404(g)(2)(ii) by adding new
paragraph (D) to clarify when recertification of size is required
following the merger or acquisition of a firm that submitted an offer
as a small business concern. Paragraph (D) clarifies that if the merger
or acquisition occurs after offer but prior to award, the offeror must
recertify its size to the contracting officer prior to award.
SBA received twenty-one comments on this proposed change. Nine
commenters supported SBA's proposal. One commenter asked that SBA go
further and specifically allow contracting officers to refuse novation
of contacts if an acquisition or merger occurs within 90 days of an
award. Seven commenters strongly opposed SBA's proposed changes. Two
commenters argued that there should be a 30 day period prior to award
requirement. SBA does not know how this could be implemented given that
offerors do not know when an award announcement will be made. One
commenter suggested SBA should only require recertification if the
merger or sale involves a large business. One commenter was confused
about whether this rule would negate the requirement to certify at the
time at offer.
SBA is adopting the proposed language in this final rule. For
several years SBA's rules have required recertification in connection
with a contract when there is an acquisition or merger involving the
prime contractor. SBA never intended for the recertification
requirement to not apply based on when the acquisition or merger
occurred. If recertification is required for an existing contract, it
should be required for a pending contract. An agency's receipt of small
business credit should not depend on whether an acquisition or merger
occurs the day before award of contract.
Small Business Innovation Research and Small Business Technology
Transfer Programs
SBA proposed to amend Sec. 121.702(a)(2), which addresses an
ownership and control element of the eligibility requirements for the
Small Business Innovation and Research (SBIR) Program, to clarify that
a single venture capital operating company (VCOC), hedge fund, or
private equity firm may own more than 50% of an SBIR awardee if that
single VCOC, hedge fund, or private equity firm qualifies as a small
business concern which is more than 50% directly owned and controlled
by individuals who are citizens or permanent resident aliens of the
United States.
Section 121.702(a) establishes the SBIR program eligibility
requirements related to ownership and control. Awardees that satisfy
any of the permissible ownership and control structures discussed in
Sec. 121.702(a) must also satisfy all of the size and affiliation
requirements stated in Sec. 121.702(c). Section 121.702(a)(1)(ii)
allows an SBIR awardee to be majority-owned by multiple VCOCs, hedge
funds, or private equity firms. Section 121.702(a)(2) prohibits
ownership by a single VCOC, hedge fund, or private equity firm that
owns a majority of the concern. This paragraph has been misread because
it does not account for the scenario where an awardee is majority-owned
by a single VCOC, hedge fund, or private equity firm that is itself
another small business concern and therefore qualifies as an allowable
ownership structure under Sec. 121.702(a)(1)(i). To clarify this
point, SBA is amending Sec. 121.702(a)(2) to explain that it is
permissible for an SBIR awardee to be majority owned by a single VCOC,
hedge fund, or private equity firm if that firm meets the definition of
a small business concern under this section and is more than 50%
directly owned and controlled by individuals who are citizens or
permanent resident aliens of the United States. SBA did not receive any
comments related to this proposed change and is adopting the change as
proposed.
Size Protests
SBA proposed to amend Sec. 121.1001(a), which specifies who may
initiate a size status protest. Small businesses and contracting
officers have found the current language to be unclear because it
contains a double negative, stating that any offeror that has not been
eliminated for reasons not related to size may file a size protest. The
intent is to provide standing to any offeror that is in line or
consideration for award, but to not provide standing for an offeror
that has been found to be non-responsive, technically unacceptable or
outside of the competitive range.
In addition, the proposed rule added a new Sec. 121.1001(b)(11)
that would authorize the SBA's Director, Office of Government
Contracting, to initiate a formal size determination in connection with
eligibility for the SDVO SBC and the WOSB/EDWOSB programs. This change
is needed to correct an oversight that did not authorize such requests
for size determinations when those programs were added to SBA's
regulations.
SBA received 16 comments on this change. All commenters were
supportive; however one commenter believed that the protests should be
allowed for firms outside the competitive range. SBA disagrees. A firm
outside of the competitive range is not eligible for award and does not
have standing. However, SBA and the contracting officer may file a size
protest at any time, so any firm, including those that do not have
standing, may bring information pertaining to the size of the apparent
successful offeror to the attention of SBA and/or the contracting
officer for their consideration.
North American Industry Classification System Code Appeals
SBA sought comments on the appropriate timeline for filing a NAICS
code appeal. SBA's regulations
[[Page 34254]]
currently state that, ``[a]n appeal from a contracting officer's NAICS
code or size standard designation must be served and filed within 10
calendar days after the issuance of the solicitation or amendment
affecting the NAICS code or size standard.'' 13 CFR 121.1103(b)(1). SBA
received 23 comments on this issue. Most of the comments were
supportive of SBA's current timing. Several commenters recommended
other changes that SBA could make. Based on the comments, SBA is not
altering the timeliness rules for NAICS code appeals.
Nonmanufacturer Rule
SBA proposed to clarify that the limitations on subcontracting and
the nonmanufacturer rule (NMR) do not apply to small business set-aside
contracts valued between $3,000 and $150,000. The statutory
nonmanufacturer rule, which is contained in Section 8(a)(17) of the
Small Business Act, 15 U.S.C. 637(a)(17), is an exception to the
limitations on subcontracting (LOS). It provides that a concern may not
be denied the opportunity to compete for a supply contract under
Sections 8(a) and 15(a) of the Small Business Act simply because it is
not the actual manufacturer or processor of the product. Section
8(a)(17) of the Small Business Act does not, however, also reference
Section 15(j) of the Small Business Act, the authority requiring small
business set-aside contracts valued between $3,500 and $150,000. Thus,
there is no specific statutory requirement that the nonmanufacturer
rule apply to the mandated small business set-asides between $3,500 and
$150,000. SBA believes that not applying the nonmanufacturer rule to
small business set-asides valued between $3,500 and $150,000 will spur
small business competition by making it more likely that a contracting
officer will set aside an acquisition for small business concerns
because the agency will not have to request a waiver from SBA where
there are no small business manufacturers available. In order to
request a waiver, an agency must provide SBA with the solicitation and
market research on whether manufacturers exist and wait several weeks
for SBA to verify the data and grant the waiver. Without a waiver, an
offeror on a small business set-aside supply contract must either
manufacture at least 50% of the product on its own or supply the
product of a small business made in the United States. Many waiver
requests below $150,000 are for name brand items (e.g., computers) that
are clearly not made by small businesses in the United States. Whether
an agency can procure name brand items is not within the jurisdiction
of SBA. The contracting officer must make that determination, which can
be protested by interested parties.
SBA received 28 comments on this issue, of which 19 were
supportive. The non-supportive comments believed that this change would
drastically hurt small business manufacturers because most of their
contracts fell within the exemption range. One commenter maintained
that the proposed rule would hurt resellers by increasing competition
among resellers. Given the support for the change and the consistency
between the FAR and SBA's regulations that this creates, SBA is
adopting the proposed language in the final rule.
Several commenters asked for additional clarity on several discrete
issues. Specifically, commenters sought guidance on how the NMR applies
to multiple item procurements generally, and especially to procurements
with multiple NAICS codes, and how the NMR and LOS apply when a
multiple-item procurement contains items manufactured by multiple large
and small businesses.
Further, commenters requested guidance on the treatment of rentals
with regard to the NMR and LOS. In order to provide more clarity SBA is
proposing new language in Sec. 121.406(b)(4) and (e). SBA has also
provided several additional examples to demonstrate how the rules
should be applied. The final rule clarifies that rental services are
not supplies. SBA bases this clarification on the NAICS code and NAICS
manual, as well as the FAR and other government contracting statutes
which indicate that renting an item is not the same thing as buying an
item. SBA is also adding additional language to clarify how to apply
the NMR, LOS, and size standards, to address comments concerning how to
apply the various rules when the government acquires more than one item
in a single procurement. SBA believes this language will more clearly
state how the various regulations interact in that situation.
The intent is for the NMR, LOS, and size standards to operate in
conjunction with each other in a manner consistent with all of SBA's
regulations. Therefore SBA believes that the proper way to calculate
LOS requirements with regard to a contract that contains waived
item(s)/small business item(s) is that the value of the waived item(s)
are subtracted from the total and the prime contractor is responsible
for meeting the requirements on the remainder. SBA has added several
examples to Sec. 125.6(a) to help explain how this should be
calculated in practice.
SBA proposed to amend Sec. 121.1203 to require that contracting
officers notify potential offerors of any waivers, whether class
waivers or contract specific waivers, that will be applied to the
procurement. SBA proposed that this notification of the application of
a waiver be contained in the solicitation itself. Without notification
that a waiver is being applied by the contracting officer, potential
offerors cannot reasonably anticipate what if any requirements they
must meet in order to perform the procurement in accordance with SBA's
regulations. SBA believed that providing notice of waivers in the
solicitation will provide all potential offerors with the information
needed to decide if they should submit an offer.
SBA also proposed to amend Sec. 121.1203, regarding waivers to the
nonmanufacturer rule. SBA proposed to amend Sec. 121.1203(a) to
specifically authorize SBA to grant a waiver to the nonmanufacturer
rule for an individual contract award after a solicitation has been
issued, provided the contracting officer agrees to provide all
potential offerors additional time to respond. SBA believes that a
waiver may be appropriate even after a solicitation has been issued,
but wants to ensure that all potential offerors would be fully apprised
of any waiver granted after the solicitation is issued and have a
reasonable amount of time (depending upon the complexities of the
procurement) to adjust their offers accordingly.
SBA proposed in Sec. 121.1203(b) to allow some waivers to be
granted after the contract has been awarded. SBA believed that granting
post-award waivers, when additional items that are eligible for a
waiver are sought through in-scope modifications, is reasonable and
will increase the use of the waiver process and allow firms to compete
for contracts in a manner consistent with SBA regulations. SBA
envisioned these types of post-award waivers to be given in situations
similar to the example contained in the proposed regulation--where a
need for an item occurs after contract award, where requiring the item
would be an in-scope modification, and where the item is one for which
a waiver would have been granted if sought prior to contract award.
SBA received 32 comments on the changes being made to NMR waivers.
Many commenters supported the proposed language regarding notification
by the contracting officer. Commenters universally agreed that being
informed of the application of a
[[Page 34255]]
waiver as early as possible would be beneficial to small business
contractors. Several comments requested additional guidance or a firmer
statement about the application of waivers granted on base contract to
orders issued against that contract. Contract specific waivers are
granted for individual items and the waiver is good for the entirety of
that contract with regard to the item that was waived. Therefore, the
waiver would by necessity also include all orders for supplies under
that contract that would require the item(s) that had been waived.,
SBA proposed to add a new Sec. 121.1203(d), dealing with waivers
to the nonmanufacturer rule for the purchase of software. SBA proposed
to address whether the nonmanufacturer rule should apply to certain
software that can readily be treated as an item and not a service. SBA
proposed to treat this type of software as a product or item of supply
rather than a service. SBA believed that this change will bring SBA's
regulations in line with how most buyers already perceive these types
of software. Readily available software that is generally available to
both the public and private sector unmodified is almost universally
perceived to be a supply item, even though SBA's regulations currently
would treat the production of any type of software as a service. SBA
proposed to allow for certain types of software to be eligible for
waivers of the nonmanufacturer rule. SBA proposed to grant waivers on
software that meet criteria that establishes that the Government is
buying something that is more like a product or supply item than a
service. Clearly, when the Government seeks to award a contract to a
business concern to create, design, customize or modify custom
software, that should be classified as a service requirement and the
activity will remain classified in a service NAICS code to which the
nonmanufacturer rule does not apply. For a service procurement set
aside for small business, the prime (together with one or more
similarly situated subcontractors) would have to perform the required
percentage of work. On the other hand, when the government buys certain
types of unmodified software that is generally available to both the
public and the government from a business concern, SBA believes that
the contracting officer should classify the requirement as a commodity
or supply. If the procurement is a supply contract set aside for small
business, the prime contractor, together with any similarly situated
subcontractors, would have to perform at least 50% of the cost of
manufacturing the software, unless SBA granted a waiver of the
nonmanufacturer rule.
Commenters generally supported SBA's proposed language. One
commenter stated that given this new approach by SBA, that some
software products should be granted class waivers. Once this rule is
effective, the public will be able to request a class waiver for a
software item under SBA's existing regulations for class waivers. 13
CFR 121.1204. Many commenters requested drastic changes to SBA's
current waiver procedures. Specifically, the commenters requested that
a waiver requested by CO be assumed granted if SBA does not respond in
specified period of time. Two commenters requested language that would
allow bidders to assume pending waiver requests are granted when they
submit offers. SBA cannot adopt these recommendations. The Small
Business Act is clear that only SBA may grant a waiver of the NMR.
These comments reinforce SBA's belief that the current situation has
caused too much confusion for small contractors, and SBA is adopting
the proposed language in this final rule, which requires the
contracting officer to request a contract specific waiver prior to
issuing the solicitation, and provide notification of the application
of the waiver in the solicitation itself.
One commenter complained that the application of the software
waiver is not also being applied to cloud based solutions. It is SBA's
current position that cloud based solutions are services that are being
provided to the government and not supplies that the government is
purchasing, and therefore the NMR is not applicable. In our view, cloud
based solutions are similar to rentals, which, as discussed above, SBA
treats as services. Several commenters asked SBA to address the issue
of NMR waiver requests when the issue is contractor requesting a brand
name item. The decision to request a brand name item is in the
discretion of the contracting officer. However, the Small Business Act
does not exclude brand name item acquisitions from the statutory NMR
waiver requirements.
In the proposed rule, SBA proposed to amend Sec. 121.201 by adding
a footnote to NAICS code 511210, Software Publishers, explaining that
this is the proper NAICS code to use when the government is purchasing
software that is eligible for a waiver of the NMR. The 2012 NAICs
manual provides the following definition of this industry:
This industry comprises establishments primarily engaged in
computer software publishing or publishing and reproduction.
Establishments in this industry carry out operations necessary for
producing and distributing computer software, such as designing,
providing documentation, assisting in installation, and providing
support services to software purchasers. These establishments may
design, develop, and publish, or publish only.
SBA believes that this accurately reflects the type of companies
that would be producing and supplying the government with the type of
software eligible for a waiver. Further, SBA proposed that the
procurement of this type of software would be treated by SBA as a
supply requirement, and therefore the NMR would apply, as long as the
acquisition meets all of the requirements of the rule. SBA reiterates
that the custom design or modification of software for the government
will generally continue to be treated as a service. Therefore, if the
software being acquired requires any custom modifications in order to
meet the needs of the government, it is not eligible for a waiver of
the NMR because the contractor is performing a service, not providing a
supply.
SBA proposed to amend Sec. 121.406(b)(5) to make a technical
correction. Section 121.406(b) addresses how a nonmanufacturer may
qualify as a small business concern for a requirement to provide a
manufactured product or other supply item. Currently, paragraph (b)(5)
states that the SBA's Administrator or designee may waive the
requirement set forth in paragraph (b)(1)(iii) of this section, that
requires nonmanufacturers to supply the end item of a small business
manufacturer, processor or producer made in the United States. The
citation to paragraph (b)(1)(iii) is incorrect and as such, SBA
proposed to amend this paragraph to include the correct citation,
paragraph (b)(1)(iv). SBA also proposed to make this correction in the
size standard proposed rule for industries with employee based size
standards that are not part of manufacturing, wholesale trade or retail
trade. 79 FR 53646 (Sept. 10, 2014). The size standard rule was
finalized on January 26, 2016 (81 FR 4436), and SBA has removed the
proposed amendment from this final rule.
In addition, in the proposed rule SBA proposed to amend Sec.
121.406(b)(7) to clarify that SBA's waiver of the NMR has no effect on
requirements external to the Small Business Act which involve domestic
sources of supply, such as the Buy American Act and the Trade
Agreements Act.
In order to clarify whether the NMR applies, or whether a general
or specific waiver is attached to a procurement, SBA proposed to add a
new Sec. 121.1206
[[Page 34256]]
to require contracting officers to receive specific waivers prior to
posting a solicitation, and also to provide notification to all
potential offerors of any waivers that will be applied (whether class
or specific) to a given solicitation. As noted above, commenters were
generally in favor of this provision, and SBA is adopting the proposed
language in the final rule.
Adverse Impact and Construction Requirements
SBA proposed to amend Sec. 124.504 to clarify when a procurement
for construction services is considered a new requirement. This section
generally addresses when SBA must conduct an adverse impact analysis
for the award of an 8(a) contract. SBA is not required to perform an
adverse impact analysis for new requirements. Currently, paragraph
(c)(1)(ii)(B) states that ``Construction contracts, by their very
nature (e.g., the building of a specific structure), are deemed new
requirements.'' SBA proposed to clarify the definition of ``new
requirement'' for construction contracts by specifying that generally,
the building of a specific structure is considered a new requirement.
However, recurring indefinite delivery or indefinite quantity (IDIQ)
procurements for construction services are not considered new. SBA has
found that agencies have misinterpreted the current language of Sec.
124.504(c)(1)(ii)(B) to consider recurring IDIQ construction services
procurements as new. SBA intended to clarify that such recurring
requirements are not considered new. A determination of whether a
construction contract is recurring or new will have to be made on a
case by case basis, and there is a process in place that allows SBA to
file an appeal with the procuring agency when there is a disagreement.
SBA received 11 comments on this proposed change, and most were
supportive. The non-supportive comments seemed to have misunderstood
how the rule will be implemented. There is no presumption that IDIQ
task or delivery order contracts are not new. The rule is neutral and
the determination will be made on a case-by-case basis, subject to
SBA's statutory authority to appeal. Thus, SBA is adopting the proposed
language in the final rule.
Certificate of Competency
SBA proposed to amend Sec. 125.5(f), which addresses SBA's review
of an application for the Certificate of Competency (COC) program. SBA
proposed to insert new Sec. 125.5(f)(3) to address how SBA should
review an application for a COC based on a finding of non-
responsibility due to financial capacity where the applicant is the
apparent successful offeror for an IDIQ task order or contract. SBA
frequently receives inquiries regarding the application of the COC
process for financial capacity to the potential award of an IDIQ
contract. SBA intended to clarify this process by proposing changes to
Sec. 125.5(f). The proposed changes provided that the SBA's Area
Director will consider the firm's maximum financial capacity and if
such COC is issued, it will be for a specific amount that serves as the
limit of the firm's financial capacity for that contract. The
contracting officer cannot deny the firm the award of an order or
contract on the basis of financial incapacity if the firm has not
reached the financial maximum identified by the Area Director.
SBA received two comments on this issue. One was supportive, and
one thought it added too much of a burden to small businesses. SBA
believes this rule will address certain issues that arise for IDIQ
contracts. This rule provides clarity to the process and ensures that
small business participation is maximized. Further, the COC process is
statutory and provides SBA with the ability to review non-
responsibility determinations concerning small businesses. Thus, SBA is
adopting the proposed language in the final rule.
SBA is also revising 13 CFR 121.408(a), which provides the size
procedures for the COC program. The revision is a technical correction.
This paragraph currently references 13 CFR 121.1009 to explain how SBA
would initiate a formal size determination; however, Sec. 121.1009
relates to the process SBA uses to make a formal size determination.
The correct regulatory reference is to 13 CFR 121.1001(b)(3)(ii), which
explains how SBA initiates a formal size determination for the COC
program.
SBA is also revising 13 CFR 121.409, to remove the second sentence.
This section addresses the size standard that applies in an
unrestricted or full and open procurement. The second sentence states
that in an unrestricted procurement, the small business concern must
supply a domestically furnished product. That may or may not be true,
depending on whether or how the Buy American Act or the Trade
Agreements Act apply to the procurement. The Small Business Act does
not impose such a requirement on full and open or unrestricted
procurements.
Compliance With Executive Orders 12866, 13563, 13175, 12988, 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
final rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. However, this is not a major rule under the
Congressional Review Act, 5 U.S.C. 801, et seq.
Regulatory Impact Analysis
1. Is there a need for the regulatory action?
The final rule implements Sections 1621, 1623, 1651, 1652, 1653 and
1654 of the National Defense Authorization Act of 2013, Public Law 112-
239, 126 Stat. 1632, January 2, 2013; 15 U.S.C. 637(d), 644(l), 645,
657s. In addition, it makes several other changes needed to clarify
ambiguities in or remedy perceived problems with the current
regulations. These changes should make SBA's regulations easier to use
and understand.
2. What are the potential benefits and costs of this regulatory action?
These final regulations should benefit small business concerns by
allowing small business concerns to use similarly situated
subcontractors in the performance of a set-aside contract, thereby
expanding the capacity of the small business prime contractor and
potentially enabling the firm to compete for and obtain larger
contracts. It also strengthens the small business subcontracting
provisions, which may result in more subcontract awards to small
business concerns. The final rule also seeks to address or clarify
issues that are ambiguous or subject to dispute, thereby providing
clarity to contracting officers as well as small business concerns. SBA
does not believe that this rule will impose new costs on small business
concerns.
3. What are the alternatives to this final rule?
Many provisions in this final rule are required to implement
statutory provisions, thus there are no alternatives for these
regulations. SBA did consider various options in the proposed rule,
including a requirement that small business concerns that want to team
with similarly situated entities enter into a written agreement,
certify that they will comply and report on compliance. However, in
response to
[[Page 34257]]
the public comments discussed in the Supplementary Information, SBA is
not requiring a written agreement or compliance reporting in this rule.
Contracting officers in their discretion may require compliance
reporting. Further, firms agree to comply with the limitations on
subcontracting when they submit an offer. Thus, an additional
certification is unnecessary. SBA also considered whether it should not
waive the NMR for the purchase of software. However, this would inhibit
the ability of agencies to set aside contracts for commodity software
for small business concerns.
Executive Order 13563
This executive order directs agencies to, among other things: (a)
afford the public a meaningful opportunity to comment through the
Internet on proposed regulations, with a comment period that should
generally consist of not less than 60 days; (b) provide for an ``open
exchange'' of information among government officials, experts,
stakeholders, and the public; and (c) seek the views of those who are
likely to be affected by the rulemaking, even before issuing a notice
of proposed rulemaking. As far as practicable or relevant, SBA
considered these requirements in developing this rule, as discussed
below.
1. Did the agency use the best available techniques to quantify
anticipated present and future costs when responding to Executive Order
12866 (e.g., identifying changing future compliance costs that might
result from technological innovation or anticipated behavioral
changes)?
To the extent possible, the agency utilized the most recent data
available in the Federal Procurement Data System--Next Generation,
System for Award Management and Electronic Subcontracting Reporting
System.
2. Public participation: Did the agency: (a) Afford the public a
meaningful opportunity to comment through the Internet on any proposed
regulation, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the public; (c)
provide timely online access to the rulemaking docket on
Regulations.gov; and (d) seek the views of those who are likely to be
affected by rulemaking, even before issuing a notice of proposed
rulemaking?
The proposed rule had a 60-day comment period and was posted on
www.regulations.gov to allow the public to comment meaningfully on its
provisions. In addition, the agency extended the comment period in
response to public requests to do so. SBA then submitted the final rule
to the Office of Management and Budget for interagency review. Further,
as discussed in the Supplementary Information, SBA conducted tribal
consultations where these rules were discussed.
3. Flexibility: Did the agency identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public?
Yes, the final rule implements statutory provisions and will
provide clarification to rules that were requested by agencies and
stakeholders. On many occasions, SBA made changes to language or
provided additional examples, in response to public comment. The final
rule will make it easier for small businesses to contract with the
Federal government.
Executive Order 12988
This action meets applicable standards set forth set forth in
section 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice
Reform, to minimize litigation, eliminate ambiguity, and reduce burden.
This action does not have any retroactive or preemptive effect.
Executive Order 13132
SBA has determined that this final 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 levels of government. Therefore, for
the purposes of Executive Order 13132, SBA has determined that this
rule has no federalism implications warranting preparation of a
federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
For the purposes of the Paperwork Reduction Act, SBA has determined
that this rule would not impose new government-wide reporting
requirements on small business concerns.
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 final 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's 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 300,000 concerns listed as small business
concerns in the System for Award Management (SAM) in at least one
industry category that could potentially be impacted by the
implementation of the NDAA 2013 contracting provisions. However, we
cannot say with any certainty how many will be impacted because we do
not know how many of these concerns will team together to submit
offers, nor do we know how many will be awarded contracts as teams. The
number of firms participating in teaming will be lower than the number
of firms registered in SAM. However, as discussed elsewhere in this
rule, including section 2 of the Regulatory Impact Analysis, the final
rule does not impose significant new compliance or other costs on small
business concerns. Under current law, firms must adhere to certain
performance requirements when performing set-aside contracts. SBA
expects that costs now incurred by small business concerns as a result
of ambiguous or indefinite regulations will be eliminated or reduced.
Clarifying the confusion and uncertainty concerning the applicability
of SBA's contracting regulations would also reduce the time burden on
the small business contracting community and therefore make it easier
for them to contract with the Federal Government. In sum, the final
rule would not have a disparate impact on small businesses and would
increase their opportunities to participate in Federal Government
contracting without imposing any additional costs. For the reasons
discussed, SBA certifies that this final rule would not have a
significant economic impact on a substantial number of small business
concerns.
[[Page 34258]]
List of Subjects
13 CFR Part 121
Administrative practice and procedure, Government procurement,
Government property, Grant programs--business, Individuals with
disabilities, Loan programs--business, Small businesses.
13 CFR Part 124
Administrative practice and procedure, Government procurement,
Hawaiian Natives, Indians--business and finance, Minority businesses,
Reporting and recordkeeping requirements, Technical assistance.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance,
Veterans.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Penalties, Reporting and Recordkeeping requirements, Small businesses.
13 CFR Part 127
Government contracts, Reporting and recordkeeping requirements,
Small businesses.
Accordingly, for the reasons stated in the preamble, SBA amends 13
CFR parts 121, 124, 125, 126, and 127 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. 121.103 by
0
a. Revising paragraph (b)(9);
0
b. Adding paragraphs (f)(1) and (2);
0
c. Adding a new final sentence to paragraph (h) introductory text; and
0
d. Revising paragraphs (h)(3)(i) and (h)(4) to read as follows:
Sec. 121.103 How does SBA determine affiliation?
* * * * *
(b) * * *
(9) In the case of a solicitation for a bundled contract, a small
business contractor may enter into a Small Business Teaming Arrangement
with one or more small business subcontractors and submit an offer as a
small business without regard to affiliation, so long as each team
member is small for the size standard assigned to the contract or
subcontract. The agency shall evaluate the offer in the same manner as
other offers with due consideration of the capabilities of the
subcontractors.
* * * * *
(f) * * *
(1) Firms owned or controlled by married couples, parties to a
civil union, parents, children, and siblings are presumed to be
affiliated with each other if they conduct business with each other,
such as subcontracts or joint ventures or share or provide loans,
resources, equipment, locations or employees with one another. This
presumption may be overcome by showing a clear line of fracture between
the concerns. Other types of familial relationships are not grounds for
affiliation on family relationships.
(2) SBA may presume an identity of interest based upon economic
dependence if the concern in question derived 70% or more of its
receipts from another concern over the previous three fiscal years.
(i) This presumption may be rebutted by a showing that despite the
contractual relations with another concern, the concern at issue is not
solely dependent on that other concern, such as where the concern has
been in business for a short amount of time and has only been able to
secure a limited number of contracts.
(ii) A business concern owned and controlled by an Indian Tribe,
ANC, NHO, CDC, or by a wholly-owned entity of an Indian Tribe, ANC,
NHO, or CDC, is not considered to be affiliated with another concern
owned by that entity based solely on the contractual relations between
the two concerns.
Example 1 to paragraph (f). Firm A has been in business for 9
months and has two contracts. Contract 1 is with Firm B and is
valued at $900,000 and Contract 2 is with Firm C and is valued at
$200,000. Thus, Firm B accounts for over 70% of Firm A's receipts.
Absent other connections between A and B, the presumption of
affiliation between A and B is rebutted because A is a new firm.
Example 2 to paragraph (f). Firm A has been in business for five
years. It has over 200 contracts. Of that 200, 195 are with Firm B,
and the value of those contracts is greater than 70% of the revenue
over the previous three years. In this case, SBA would most likely
find the two firms affiliated unless the firm could provide some
other compelling rebuttal to the very strong presumption that it
should be considered affiliated with Firm B.
* * * * *
(h) * * * For purposes of this section, contract refers to prime
contracts, and any subcontract in which the joint venture is treated as
a similarly situated entity as the term is defined in part 125 of this
chapter.
* * *
(3) Exception to affiliation for certain joint ventures. (i) A
joint venture of two or more business concerns may submit an offer as a
small business for a Federal procurement, subcontract or sale so long
as each concern is small under the size standard corresponding to the
NAICS code assigned to the contract.
* * * * *
(4) A contractor and its ostensible subcontractor are treated as
joint venturers, and therefore affiliates, for size determination
purposes. An ostensible subcontractor is a subcontractor that is not a
similarly situated entity, as that term is defined in Sec. 125.1 of
this chapter, and performs primary and vital requirements of a
contract, or of an order, or is a subcontractor upon which the prime
contractor is unusually reliant. All aspects of the relationship
between the prime and subcontractor are considered, including, but not
limited to, the terms of the proposal (such as contract management,
technical responsibilities, and the percentage of subcontracted work),
agreements between the prime and subcontractor (such as bonding
assistance or the teaming agreement), and whether the subcontractor is
the incumbent contractor and is ineligible to submit a proposal because
it exceeds the applicable size standard for that solicitation.
* * * * *
0
3. Amend Sec. 121.104 by revising the introductory text in paragraph
(a) to read as follows:
Sec. 121.104 How does SBA calculate annual receipts?
(a) Receipts means all revenue in whatever form received or accrued
from whatever source, including from the sales of products or services,
interest, dividends, rents, royalties, fees, or commissions, reduced by
returns and allowances. Generally, receipts are considered ``total
income'' (or in the case of a sole proprietorship ``gross income'')
plus ``cost of goods sold'' as these terms are defined and reported on
Internal Revenue Service (IRS) tax return forms (such as Form 1120 for
corporations; Form 1120S and Schedule K for S corporations; Form 1120,
Form 1065 or Form 1040 for LLCs; Form 1065 and Schedule K for
partnerships; Form 1040, Schedule F for farms; Form 1040, Schedule C
for other sole proprietorships). Receipts do not include net capital
gains or losses; taxes collected for and remitted to a taxing authority
if included in gross or total income, such as sales or other taxes
collected from customers and excluding taxes levied on the concern or
its
[[Page 34259]]
employees; proceeds from transactions between a concern and its
domestic or foreign affiliates; and amounts collected for another by a
travel agent, real estate agent, advertising agent, conference
management service provider, freight forwarder or customs broker. For
size determination purposes, the only exclusions from receipts are
those specifically provided for in this paragraph. All other items,
such as subcontractor costs, reimbursements for purchases a contractor
makes at a customer's request, investment income, and employee-based
costs such as payroll taxes, may not be excluded from receipts.
* * * * *
0
4. Amend Sec. 121.201 by adding footnote 20 to read as follows:
Sec. 121.201 What size standards has SBA identified by North American
Industry Classification System codes?
* * * * *
Footnotes
* * * * *
20. NAICS code 511210--For purposes of Government procurement, the
purchase of software subject to potential waiver of the nonmanufacturer
rule pursuant to Sec. 121.1203(d) should be classified under this
NAICS code.
Sec. 121.402 [Amended]
0
5. Amend Sec. 121.402(d) by removing the term ``paragraph (d)'' and
adding in its place ``paragraph (e)''.
0
6. Amend Sec. 121.404 as follows:
0
a. Revise paragraph (f);
0
b. Revise first sentence of paragraph (g)(2)(i); and
0
c. Add paragraph (g)(2)(ii)(D) to read as follows:
Sec. 121.404 When is the size status of a business concern
determined?
* * * * *
(f) For purposes of architect-engineering, design/build or two-step
sealed bidding procurements, a concern must qualify as small as of the
date that it certifies that it is small as part of its initial bid or
proposal (which may or may not include price).
(g) * * *
(2)(i) In the case of a merger, sale, or acquisition, where
contract novation is not required, the contractor must, within 30 days
of the transaction becoming final, recertify its small business size
status to the procuring agency, or inform the procuring agency that it
is other than small. * * *
(ii) * * *
(D) If the merger, sale or acquisition occurs after offer but prior
to award, the offeror must recertify its size to the contracting
officer prior to award.
* * * * *
0
7. Amend Sec. 121.406 as follows:
0
a. Revise the section heading;
0
b. Revise paragraph (a) introductory text;
0
c. Add a sentence to the end of paragraph (b)(4);
0
d. Revise paragraphs (b)(7) and (d); and
0
e. Redesignate paragraph (e) as paragraph (f) and add new paragraph (e)
to read as follows:
Sec. 121.406 How does a small business concern qualify to provide
manufactured products or other supply items under a small business set-
aside, service-disabled veteran-owned small business, HUBZone, WOSB or
EDWOSB, or 8(a) contract?
(a) General. In order to qualify as a small business concern for a
small business set-aside, service-disabled veteran-owned small business
set-aside or source contract, HUBZone set-aside or sole source
contract, WOSB or EDWOSB set-aside or sole source contract, 8(a) set-
aside or sole source contract, partial set-aside, or set aside of an
order against a multiple award contract to provided manufactured
products or other supply items, an offeror must either:
* * * * *
(b) * * *
(4) * * * The rental of an item(s) is a service and should be
treated as such in the application of the nonmanufacturer rule and the
limitation on subcontracting.
* * * * *
(7) SBA's waiver of the nonmanufacturer rule means that the firm
can supply the product of any size business without regard to the place
of manufacture. However, SBA's waiver of the nonmanufacturer rule has
no effect on requirements external to the Small Business Act which
involve domestic sources of supply, such as the Buy American Act or the
Trade Agreements Act.
* * * * *
(d) The performance requirements (limitations on subcontracting)
and the nonmanufacturer rule do not apply to small business set-aside
acquisitions with an estimated value between $3,500 and $150,000.
(e) Multiple item acquisitions. (1) If at least 50% of the
estimated contract value is composed of items that are manufactured by
small business concerns, then a waiver of the nonmanufacturer rule is
not required. There is no requirement that each and every item acquired
in a multiple-item procurement be manufactured by a small business.
(2) If more than 50% of the estimated contract value is composed of
items manufactured by other than small concerns, then a waiver is
required. SBA may grant a contract specific waiver for one or more
items in order to ensure that at least 50% of the value of the products
to be supplied by the nonmanufacturer comes from domestic small
business manufacturers or are subject to a waiver.
(3) If a small business is both a manufacturer of item(s) and a
nonmanufacturer of other item(s), the manufacturer size standard should
be applied.
* * * * *
0
8. Amend Sec. 121.408 by revising paragraph (a) to read as follows:
Sec. 121.408 What are the size procedures for SBA's Certificate of
Competency Program?
(a) A firm which applies for a COC must file an ``Application for
Small Business Size Determination'' (SBA Form 355). If the initial
review of SBA Form 355 indicates the applicant, including its
affiliates, is small for purposes of the COC program, SBA will process
the application for COC. If the review indicates the applicant,
including its affiliates is other than small SBA will initiate a formal
size determination as set forth in Sec. 121.1001(b)(3)(ii). In such a
case, SBA will not further process the COC application until a formal
size determination is made.
* * * * *
Sec. 121.409 [Amended]
0
9. Amend Sec. 121.409 by removing the second sentence.
0
10. Amend Sec. 121.702 by revising paragraph (a)(2) to read as
follows:
Sec. 121.702 What size and eligibility standards are applicable to
the SBIR and STTR programs?
* * * * *
(a) * * *
(2) No single venture capital operating company, hedge fund, or
private equity firm may own more than 50% of the concern unless that
single venture capital operating company, hedge fund, or private equity
firm qualifies as a small business concern that is more than 50%
directly owned and controlled by individuals who are citizens or
permanent resident aliens of the United States.
* * * * *
0
11. Amend Sec. 121.1001 as follows:
0
a. Revise paragraphs (a)(1)(i) and (a)(2)(i); and
[[Page 34260]]
0
b. Redesignate paragraph (b)(11) as paragraph (b)(12) and add a new
paragraph (b)(11).
Sec. 121.1001 Who may initiate a size protest or request a formal
size determination?
(a) * * * (1) * * *
(i) Any offeror that the contracting officer has not eliminated
from consideration for any procurement-related reason, such as non-
responsiveness, technical unacceptability or outside of the competitive
range;
* * * * *
(2) * * *
(i) Any offeror that the contracting officer has not eliminated
from consideration for any procurement related reason, such as non-
responsiveness, technical unacceptability or outside of the competitive
range;
* * * * *
(b) * * *
(11) In connection with eligibility for the SDVO SBC and the WOSB/
EDWSOB programs, the Director, Office of Government Contracting, may
initiate a formal size determination.
* * * * *
0
12. Revise Sec. 121.1203 to read as follows:
Sec. 121.1203 When will a waiver of the Nonmanufacturer Rule be
granted for an individual contract?
(a) Where appropriate, SBA will generally grant waivers for an
individual contract or order prior to the issuance of a solicitation,
or, where a solicitation has been issued, when the contracting officer
provides all potential offerors additional time to respond.
(b) SBA may grant a waiver after contract award, where the
contracting officer has determined that the modification is within the
scope of the contract and the agency followed the regulations prior to
issuance of the solicitation and properly and timely requested a waiver
for any other items under the contract, where required.
Example to paragraph (b): The Government seeks to buy spare
parts to fix Item A. After conducting market research, the
government determines that Items B, C, and D that are being procured
may be eligible for waivers and requests and receives waivers from
SBA for those items prior to issuing the solicitation. After the
contract is awarded, the Government determines that it will need
additional spare parts to fix Item A. The Government determines that
adding the additional parts as a modification to the original
contract is within scope. The contracting officer believes that one
of the additional parts is also eligible for a waiver from SBA, and
requests the waiver at the time of the modification. If all other
criteria are met, SBA would grant the waiver, even though the
contract has already been awarded.
(c) An individual waiver for an item in a solicitation will be
approved when the SBA Director, Office of Government Contracting,
reviews and accepts a contracting officer's determination that no small
business manufacturer or processor can reasonably be expected to offer
a product meeting the specifications of a solicitation, including the
period of performance.
(d) Waivers for the purchase of software. (1) SBA may grant an
individual waiver for the procurement of software provided that the
software being sought is an item that is of a type customarily used by
the general public or by non-governmental entities for purposes other
than governmental purposes, and the item:
(i) Has been sold, leased, or licensed to the general public, or
has been offered for sale, lease, or license to the general public;
(ii) Is sold in substantial quantities in the commercial
marketplace; and
(iii) Is offered to the Government, without modification, in the
same form in which it is sold in the commercial marketplace.
(2) If the value of services provided related to the purchase of a
supply item that meets the requirements of paragraph (d)(1) of this
section exceeds the value of the item itself, the procurement should be
identified as a service procurement, even if the services are provided
as part of the same license, lease, or sale terms. If a contracting
officer cannot make a determination of the value of services being
provided, SBA will assume that the value of the services is greater
than the value of items or supplies, and will not grant a waiver.
(3) Subscription services, remote hosting of software, data, or
other applications on servers or networks of a party other than the
U.S. Government are considered by SBA to be services and not the
procurement of a supply item. Therefore SBA will not grant waivers of
the nonmanufacturer rule for these types of services.
0
13. Amend Sec. 121.1204 by revising paragraphs (b)(1)(ii) and (iii) to
read as follows:
Sec. 121.1204 What are the procedures for requesting and granting
waivers?
* * * * *
(b) * * * (1) * * *
(ii) The proposed solicitation number, NAICS code, dollar amount of
the procurement, and a brief statement of the procurement history;
(iii) A determination by the contracting officer that no small
business manufacturer or processor reasonably can be expected to offer
a product or products meeting the specifications (including period of
performance) required by a particular solicitation. Include a narrative
describing market research and supporting documentation; and
* * * * *
0
14. Add Sec. 121.1206 to read as follows:
Sec. 121.1206 How will potential offerors be notified of applicable
waivers?
(a) Contracting officers must provide written notification to
potential offerors of any waivers being applied to a specific
acquisition, whether it is a class waiver or a contract specific
waiver. This notification must be provided at the time a solicitation
is issued. If the notification is provided after a solicitation is
issued, the contracting officer must provide potential offerors a
reasonable amount of additional time to respond to the solicitation.
(b) If a contracting officer does not provide notice, and
additional reasonable time for responses when required, then the waiver
cannot be applied to the solicitation. This applies to both class
waivers and individual waivers.
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
0
15. The authority citation for 13 CFR part 124 is revised to read as
follows:
Authority: 15 U.S.C. 634(b)(6), 636(j), 637(a), 637(d), 644 and
Pub. L. 99-661, Pub. L. 100-656, sec.1207, Pub. L. 101-37, Pub. L.
101-574, section 8021, Pub. L. 108-87, and 42 U.S.C. 9815.
0
16. Amend Sec. 124.504 by revising paragraph (c)(1)(ii)(B) to read as
follows:
Sec. 124.504 What circumstances limit SBA's ability to accept a
procurement for award as an 8(a) contract?
* * * * *
(c) * * *
(1) * * *
(ii) * * *
(B) Procurements for construction services (e.g., the building of a
specific structure) are generally deemed to be new requirements.
However, recurring indefinite delivery or indefinite quantity task or
delivery order construction services are not considered new (e.g., a
recurring procurement requiring all construction work at base X).
* * * * *
0
17. Revise Sec. 124.510 to read as follows:
[[Page 34261]]
Sec. 124.510 What limitations on subcontracting apply to an 8(a)
contract?
(a) To assist the business development of Participants in the 8(a)
BD program, there are limitations on the percentage of an 8(a) contract
award amount that may be spent on subcontractors. The prime contractor
recipient of an 8(a) contract must comply with the limitations on
subcontracting at Sec. 125.6 of this chapter.
(b) Indefinite delivery and indefinite quantity contracts. In order
to ensure that the required limitations on subcontracting requirements
on an indefinite delivery or indefinite quantity 8(a) award are met by
the Participant, the Participant cannot subcontract more than the
required percentage to subcontractors that are not similarly situated
entities for each performance period of the contract (i.e., during the
base term and then during each option period thereafter). However, the
contracting officer, in his or her discretion, may require the
Participant to meet the applicable limitation on subcontracting or
comply with the nonmanufacturer rule for each order.
(1) This includes Multiple Award Contracts that were set-aside or
partially set-aside for 8(a) BD Participants.
(2) For orders that are set aside for eligible 8(a) Participants
under full and open contracts or reserves, the Participant must meet
the applicable limitation on subcontracting requirement and comply with
the nonmanufacturer rule, if applicable, for each order.
0
18. Amend Sec. 124.513 by revising paragraph (b) to read as follows:
Sec. 124.513 Under what circumstances can a joint venture be awarded
an 8(a) contract?
* * * * *
(b) Size of concerns to an 8(a) joint venture. (1) A joint venture
of at least one 8(a) Participant and one or more other business
concerns may submit an offer as a small business for a competitive 8(a)
procurement, or be awarded a sole source 8(a) procurement, so long as
each concern is small under the size standard corresponding to the
NAICS code assigned to the procurement.
(2) Notwithstanding the provisions of paragraph (b)(1) of this
section, a joint venture between a prot[eacute]g[eacute] firm and its
approved mentor (see Sec. 124.520) will be deemed small provided the
prot[eacute]g[eacute] qualifies as small for the size standard
corresponding to the NAICS code assigned to the contract and has not
reached the dollar limits set forth in Sec. 124.519.
* * * * *
PART 125--GOVERNMENT CONTRACTING PROGRAMS
0
19. The authority citation for 13 CFR part 125 is revised to read as
follows:
Authority: 15 U.S.C. 632(p), (q); 634(b)(6), 637, 644, 657(f),
657q; and 657s.
0
20. Amend Sec. 125.1 by:
0
a. Removing paragraphs (f), (g), (h), (m), and (u);
0
b. Removing all alphabetical paragraph designations and placing the
definitions in alphabetical order;
0
c. Adding in alphabetical order a definition for Similarly situated
entity to read as follows:
Sec. 125.1 What definitions are important to SBA's Government
Contracting Programs?
* * * * *
Similarly situated entity is a subcontractor that has the same
small business program status as the prime contractor. This means that:
For a HUBZone requirement, a subcontractor that is a qualified HUBZone
small business concern; for a small business set-aside, partial set-
aside, or reserve a subcontractor that is a small business concern; for
a SDVO small business requirement, a subcontractor that is a self-
certified SDVO SBC; for an 8(a) requirement, a subcontractor that is an
8(a) certified Program Participant; for a WOSB or EDWOSB contract, a
subcontractor that has complied with the requirements of part 127. In
addition to sharing the same small business program status as the prime
contractor, a similarly situated entity must also be small for the
NAICS code that the prime contractor assigned to the subcontract the
subcontractor will perform.
* * * * *
0
21. Amend Sec. 125.2 as follows:
0
a. Revise paragraph (b)(1)(i)(A);
0
b. Add paragraph (b)(1)(i)(F);
0
c. Revise the introductory text to paragraph (b)(1)(ii);
0
d. Revise paragraph (b)(1)(iii)(C);
0
e. Add paragraphs (b)(1)(iv) and (v);
0
f. Remove paragraph (b)(2) and redesignate paragraph (b)(3) as
paragraph (b)(2);
0
g. Revise redesignated paragraph (b)(2);
0
h. Amend paragraph (c)(1)(iv) by removing the term ``and'' at the end
of the last sentence;
0
i. Amend paragraph (c)(1)(v) by removing the ``.'' at the end of the
last sentence and adding in its place ``;''.
0
j. Add paragraph (c)(1)(vi); and
0
k. Add paragraph (c)(1)(vii) to read as follows.
Sec. 125.2 What are SBA's and the procuring agency's responsibilities
when providing contracting assistance to small businesses?
* * * * *
(b) * * *
(1) * * *
(i) * * *
(A) SBA has PCRs who are generally located at Federal agencies and
buying activities which have major contracting programs. At the SBA's
discretion, PCRs will review all acquisitions that are not totally set
aside for small businesses to determine whether a set-aside or sole
source award to a small business under one of SBA's programs is
appropriate and to identify alternative strategies to maximize the
participation of small businesses in the procurement. PCRs also
advocate for the maximum practicable utilization of small business
concerns in Federal contracting, including by advocating against the
consolidation or bundling of contract requirements, as defined in Sec.
125.1, and reviewing any justification provided by the agency for
consolidation or bundling. This review includes acquisitions that are
Multiple Award Contracts where the agency has not set-aside all or part
of the acquisition or reserved the acquisition for small businesses. It
also includes acquisitions where the agency has not set-aside orders
placed against Multiple Award Contracts for small business concerns.
* * * * *
(F) PCRs also advocate competitive procedures and recommend the
breakout for competition of items and requirements which previously
have not been competed when appropriate. They may appeal the failure by
the buying activity to act favorably on a recommendation in accord with
the appeal procedures in paragraph (b)(2) of this section. PCRs also
review restrictions and obstacles to competition and make
recommendations for improvement.
(ii) PCR recommendations. The PCR must recommend to the procuring
activity alternative procurement methods that would increase small
business prime contract participation if a PCR believes that a proposed
procurement includes in its statement of work goods or services
currently being performed by a small business and is in a quantity or
estimated dollar value the magnitude of which renders small business
prime contract participation unlikely; will render small business prime
contract participation unlikely (e.g., ensure geographical preferences
are justified); or is for construction and seeks to package or
consolidate discrete construction projects. If a PCR does not
[[Page 34262]]
believe a bundled or consolidated requirement is necessary or justified
the PCR shall advocate against the consolidation or bundling of such
requirement and recommend to the procuring activity alternative
procurement methods which would increase small business prime contract
participation. Such alternatives may include:
* * * * *
(iii) * * *
(C) Recommending that the small business subcontracting goals be
based on total contract dollars in addition to goals based on a
percentage of total subcontracted dollars;
* * * * *
(iv) PCRs will consult with the agency OSDBU regarding agency
decisions to convert an activity performed by a small business concern
to an activity performed by a Federal employee.
(v) PCRs may receive unsolicited proposals from small business
concerns and will transmit those proposals to the agency personnel
responsible for reviewing such proposals. The agency personnel shall
provide the PCR with information regarding the disposition of such
proposal.
(2) Appeals of PCR recommendations. In cases where there is
disagreement between a PCR and the contracting officer over the
suitability of a particular acquisition for a small business set-aside,
partial set-aside or reserve, whether or not the acquisition is a
bundled, substantially bundled or consolidated requirement, the PCR may
initiate an appeal to the head of the contracting activity. If the head
of the contracting activity agrees with the contracting officer, SBA
may appeal the matter to the Secretary of the Department or head of the
agency. The time limits for such appeals are set forth in FAR subpart
19.5 (48 CFR 19.5).
(c) * * * (1) * * *
(i) * * *
(vi) Provide opportunities for the participation of small business
concerns during acquisition planning processes and in acquisition
plans; and
(vii) Invite the participation of the appropriate Director of Small
and Disadvantaged Business Utilization in acquisition planning
processes and provide that Director with access to acquisition plans.
* * * * *
0
22. Amend Sec. 125.3 as follows:
0
a. Add paragraphs (c)(8) and (9);
0
b. Revise the first sentence of paragraph (f)(1);
0
c. Revise paragraph (f)(5); and
0
d. Add paragraph (f)(8) to read as follows:
Sec. 125.3 What types of subcontracting assistance are available to
small businesses?
* * * * *
(c) * * *
(8) A prime contractor that identifies a small business by name as
a subcontractor in a proposal, offer, bid or subcontracting plan must
notify those subcontractors in writing prior to identifying the concern
in the proposal, bid, offer or subcontracting plan.
(9) Anyone who has a reasonable basis to believe that a prime
contractor or a subcontractor may have made a false statement to an
employee or representative of the Federal Government, or to an employee
or representative of the prime contractor, with respect to
subcontracting plans must report the matter to the SBA Office of
Inspector General. All other concerns as to whether a prime contractor
or subcontractor has complied with SBA regulations or otherwise acted
in bad faith may be reported to the Government Contracting Area Office
where the firm is headquartered.
* * * * *
(f) * * * (1) A prime contractor's performance under its
subcontracting plan is evaluated by means of on-site compliance reviews
and follow-up reviews, as a supplement to evaluations performed by the
contracting agency, either on a contract-by-contract basis or, in the
case of contractors having multiple contracts, on an aggregate basis. *
* *
* * * * *
(5) Any contractor that fails to comply with paragraph (f)(4) of
this section, or any contractor that fails to demonstrate a good-faith
effort, as set forth in paragraph (d) of this section:
(i) May be considered for liquidated damages under the procedures
in 48 CFR 19.705-7 and the clause at 52.219-16; and
(ii) Shall be in material breach of such contract or subcontract,
and such failure to demonstrate good faith must be considered in any
past performance evaluation of the contractor. This action shall be
considered by the contracting officer upon receipt of a written
recommendation to that effect from the CMR. The CMR's recommendation
must include a copy of the compliance report and any other relevant
correspondence or supporting documentation. Furthermore, if the CMR has
a reasonable basis to believe that a contractor has made a false
statement to an employee or representative of the Federal Government,
or to an employee or representative of the prime contractor, the CMR
must report the matter to the SBA Office of Inspector General. All
other concerns as to whether a prime contractor or subcontractor has
complied with SBA regulations or otherwise acted in bad faith may be
reported to the Area Government Contracting Office where the firm is
headquartered.
* * * * *
(8) The head of the contracting agency shall ensure that:
(i) The agency collects and reports data on the extent to which
contractors of the agency meet the goals and objectives set forth in
subcontracting plans; and
(ii) The agency periodically reviews data collected and reported
pursuant to paragraph (f)(8)(i) of this section for the purpose of
ensuring that such contractors comply in good faith with the
requirements of this section.
* * * * *
0
23. Amend Sec. 125.5 as follows:
0
a. Revise paragraph (b)(1)(ii);
0
b. Remove paragraphs (b)(1)(iii), (iv) and (v); and
0
c. Add paragraph (f)(3) to read as follows:
Sec. 125.5 What is the Certificate of Competency Program?
* * * * *
(b) * * * (1) * * *
(ii) To be eligible for a COC, an offeror must qualify as a small
business under the applicable size standard in accordance with part 121
of this chapter, and must have agreed to comply with the applicable
limitations on subcontracting and the nonmanufacturer rule, where
applicable.
* * * * *
(f) * * *
(3) Where a contracting officer finds a concern to be non-
responsible for reasons of financial capacity on an indefinite delivery
or indefinite quantity task or delivery order contract, the Area
Director will consider the firm's maximum financial capacity. If the
Area Director issues a COC, it will be for a specific amount that is
the limit of the firm's financial capacity for that contract. The
contracting officer may subsequently determine to exceed the amount,
but cannot deny the firm award of an order or contract on financial
grounds if the firm has not reached the financial maximum the Area
Director identified in the COC letter.
* * * * *
0
24. Revise Sec. 125.6 to read as follows:
Sec. 125.6 What are the prime contractor's limitations on
subcontracting?
(a) General. In order to be awarded a full or partial small
business set-aside
[[Page 34263]]
contract with a value greater than $150,000, an 8(a) contract, an SDVO
SBC contract, a HUBZone contract, a WOSB or EDWOSB contract pursuant to
part 127 of this chapter, with a value greater than $150,000, a small
business concern must agree that:
(1) In the case of a contract for services (except construction),
it will not pay more than 50% of the amount paid by the government to
it to firms that are not similarly situated. Any work that a similarly
situated subcontractor further subcontracts will count towards the 50%
subcontract amount that cannot be exceeded.
(2)(i) In the case of a contract for supplies or products (other
than from a nonmanufacturer of such supplies), it will not pay more
than 50% of the amount paid by the government to it to firms that are
not similarly situated. Any work that a similarly situated
subcontractor further subcontracts will count towards the 50%
subcontract amount that cannot be exceeded. Cost of materials are
excluded and not considered to be subcontracted.
(ii) In the case of a contract for supplies from a nonmanufacturer,
it will supply the product of a domestic small business manufacturer or
processor, unless a waiver as described in Sec. 121.406(b)(5) of this
chapter is granted.
(A) For a multiple item procurement where a waiver as described in
Sec. 121.406(b)(5) of this chapter has not been granted for one or
more items, more than 50% of the value of the products to be supplied
by the nonmanufacturer must be the products of one or more domestic
small business manufacturers or processors.
(B) For a multiple item procurement where a waiver as described in
Sec. 121.406(b)(5) of this chapter is granted for one or more items,
compliance with the limitation on subcontracting requirement will not
consider the value of items subject to a waiver. As such, more than 50%
of the value of the products to be supplied by the nonmanufacturer that
are not subject to a waiver must be the products of one or more
domestic small business manufacturers or processors.
(C) For a multiple item procurement, the same small business
concern may act as both a manufacturer and a nonmanufacturer.
Example 1 to paragraph (a)(2). A contract calls for the supply
of one item valued at $1,000,000. The market research shows that
there are no small business manufacturers that produce this item,
and the contracting officer seeks and is granted a contract specific
waiver for this item. In this case, a small business nonmanufacturer
may supply an item manufactured by a large business.
Example 2 to paragraph (a)(2). A contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that
nine of the items can be sourced from small business manufacturers
and one item is subject to an SBA class waiver. The projected value
of the item that is waived is $10,000. Therefore, at least 50% of
the value of the items not subject to a waiver, or 50% of $990,000,
must be supplied by one or more domestic small business
manufacturers, and the prime small business nonmanufacturer may act
as a manufacturer for one or more items.
Example 3 to paragraph (a)(2). A contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that
only four of these items are manufactured by small businesses. The
value of the items manufactured by small business is estimated to be
$400,000. The contracting officer seeks and is granted waivers on
the other six items. Therefore, the value of the items granted
waivers is excluded from the calculation and at least 50% of
$400,000 would have to be spent by the prime contractor on items it
manufactures itself, or on items manufactured by one or more other
small business concerns.
Example 4 to paragraph (a)(2). A contract is for $1,000,000 and
calls for the acquisition of 10 items. Market research shows that
eight of the items can be sourced from small business manufacturers,
and the estimated value of these items is $800,000. At least 50% of
the value of the contract (i.e., at least $500,000) will be spent on
items manufactured by one or more small business concerns. As such,
the contracting officer is not required to request contract specific
waivers for the other two items valued at $200,000. In this case,
the prime contractor can meet the requirement by sourcing some of
the items from small businesses manufacturers and some from large
businesses without a waiver and still satisfy the requirement.
(3) In the case of a contract for general construction, it will not
pay more than 85% of the amount paid by the government to it to firms
that are not similarly situated. Any work that a similarly situated
subcontractor further subcontracts will count towards the 85%
subcontract amount that cannot be exceeded. Cost of materials are
excluded and not considered to be subcontracted.
(4) In the case of a contract for special trade contractors, no
more than 75% of the amount paid by the government to the prime may be
paid to firms that are not similarly situated. Any work that a
similarly situated subcontractor further subcontracts will count
towards the 75% subcontract amount that cannot be exceeded. Cost of
materials are excluded and not considered to be subcontracted.
(b) Mixed contracts. Where a contract combines services and
supplies, the contracting officer shall select the appropriate NAICS
code as prescribed in Sec. 121.402(b) of this chapter. The contracting
officer's selection of the applicable NAICS code is determinative as to
which limitation on subcontracting and performance requirement applies.
In no case shall the requirements of paragraph (a)(1) and (a)(2) of
this section both apply to the same contract. The relevant limitation
on subcontracting in paragraph (a)(1) or (a)(2) of this section shall
apply only to that portion of the contract award amount.
Example 1 to paragraph (b). A procuring agency is acquiring
both services and supplies through a small business set-aside. The
total value of the requirement is $3,000,000, with the supply
portion comprising $2,500,000, and the services portion comprising
$500,000. The contracting officer appropriately assigns a
manufacturing NAICS code to the requirement. The cost of material is
$500,000. Thus, because the services portion of the contract and the
cost of materials are excluded from consideration, the relevant
amount for purposes of calculating the performance of work
requirement is $2,000,000 and the prime and/or similarly situated
entities must perform at least $1,000,000 and the prime contractor
may not subcontract more than $1,000,000 to non-similarly situated
entities.
Example 2 to paragraph (b). A procuring agency is acquiring
both services and supplies through a small business set-aside. The
total value of the requirement is $3,000,000, with the services
portion comprising $2,500,000, and the supply portion comprising
$500,000. The contracting officer appropriately assigns a services
NAICS code to the requirement. Thus, because the supply portion of
the contract is excluded from consideration, the relevant amount for
purposes of calculating the performance of work requirement is
$2,500,000 and the prime and/or similarly situated entities must
perform at least $1,250,000 and the prime contractor may not
subcontract more than $1,250,000 to non-similarly situated entities.
(c) Subcontracts to similarly situated entities. A small business
concern prime contractor that receives a contract listed in paragraph
(a) of this section and spends contract amounts on a subcontractor that
is a similarly situated entity shall not consider those subcontracted
amounts as subcontracted for purposes of determining whether the small
business concern prime contractor has violated paragraph (a) of this
section, to the extent the subcontractor performs the work with its own
employees. Any work that the similarly situated subcontractor does not
perform with its own employees shall be considered subcontracted SBA
will also exclude a subcontract to a similarly situated entity from
consideration under the ostensible subcontractor rule (Sec.
121.103(h)(4)).
[[Page 34264]]
Example 1 to paragraph (c): An SDVO SBC sole source contract is
awarded in the total amount of $500,000 for hammers. The prime
contractor is a manufacturer and subcontracts 51% of the total
amount received, less the cost of materials ($100,000) or $204,000,
to an SDVO SBC subcontractor that manufactures the hammers in the
U.S. The prime contractor does not violate the limitation on
subcontracting requirement because the amount subcontracted to a
similarly situated entity (less the cost of materials) is excluded
from the limitation on subcontracting calculation.
Example 2 to paragraph (c): A competitive 8(a) BD contract is
awarded in the total amount of $10,000,000 for janitorial services.
The prime contractor subcontracts $8,000,000 of the janitorial
services to another 8(a) BD certified firm. The prime contractor
does not violate the limitation on subcontracting for services
because the amount subcontracted to a similarly situated entity is
excluded from the limitation on subcontracting.
Example 3 to paragraph (c): A WOSB set-aside contract is
awarded in the total amount of $1,000,000 for landscaping services.
The prime contractor subcontracts $500,001 to an SDVO SBC
subcontractor that is not also a WOSB under the WOSB program. The
prime contractor is in violation of the limitation on subcontracting
requirement because it has subcontracted more than 50% of the
contract amount to an SDVO SBC subcontractor, which is not
considered similarly situated to a WOSB prime contractor.
(d) HUBZone procurement for commodities. In the case of a HUBZone
contract for the procurement of agricultural commodities, a HUBZone SBC
may not purchase the commodity from a subcontractor if the
subcontractor will supply the commodity in substantially the final form
in which it is to be supplied to the Government.
(e) Determining compliance with applicable limitation on
subcontracting. The period of time used to determine compliance for a
total or partial set-aside contract will be the base term and then each
subsequent option period. For an order set aside under a full and open
contract or a full and open contract with reserve, the agency will use
the period of performance for each order to determine compliance unless
the order is competed among small and other-than-small businesses (in
which case the subcontracting limitations will not apply).
(1) The contracting officer, in his or her discretion, may require
the concern to comply with the applicable limitations on subcontracting
and the nonmanufacturer rule for each order awarded under a total or
partial set-aside contract.
(2) Compliance will be considered an element of responsibility and
not a component of size eligibility.
(3) Work performed by an independent contractor shall be considered
a subcontract, and may count toward meeting the applicable limitation
on subcontracting where the independent contractor qualifies as a
similarly situated entity.
(f) Inapplicability of limitations on subcontracting. The
limitations on subcontracting do not apply to:
(1) Small business set-aside contracts with a value greater than
$3,500 but not $150,000, or
(2) Subcontracts (except where a prime is relying on a similarly
situated entity to meet the applicable limitations on subcontracting).
(g) Request to change applicable limitation on subcontracting. SBA
may use different percentages if the Administrator determines that such
action is necessary to reflect conventional industry practices among
small business concerns that are below the numerical size standard for
businesses in that industry group. Representatives of a national trade
or industry group or any interested SBC may request a change in
subcontracting percentage requirements for the categories defined by
six digit industry codes in the North American Industry Classification
System (NAICS) pursuant to the following procedures:
(1) Format of request. Requests from representatives of a trade or
industry group and interested SBCs should be in writing and sent or
delivered to the Director, Office of Government Contracting, U.S. Small
Business Administration, 409 3rd Street SW., Washington, DC 20416. The
requester must demonstrate to SBA that a change in percentage is
necessary to reflect conventional industry practices among small
business concerns that are below the numerical size standard for
businesses in that industry category, and must support its request with
information including, but not limited to:
(i) Information relative to the economic conditions and structure
of the entire national industry;
(ii) Market data, technical changes in the industry and industry
trends;
(iii) Specific reasons and justifications for the change in the
subcontracting percentage;
(iv) The effect such a change would have on the Federal procurement
process; and
(v) Information demonstrating how the proposed change would promote
the purposes of the small business, 8(a), SDVO, HUBZone, WOSB, or
EDWOSB programs.
(2) Notice to public. Upon an adequate preliminary showing to SBA,
SBA will publish in the Federal Register a notice of its receipt of a
request that it considers a change in the subcontracting percentage
requirements for a particular industry. The notice will identify the
group making the request, and give the public an opportunity to submit
information and arguments in both support and opposition.
(3) Comments. SBA will provide a period of not less than 30 days
for public comment in response to the Federal Register notice.
(4) Decision. SBA will render its decision after the close of the
comment period. If SBA decides against a change, SBA will publish
notice of its decision in the Federal Register. Concurrent with the
notice, SBA will advise the requester of its decision in writing. If
SBA decides in favor of a change, SBA will propose an appropriate
change to this part.
(h) Penalties. Whoever violates the requirements set forth in
paragraph (a) of this section shall be subject to the penalties
prescribed in 15 U.S.C. 645(d), except that the fine shall be treated
as the greater of $500,000 or the dollar amount spent, in excess of
permitted levels, by the entity on subcontractors. A party's failure to
comply with the spirit and intent of a subcontract with a similarly
situated entity may be considered a basis for debarment on the grounds,
including but not limited to, that the parties have violated the terms
of a Government contract or subcontract pursuant to FAR 9.406-
2(b)(1)(i) (48 CFR 9.406-2(b)(1)(i)).
* * * * *
0
25. Amend Sec. 125.15 by revising paragraphs (a)(3), (b)(1), and
(b)(3) to read as follows:
Sec. 125.15 What requirements must an SDVO SBC meet to submit an
offer on a contract?
(a) * * *
(3) It will comply with the limitations on subcontracting
requirements set forth in Sec. 125.6;
* * * * *
(b) * * *
(1) Size of concerns to an SDVO SBC joint venture. A joint venture
of at least one SDVO SBC and one or more other business concerns may
submit an offer as a small business for a competitive SDVO SBC
procurement, or be awarded a sole source SDVO contract, so long as each
concern is small under the size standard corresponding to the NAICS
code assigned to the procurement.
* * * * *
(3) Limitations on subcontracting. For any SDVO contract, the joint
venture must comply with the applicable
[[Page 34265]]
limitations on subcontracting required by Sec. 125.6.
* * * * *
Sec. 125.20 [Amended]
0
26. Amend Sec. 125.20 as follows:
0
a. In paragraph (b)(1), remove ``$5,500,000'' and add in its place
``$6,000,000''; and
0
b. In paragraph (b)(2), remove ``$3,000,000'' and add in its place
``$3,500,000''.
* * * * *
Sec. 125.26 [Amended]
0
27. Amend Sec. 125.26 by removing the phrase ``Associate Administrator
for Government Contracting'' and adding in its place the phrase
``Director, Office of Government Contracting'' in paragraph (b).
PART 126--HUBZONE PROGRAM
0
28. The authority citation for 13 CFR part 126 continues to read as
follows:
Authority: 15 U.S.C. 632(a), 632(j), 632(p), 644, and 657a.
0
29. Amend Sec. 126.200 by revising paragraph (b)(6) and removing
paragraph (d) to read as follows:
Sec. 126.200 What requirements must a concern meet to receive SBA
certification as a qualified HUBZone SBC?
* * * * *
(b) * * *
(6) Subcontracting. The concern must represent, as provided in the
application, that it will comply with the applicable limitations on
subcontracting requirements in connection with any procurement that it
receives as a qualified HUBZone SBC, as set forth in Sec. 126.5 and
Sec. 126.700.
* * * * *
0
30. Amend Sec. 126.601 by revising paragraph (f) to read as follows:
Sec. 126.601 What additional requirements must a HUBZone SBC meet to
bid on a contract?
* * * * *
(f) A qualified HUBZone SBC may submit an offer on a HUBZone
contract for supplies as a nonmanufacturer if it meets the requirements
of the nonmanufacturer rule set forth at Sec. 121.406 of this chapter.
* * * * *
0
31. Revise Sec. 126.700 to read as follows:
Sec. 126.700 What are the limitations on subcontracting requirements
for HUBZone contracts?
A prime contractor receiving an award as a qualified HUBZone SBC
must meet the limitations on subcontracting requirements set forth in
Sec. 125.6 of this chapter.
PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM
0
32. The authority citation for 13 CFR part 127 continues to read as
follows:
Authority: 15 U.S.C. 632, 634(b)(6), 637(m), and 644.
0
33. Amend Sec. 127.504 by revising paragraph (b) to read as follows:
Sec. 127.504 What additional requirements must a concern satisfy to
submit an offer on an EDWOSB or WOSB requirement?
* * * * *
(b) The concern must also meet the applicable limitations on
subcontracting requirements as set forth in Sec. 125.6 of this
chapter.
0
34. Amend Sec. 127.506 by revising paragraphs (a) and (d) to read as
follows:
Sec. 127.506 May a joint venture submit an offer on an EDWOSB or WOSB
requirement?
* * * * *
(a) Size of concerns. A joint venture of at least one WOSB or
EDWOSB and one or more other business concerns may submit an offer as a
small business for a competitive WOSB or EDWOSB procurement so long as
each concern is small under the size standard corresponding to the
NAICS code assigned to the procurement;
* * * * *
(d) The joint venture must comply with the limitations on
subcontracting, as required by Sec. 125.6 of this chapter;
* * * * *
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-12494 Filed 5-27-16; 8:45 am]
BILLING CODE 8025-01-P