[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]
[Rules and Regulations]
[Pages 93481-93488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30221]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 19, 42, and 52

[FAC 2005-94; FAR Case 2014-004; Item II; Docket No. 2014-0004; 
Sequence No. 1]
RIN 9000-AM98


Federal Acquisition Regulations; Payment of Subcontractors

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

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to implement a section of the 
Small Business Jobs Act of 2010. This statute requires contractors to 
notify the contracting officer, in writing, if the contractor pays a 
reduced price to a small business subcontractor or if the contractor's 
payment to a small business subcontractor is more than 90 days past 
due.

DATES: Effective: January 19, 2017.

FOR FURTHER INFORMATION CONTACT: Mr. Curtis E. Glover, Sr., Procurement 
Analyst, at 202-501-1448 for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat Division at 202-501-4755. Please cite FAC 2005-94, FAR Case 
2014-004.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA are issuing a final rule to implement section 
1334 of the Small Business Jobs Act of 2010 (Pub. L. 111-240, 15 U.S.C. 
637(d)(12)) and the Small Business Administration (SBA) final rule 
published in the Federal Register on July 16, 2013 at 78 FR 42391, 
which require prime contractors to self-report late or reduced payments 
to their small business subcontractors. The rule also requires 
contracting officers to record the identity of contractors with a 
history of late or reduced payments to small business subcontractors in 
the Federal Awardee Performance and Integrity System (FAPIIS). DoD, 
GSA, and NASA published a proposed rule in the Federal Register on 
January 20, 2016 at 81 FR 3087. Seven respondents

[[Page 93482]]

submitted comments on the proposed rule.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the public comments in the 
development of the final rule. A discussion of the comments and changes 
made to the rule as a result of those comments are provided as follows:

A. Summary of Significant Changes From the Proposed Rule

    1. A reporting window of 14 days is added to FAR clause 52.242-5, 
Payments to Small Business Contractors, for prime contractors to report 
to the contracting officer an untimely or reduced payment, as defined 
in the rule, made to their small business subcontractors.
    2. The following examples of payment and nonpayment situations not 
considered to be unjustified are added at FAR 42.1502(g)(2)(ii):
     There is a contract dispute on performance.
     Partial payment is made for amounts not in dispute.
     A payment is reduced due to past overpayments.
     There is an administrative mistake.
     Late performance by the subcontractor leads to later 
payment by the prime contractor.
    3. A reference to FAR clause 52.242-5 was added to paragraph (b) of 
the clause at FAR 52.212-5, Contract Terms and Conditions Required to 
Implement Statutes or Executive Orders--Commercial Items.

B. Analysis of Public Comments

    1. Definitions. Multiple respondents commented on the definitions 
included in the proposed rule.
a. Location of Definitions
    Comment: One respondent requested the location of the definitions 
for ``reduced payment'' and ``untimely payment'' be moved to either FAR 
subpart 2.1 or included within a new definitions section in FAR subpart 
42.15. The respondent also stated that the parenthetical ``see 19.701'' 
was contrary to FAR drafting conventions.
    Response: The two definitions included in the rule are not used 
substantially throughout the FAR and have only an indirect connection 
to FAR part 42. Accordingly, the definitions are not added to either 
FAR part 2 or FAR part 42; they are instead retained in FAR part 19 and 
section 52.242-5 (as presented in the proposed rule). The reference in 
the proposed rule to FAR part 19 (``see 19.701'') does not run contrary 
to FAR drafting conventions; however, the language is changed to ``as 
defined in 19.701'' versus ``see 19.701.''
b. Revise Definitions
    Comment: One respondent recommended that the definitions for 
``reduced payment'' and ``untimely payment'' be revised to include 
information regarding the statutorily-mandated standards set forth in 
FAR 52.232-27(c) relating to payment of construction subcontractors and 
suppliers.
    Response: The statutorily-mandated standards set forth in FAR 
52.232-27(c) stand on their own, are not integral to the explanation or 
meaning of the terms ``reduced payment'' and ``untimely payment,'' and 
need not be repeated in their respective definitions.
    Comment: A number of respondents recommended that the definitions 
of ``reduced payment'' and ``untimely payment'' be revised to reflect 
those instances where the subcontractor has not completed their 
obligations under the contract. One respondent stated that the SBA rule 
made this abundantly clear, that the prime contractor should be 
required to report only those events that arise when the small business 
subcontractor is otherwise entitled to full and prompt payment (as 
assessed by the prime contractor), but the prime contractor is unable 
or unwilling to make such payments. Another respondent stated that 
under both of these definitions, the determination of whether a prime 
contractor payment is either reduced or untimely ultimately hinges upon 
``the terms and conditions of a subcontract.'' The terms and conditions 
concerning how much and when a subcontractor is paid under a 
subcontract can vary greatly between such contracts. Still, another 
respondent believed that the proposed rule should contain additional 
clarification that a payment should not be considered past due if the 
payment is delayed by the late performance of the subcontractor. 
According to the respondent, contractors often accept late performance 
of subcontracts and then accordingly pay later according to the payment 
terms of the subcontract, but do not necessarily modify the subcontract 
to reflect the later performance date. Another respondent believed that 
the proposed rule, as written, provides unclear guidance to contracting 
officers because the definition of ``unjustified reduced or untimely 
payments'' is vague, and asked the FAR Council to provide a more 
complete definition of what constitutes an unjustified payment. For 
example, the rule should clarify the impact of systems errors, third-
party errors, or administrative errors. Still another respondent 
recommended that the Councils define ``unjustifiable'' late or reduced 
payments as a material breach of the terms and conditions of the 
subcontract and provide examples of what constitutes a material breach 
under Federal case law.
    Response: The definitions of ``reduced payment'' and ``untimely 
payment'' are meant to convey a reasonable explanation and meaning of 
those terms. No additional language is necessary in the definition; 
however, the final rule at FAR 42.1502(g)(2)(ii) includes examples of 
payment and nonpayment situations that are not considered to be 
unjustified. Due to privity of contract it is generally not the 
contracting officer's responsibility to determine if a material breach 
of a subcontract has occurred.
    2. Existing statutory and regulatory requirements.
    Comment: One respondent stated that existing statutory and 
regulatory requirements governing prime contractor and subcontractor 
payments already satisfy the intent of this regulation.
    Response: In accordance with section 1334 of the Small Business 
Jobs Act of 2010, the rule offers additional protections for the small 
business community in regard to payments from prime contractors and is 
required by statute. Accordingly, there is no reasonable basis for 
withdrawing the rule.
    3. Reporting requirements.
    Multiple respondents commented on the reporting requirements of the 
proposed rule.
    Comment: One respondent asked if there was guidance on the time 
period for the prime contractor to report a late or reduced payment to 
the contracting officer.
    Response: The final rule requires the prime contractor to report 
within 14 days any occurrences of untimely or reduced payments to their 
small business subcontractors.
    Comment: Several respondents stated that a different methodology 
should be used to determine the number of occurrences of late or 
reduced payments that are reportable in the FAPIIS system. For example, 
one prime contractor makes 10,000 payments a year, but another makes 
10. The history of unjustified payments should not be set at ``three'', 
but should be scalable, proportional to the number of payments made.
    Response: The final rule is consistent with SBA's final rule 
published on July

[[Page 93483]]

16, 2013, which defines a history of unjustified untimely or reduced 
payments as three incidents within a 12-month period. This final rule 
clarifies at FAR 42.1502(g)(2)(ii) that the incidents are under a 
single contract.
    4. Subcontracting plan dollar threshold.
    Comment: One respondent commented the small business subcontracting 
plan threshold cited in the analysis for application of the rule was 
inconsistent (e.g., $650,000 versus $700,000).
    Response: Concur.
    5. Applicability (subcontractor tiers).
    Comment: One respondent asked if the proposed rule applied to 
subcontractor payments at all tiers.
    Response: The rule applies to prime contractor payments made to 
first-tier small business subcontractors.
    6. Contracting officer's responsibilities.
    Several respondents commented on the additional contracting officer 
responsibilities and offered alternate procedures.
    Comment: Two respondents requested that the agency counsel and not 
the contracting officer determine whether a late or reduced payment 
conforms to the terms and conditions of the contract.
    Response: It is the contracting officer's responsibility to ensure 
compliance with the terms of the contract; however, per FAR 1.602-2(c), 
contracting officers can request and consider the advice of specialists 
in audit, law, engineering, information security, transportation, and 
other fields, as appropriate, when making a determination regarding a 
late or reduced payment.
    7. Additional guidance to contracting officers.
    Comment: Two respondents stated the rule should provide more 
guidance to contracting officers in regards to issues that may arise 
when dealing with the reduced or late payments situation in contracts.
    Response: This type of additional guidance would largely be non-
regulatory, falling under agency procedures and training, which are 
outside the scope of this rule. As stated previously, per FAR 1.602-
2(c), contracting officers can request and consider the advice of 
specialists in audit, law, engineering, information security, 
transportation, and other fields, as appropriate, when making a 
determination regarding a late or reduced payment.
    Comment: One respondent commented that adding additional 
responsibilities to the contracting officer while the Government is 
focused on ensuring the timely submittal of past performance 
evaluations will only lead to lesser quality evaluations.
    Response: There is no basis for concluding that the requirements of 
this rule will impact the timely submittal of past performance 
evaluations.
    8. Government-caused delays.
    Comment: One respondent requested language to note situations in 
which the Government causes delays in subcontractor payments by 
changing the scope of the contract, by making late payments to the 
prime contractor, etc.
    Response: The FAR already contains adequate policy on Government-
caused delays and changes to contract terms and conditions. In 
addition, as stated previously, the final rule includes the specific 
examples of payment and nonpayment situations that are not considered 
to be unjustified.
    9. Penalties.
    Comment: One respondent asked what penalties prime contractors will 
face for failing to self-report instances of non-compliance.
    Response: Government penalties are beyond the scope of this rule. 
However, the requirements of this rule (in addition to other Government 
rights and remedies) permit the contracting officer to issue an adverse 
past performance assessment for noncompliance with FAR 52.219-9(a)(15), 
based upon individual circumstances.
    10. Incentivizing prime contractor compliance.
    Comment: One respondent commented that prime contractors should be 
incentivized to make reduced payments to small business subcontractors, 
rather than withhold payments when a dispute arises between the prime 
contractor and small business subcontractor. Unlike a late payment, the 
proposed rule does not expressly grant a 90-day window in which to 
resolve a reduced payment that may arise for a legitimate reason (i.e., 
substandard performance or nonconforming parts).
    According to the respondent, because the rule does not address when 
a prime contractor must report a reduced payment to the contracting 
officer, one might interpret the rule to require an immediate report by 
the prime contractor to the contracting officer upon making a reduced 
payment.
    However, requiring the prime contractor to report a reduced payment 
immediately creates a disincentive for prime contractors to make a 
reduced rather than late payment, as the obligation to report a late 
payment does not arise for a minimum of 90 days past the original due 
date.
    Response: Reduced payments as a result of a dispute on performance 
between a prime contractor and a small business contractor would not 
fall within the definition of ``reduced payment.'' However, the rule 
does contain a reporting window of 14 days for prime contractors to 
report to the contracting officer untimely or reduced payments, as 
defined in the rule, made to their small business subcontractors. This 
14-day reporting timeline was added to the rule as a result of public 
comments. Moreover, the rule does not prohibit prime contractors from 
making reduced payments to their small business subcontractors.
    11. Commercial items and commercially available off-the-shelf 
items.
    Comment: Several respondents commented that the FAR Council should 
reconsider the application of this rule to commercial and COTS item 
providers. One respondent commented that given the Government's stated 
preference for ``commercial plans'' in FAR 52.219-9(g) for commercial 
item contractors (including commercially available off-the-shelf (COTS) 
contractors), it is likely that most commercial item and COTS 
contractors have commercial subcontracting plans. These commercial 
plans apply to the contractor's entire commercial organization, which 
in many cases, includes only a minimal amount of sales to the Federal 
Government. These commercial plans apply to virtually every 
subcontractor or supplier from which a contractor purchases supplies or 
services, whether or not those supplies or services are used in the 
performance of government contracts. Another respondent commented that 
over the last decade, the procurement community has seen the erosion of 
commercial item contracting (in accordance with 41 U.S.C. 1906) and the 
benefits attendant thereto, as well as layering onto the commercial 
item contracting process Government unique requirements that have 
increased costs and raised barriers to entry into the Federal 
marketplace. Another respondent stated that applying the rule to 
commercial and COTS item providers would not be in the best interests 
of the Government, and would run contrary to ongoing attempts by 
Government policy makers to streamline the acquisition process for the 
acquisition of commercial and COTS items to reduce the number of unique 
government rules applicable to large and small businesses providing 
commercial and COTS supplies and services, and to introduce more 
commercial innovation and

[[Page 93484]]

technology into the federal business market.
    Response: The FAR Council has determined that the rule should, as a 
matter of policy, apply to contracts for the acquisition of commercial 
items and COTS items. See section III of this preamble.
    Comment: One respondent commented that FAR clause 52.242-5 was not 
added to the list of clauses in FAR 52.212-5 regarding commercial 
items.
    Response: The final rule adds FAR clause 52.242-5 to the list of 
clauses in FAR 52.212-5 regarding application to commercial items.
    12. Public burden.
    Comment: Two respondents stated that the Councils had 
underestimated the public burden in regards to the proposed rule. One 
respondent commented that the FAR Council has greatly underestimated 
the implementation burden on commercial item and COTS item contractors, 
especially considering the broad definition of ``subcontractor'' that 
applies to the proposed rule. The other respondent believed that the 
estimate of reporting time of only two hours per respondent is grossly 
underestimated. This negligible amount of time assumes that all 
contractors can easily identify from their payment systems which 
subcontractors are small businesses. The respondent believed that this 
is often not the case, and that the small business size status of a 
subcontractor may be unknown to the contractor's other accounting 
systems. The other respondent commented that since the Small Business 
Jobs Act of 2010 does not specifically require that the subcontractor 
payment clause apply to commercial contracts, the respondent 
recommended that the FAR Council seek additional information about the 
burden on contractors before a determination is made to apply the 
payment of subcontractor requirements to commercial item acquisitions. 
The respondent did not find that the availability of limited 
information indicated that the burden may not be significant, as 
described in the proposed rule. Rather, initial feedback from 
contractors suggested that the burdens associated with reporting under 
the rule will have a significant impact.
    Response: The respondents do not offer data with which to support 
changing the current estimated public burden hours. However, since this 
is a new rule without an empirical frame of reference, the public 
reporting burden is reviewed every three years and can be adjusted as 
necessary.
    13. Convene industry working group.
    Comment: One respondent commented that the FAR Council should 
convene an industry working group in order to gain a better 
understanding of some of the more nuanced aspects of the subcontractor 
payment requirement.
    Response: The Councils do not concur that such a working group is 
necessary at this time.

C. Other Changes

    The following changes were made, not as a result of public 
comments:
    1. FAR 1.106 was amended to add the OMB Control Number associated 
with FAR clause 52.242-5.
    2. Minor editorial changes were made for grammatical reasons or to 
conform to FAR drafting conventions.

III. Applicability to Contracts for Commercial Items and Commercially 
Available Off-the-Shelf Items

    The Federal Acquisition Regulatory (FAR) Council has made the 
following determinations with respect to the rule's application of 
Section 1334 of the Small Business Jobs Act of 2010, to contracts for 
the acquisition of commercial items and contracts for the acquisition 
of commercially available off-the-shelf (COTS) items.

A. Applicability to Contracts for the Acquisition of Commercial Items

    Pursuant to 41 U.S.C. 1906, acquisitions of commercial items (other 
than acquisitions of COTS items, which are addressed in 41 U.S.C. 1907) 
are exempt from a provision of law unless the law (i) contains criminal 
or civil penalties; (ii) specifically refers to 41 U.S.C. 1906 and 
states that the law applies to acquisitions of commercial items; or 
(iii) the FAR Council makes a written determination and finding that it 
would not be in the best interest of the Federal Government to exempt 
contracts for the procurement of commercial items from the provision of 
law. If none of these conditions are met, the FAR is required to 
include the statutory requirement(s) on a list of provisions of law 
that are inapplicable to acquisitions of commercial items.
    The purpose of this rule is to implement section 1334 of the Small 
Business Jobs Act of 2010. Section 1334 requires prime contractors to 
self-report late or reduced payments to their small business 
subcontractors. The rule also requires contracting officers to record 
the identity of contractors with a history of late or reduced payments 
to small business subcontractors in the Federal Awardee Performance and 
Integrity System (FAPIIS).
    The statutory requirements are reflected in the Small Business 
Administration's (SBA's) final rule published at 78 FR 42391 on July 
16, 2013, which did not exempt acquisitions of commercial items.
    The law is silent on the applicability of these requirements to 
acquisitions of commercial items and does not independently provide for 
criminal or civil penalties; nor does it include terms making express 
reference to 41 U.S.C. 1906 and its application to acquisitions of 
commercial items. Therefore, it does not apply to acquisitions of 
commercial items unless the FAR Council makes a written determination 
as provided in 41 U.S.C. 1906.
    The law furthers the administration's goal of supporting small 
business and advances the interests of small business subcontractors by 
discouraging reduced or untimely payments to small business 
subcontractors. Exclusion of acquisitions for commercial items from 
these requirements will limit the full implementation of these 
subcontracting-related objectives. Further, the primary FAR clauses 
implementing Federal procurement policies governing subcontracting with 
small business, FAR 52.219-8, Utilization of Small Business Concerns, 
and 52.219-9, Small Business Subcontracting Plan, are currently 
prescribed for use in solicitations for commercial items. Exclusion of 
acquisitions for commercial items from these requirements would create 
confusion among contractors and the Federal contracting workforce. 
Moreover, the rule may also increase the timeliness of payments to 
small business subcontractors.
    For these reasons, it is in the best interest of the Federal 
Government to apply the requirements of the rule to the acquisition of 
commercial items.

B. Applicability of Contracts for the Acquisition of COTS Items

    Pursuant to 41 U.S.C. 1907, acquisitions of COTS items will be 
exempt from a provision of law unless the law (i) contains criminal or 
civil penalties; (ii) specifically refers to 41 U.S.C. 1907 and states 
that the law applies to acquisitions of COTS items; (iii) concerns 
authorities or responsibilities under the Small Business Act (15 U.S.C. 
644) or bid protest procedures developed under the authority of 31 
U.S.C. 3551 et seq., 10 U.S.C. 2305(e) and (f), or 41 U.S.C. 3706 and 
3707; or (iv) the Administrator for Federal Procurement Policy makes a 
written determination and finding that would not be in the best 
interest of the Federal Government to exempt contracts

[[Page 93485]]

for the procurement of COTS items from the provision of law. If none of 
these conditions are met, the FAR is required to include the statutory 
requirement(s) on a list of provisions of law that are inapplicable to 
acquisitions of COTS items.
    The purpose of this rule is to implement section 1334 of the Small 
Business Jobs Act of 2010. Section 1334 requires prime contractors to 
self-report late or reduced payments to their small business 
subcontractors. The rule also requires contracting officers to record 
the identity of contractors with a history of late or reduced payments 
to small business subcontractors in FAPIIS.
    These statutory requirements are reflected in the SBA final rule 
published at 78 FR 42391 on July 16, 2013, which did not exempt 
acquisitions of COTS items.
    The law is silent on the applicability of these requirements to 
acquisitions of COTS items and does not independently provide for 
criminal or civil penalties; nor does it include terms making express 
reference to 41 U.S.C. 1907 and its application to acquisitions of COTS 
items. Therefore, it does not apply to acquisitions of COTS items 
unless the Administrator for Federal Procurement Policy makes a written 
determination as provided in 41 U.S.C. 1907.
    The law furthers the Administration's goal of supporting small 
business and advances the interests of small business subcontractors by 
discouraging reduced or untimely payments to small business 
subcontractors. Exclusion of a large segment of Federal contracting, 
such as acquisitions for COTS items, will limit the full implementation 
of these subcontracting-related objectives. Further, the primary FAR 
clauses implementing Federal procurement policies governing 
subcontracting with small business, FAR 52.219-8, Utilization of Small 
Business Concerns, and 52.219-9, Small Business Subcontracting Plan, 
are currently prescribed for use in solicitations for COTS items. 
Exclusion of acquisitions for COTS items from these requirements would 
create confusion among contractors and the Federal contracting 
workforce. Moreover, the rule may also increase the timeliness of 
payments to small business subcontractors.
    For these reasons, it is in the best interest of the Federal 
Government to apply the subcontracting requirements to the acquisition 
of COTS items.

IV. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

V. Regulatory Flexibility Act

    DoD, GSA, and NASA have prepared a final regulatory flexibility 
analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 
U.S.C. 601, et seq. The FRFA is summarized as follows:

    Section 1334 of the Small Business Jobs Act of 2010 (Pub. L. 
111-240) and the Small Business Administration's final rule at 78 FR 
42391, Small Business Subcontracting, published July 16, 2013, 
require that the prime contractor self-report when the prime 
contractor makes reduced or untimely payments to small business 
subcontractors. Section 1334 also requires the contracting officer 
to record the identity of contractors with a history of unjustified 
reduced or untimely payments in the Federal Awardee Performance and 
Integrity System (FAPIIS).
    This final rule implements the self-reporting requirements of 
section 1334 by requiring contracting officers to include FAR clause 
52.242-5, Payments to Small Business Subcontractors, in all 
solicitations and contracts containing the clause at 52.219-9, Small 
Business Subcontracting Plan. The new FAR clause requires prime 
contractors to notify the contracting officer of reduced or untimely 
payments to small business subcontractors.
    The rule also amends FAR 42.1503(h) to require contracting 
officers to report to FAPIIS a contractor that has a history of 
three or more reduced or untimely payments to small business 
subcontractors within a 12-month period under a single contract that 
are unjustified. FAR 42.1503, Table 42-2 is also amended to include 
unjustified reduced or untimely payments to small business 
subcontractors as part of the definition of ratings for the ``small 
business subcontracting'' past performance evaluation factors.
    There were no public comments received on the initial regulatory 
flexibility analysis.
    The final rule applies to payments made to small businesses that 
are first-tier subcontractors to prime government contractors. There 
will be no burden on small businesses, as small businesses do not 
have subcontracting plans. This regulation will benefit small 
business subcontractors by encouraging large business prime 
contractors to pay small business subcontractors in a timely manner 
and the agreed upon contractual price.
    This rule imposes new recordkeeping and reporting requirements 
and contains information collection requirements. Small businesses 
are not required to report under this information collection because 
it only applies to prime contractors whose contracts contain the 
clause 52.219-9, Small Business Subcontracting Plan, which is not 
applicable to small businesses.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.

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

VI. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. Chapter 35) applies. The 
rule contains information collection requirements. OMB has cleared this 
information collection requirement under OMB Control Number 9000-0196, 
titled: ``Payments to Small Business Subcontractors.''

List of Subjects in 48 CFR Parts 1, 19, 42, and 52.

    Government procurement.

    Dated: December 9, 2016.
William F. Clark,
Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

    Therefore, DoD, GSA, and NASA are amending 48 CFR parts 1, 19, 42, 
and 52 as set forth below:

0
1. The authority citation for 48 CFR parts 1, 19, 42, and 52 continues 
to read as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM


1.106  [Amended]

0
2. Amend section 1.106 by adding to the table, in numerical sequence, 
FAR segment ``52.242-5'' and its corresponding OMB Control No. ``9000-
0196''.

PART 19--SMALL BUSINESS PROGRAMS

0
3. Amend section 19.701 by adding, in alphabetical order, the 
definitions of ``Reduced payment'' and ``Untimely payment'' to read as 
follows:


19.701  Definitions.

* * * * *
    Reduced Payment means a payment that is for less than the amount 
agreed upon in a subcontract in accordance

[[Page 93486]]

with its terms and conditions, for supplies and services for which the 
Government has paid the prime contractor.
* * * * *
    Untimely Payment means a payment to a subcontractor that is more 
than 90 days past due under the terms and conditions of a subcontract 
for supplies and services for which the Government has paid the prime 
contractor.

0
4. Amend section 19.704 by--
0
a. Removing from paragraph (a)(13) ``completion; and'' and adding 
``completion;'' in its place;
0
b. Removing from paragraph (a)(14) ``subcontractor.'' and adding 
``subcontractor; and'' in its place; and
0
c. Adding paragraph (a)(15).
    The addition reads as follows:


19.704  Subcontracting plan requirements.

    (a) * * *
    (15) Assurances that the offeror will pay its small business 
subcontractors on time and in accordance with the terms and conditions 
of the subcontract, and notify the contracting officer if the offeror 
pays a reduced or an untimely payment to a small business subcontractor 
(see 52.242-5).
* * * * *


19.705-4  [Amended]

0
5. Amend section 19.705-4 by removing from paragraphs (b) and (c) the 
number ``14'' and adding ``15'' in both places.

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

0
6. Amend section 42.1502 by revising paragraph (g) to read as follows:


42.1502  Policy.

* * * * *
    (g) Past performance evaluations shall include an assessment of the 
contractor's--
    (1) Performance against, and efforts to achieve, the goals 
identified in the small business subcontracting plan when the contract 
includes the clause at 52.219-9, Small Business Subcontracting Plan; 
and
    (2) Reduced or untimely payments (as defined in 19.701), made to 
small business subcontractors, determined by the contracting officer to 
be unjustified. The contracting officer shall--
    (i) Consider and evaluate a contractor's written explanation for a 
reduced or an untimely payment when determining whether the reduced or 
untimely payment is justified; and
    (ii) Determine that a history of unjustified reduced or untimely 
payments has occurred when the contractor has reported three or more 
occasions of unjustified reduced or untimely payments under a single 
contract within a 12-month period (see 42.1503(h)(1)(vi) and the 
evaluation ratings in Table 42-2). The following payment or nonpayment 
situations are not considered to be unjustified:
    (A) There is a contract dispute on performance.
    (B) A partial payment is made for amounts not in dispute.
    (C) A payment is reduced due to past overpayments.
    (D) There is an administrative mistake.
    (E) Late performance by the subcontractor leads to later payment by 
the prime contractor.
* * * * *

0
7. Amend section 42.1503 by--
0
a. Revising paragraphs (b)(2)(v) and (b)(2)(vi);
0
b. Revising paragraph (h)(1) introductory text;
0
c. Revising paragraphs (h)(1)(iv) and (h)(1)(v);
0
d. Adding paragraph (h)(1)(vi); and
0
e. Revising Table 42-2.
    The revisions and addition read as follows:


42.1503  Procedures.

* * * * *
    (b)(1) * * *
    (2) * * *
    (v) Small business subcontracting, including reduced or untimely 
payments to small business subcontractors when 19.702(a) requires a 
subcontracting plan (as applicable, see Table 42-2).
    (vi) Other (as applicable) (e.g., trafficking violations, tax 
delinquency, failure to report in accordance with contract terms and 
conditions, defective cost or pricing data, terminations, suspension 
and debarments).
* * * * *
    (h) * * *
    (1) Agencies shall ensure information is accurately reported in the 
FAPIIS module of CPARS within 3 calendar days after a contracting 
officer--
* * * * *
    (iv) Makes a subsequent withdrawal or a conversion of a termination 
for default to a termination for convenience;
    (v) Receives a final determination after an administrative 
proceeding, in accordance with 22.1704(d)(1), that substantiates an 
allegation of a violation of the trafficking in persons prohibitions in 
22.1703(a) and 52.222-50(b); or
    (vi) Determines that a contractor has a history of three or more 
unjustified reduced or untimely payments to small business 
subcontractors under a single contract within a 12-month period (see 
42.1502(g)(2)).
* * * * *

[[Page 93487]]



               Table 42-2--Evaluation Ratings Definitions
 [For the small business subcontracting evaluation factor, when 52.219-9
                                is used]
------------------------------------------------------------------------
           Rating                  Definition               Note
------------------------------------------------------------------------
(a) Exceptional.............  Exceeded all          To justify an
                               statutory goals or    Exceptional rating,
                               goals as              identify multiple
                               negotiated. Had       significant events
                               exceptional success   and state how they
                               with initiatives to   were a benefit to
                               assist, promote,      small business
                               and utilize small     utilization. A
                               business (SB),        singular benefit,
                               small disadvantaged   however, could be
                               business (SDB),       of such magnitude
                               women-owned small     that it constitutes
                               business (WOSB),      an Exceptional
                               HUBZone small         rating. Small
                               business, veteran-    businesses should
                               owned small           be given meaningful
                               business (VOSB) and   and innovative work
                               service disabled      directly related to
                               veteran owned small   the contract, and
                               business (SDVOSB).    opportunities
                               Complied with FAR     should not be
                               52.219-8,             limited to indirect
                               Utilization of        work such as
                               Small Business        cleaning offices,
                               Concerns. Exceeded    supplies,
                               any other small       landscaping, etc.
                               business              Also, there should
                               participation         have been no
                               requirements          significant
                               incorporated in the   weaknesses
                               contract/order,       identified
                               including the use
                               of small businesses
                               in mission critical
                               aspects of the
                               program. Went above
                               and beyond the
                               required elements
                               of the
                               subcontracting plan
                               and other small
                               business
                               requirements of the
                               contract/order.
                               Completed and
                               submitted
                               Individual
                               Subcontract Reports
                               and/or Summary
                               Subcontract Reports
                               in an accurate and
                               timely manner. Did
                               not have a history
                               of three or more
                               unjustified reduced
                               or untimely
                               payments to small
                               business
                               subcontractors
                               within a 12-month
                               period.
(b) Very Good...............  Met all of the        To justify a Very
                               statutory goals or    Good rating,
                               goals as              identify a
                               negotiated. Had       significant event
                               significant success   and state how it
                               with initiatives to   was a benefit to
                               assist, promote and   small business
                               utilize SB, SDB,      utilization. Small
                               WOSB, HUBZone,        businesses should
                               VOSB, and SDVOSB.     be given meaningful
                               Complied with FAR     and innovative
                               52.219-8,             opportunities to
                               Utilization of        participate as
                               Small Business        subcontractors for
                               Concerns. Met or      work directly
                               exceeded any other    related to the
                               small business        contract, and
                               participation         opportunities
                               requirements          should not be
                               incorporated in the   limited to indirect
                               contract/order,       work such as
                               including the use     cleaning offices,
                               of small businesses   supplies,
                               in mission critical   landscaping, etc.
                               aspects of the        There should be no
                               program. Endeavored   significant
                               to go above and       weaknesses
                               beyond the required   identified
                               elements of the
                               subcontracting
                               plan. Completed and
                               submitted
                               Individual
                               Subcontract Reports
                               and/or Summary
                               Subcontract Reports
                               in an accurate and
                               timely manner. Did
                               not have a history
                               of three or more
                               unjustified reduced
                               or untimely
                               payments to small
                               business
                               subcontractors
                               within a 12-month
                               period.
(c) Satisfactory............  Demonstrated a good   To justify a
                               faith effort to       Satisfactory
                               meet all of the       rating, there
                               negotiated            should have been
                               subcontracting        only minor
                               goals in the          problems, or major
                               various socio-        problems the
                               economic categories   contractor has
                               for the current       addressed or taken
                               period. Complied      corrective action.
                               with FAR 52.219-8,    There should have
                               Utilization of        been no significant
                               Small Business        weaknesses
                               Concerns. Met any     identified. A
                               other small           fundamental
                               business              principle of
                               participation         assigning ratings
                               requirements          is that contractors
                               included in the       will not be
                               contract/order.       assessed a rating
                               Fulfilled the         lower than
                               requirements of the   Satisfactory solely
                               subcontracting plan   for not performing
                               included in the       beyond the
                               contract/order.       requirements of the
                               Completed and         contract/order
                               submitted
                               Individual
                               Subcontract Reports
                               and/or Summary
                               Subcontract Reports
                               in an accurate and
                               timely manner. Did
                               not have a history
                               of three or more
                               unjustified reduced
                               or untimely
                               payments to small
                               business
                               subcontractors
                               within a 12-month
                               period.
(d) Marginal................  Deficient in meeting  To justify a
                               key subcontracting    Marginal rating,
                               plan elements.        identify a
                               Deficient in          significant event
                               complying with FAR    that the contractor
                               52.219-8,             had trouble
                               Utilization of        overcoming and how
                               Small Business        it impacted small
                               Concerns, and any     business
                               other small           utilization. A
                               business              Marginal rating
                               participation         should be supported
                               requirements in the   by referencing the
                               contract/order. Did   actions taken by
                               not submit            the Government that
                               Individual            notified the
                               Subcontract Reports   contractor of the
                               and/or Summary        contractual
                               Subcontract Reports   deficiency.
                               in an accurate or
                               timely manner.
                               Failed to satisfy
                               one or more
                               requirements of a
                               corrective action
                               plan currently in
                               place; however,
                               does show an
                               interest in
                               bringing
                               performance to a
                               satisfactory level
                               and has
                               demonstrated a
                               commitment to apply
                               the necessary
                               resources to do so.
                               Required a
                               corrective action
                               plan. Did not have
                               a history of three
                               or more unjustified
                               reduced or untimely
                               payments to small
                               business
                               subcontractors
                               within a 12-month
                               period.

[[Page 93488]]

 
(e) Unsatisfactory..........  Noncompliant with     To justify an
                               FAR 52.219-8 and      Unsatisfactory
                               52.219-9, and any     rating, identify
                               other small           multiple
                               business              significant events
                               participation         that the contractor
                               requirements in the   had trouble
                               contract/order. Did   overcoming and
                               not submit            state how it
                               Individual            impacted small
                               Subcontract Reports   business
                               and/or Summary        utilization. A
                               Subcontract Reports   singular problem,
                               in an accurate or     however, could be
                               timely manner.        of such serious
                               Showed little         magnitude that it
                               interest in           alone constitutes
                               bringing              an Unsatisfactory
                               performance to a      rating. An
                               satisfactory level    Unsatisfactory
                               or is generally       rating should be
                               uncooperative.        supported by
                               Required a            referencing the
                               corrective action     actions taken by
                               plan. Had a history   the Government to
                               of three or more      notify the
                               unjustified reduced   contractor of the
                               or untimely           deficiencies. When
                               payments to small     an Unsatisfactory
                               business              rating is
                               subcontractors        justified, the
                               within a 12-month     contracting officer
                               period.               must consider
                                                     whether the
                                                     contractor made a
                                                     good faith effort
                                                     to comply with the
                                                     requirements of the
                                                     subcontracting plan
                                                     required by FAR
                                                     52.219-9 and follow
                                                     the procedures
                                                     outlined in FAR
                                                     52.219-16,
                                                     Liquidated Damages-
                                                     Subcontracting
                                                     Plan.
------------------------------------------------------------------------


0
8. Add section 42.1504 to read as follows:


42.1504  Contract clause.

    Insert the clause at 52.242-5, Payments to Small Business 
Subcontractors, in all solicitations and contracts containing the 
clause at 52.219-9, Small Business Subcontracting Plan.

PART 52--SOLICITATION AND PROVISIONS AND CONTRACT CLAUSES

0
9. Amend section 52.212-5 by--
0
a. Revising the date of the clause;
0
b. Revising the introductory text of paragraph (b)(17)(i);
0
c. Redesignating paragraph (b)(60) as (b)(61); and
0
d. Adding a new paragraph (b)(60).
    The revisions and addition read as follows:


52.212-5  Contract Terms and Conditions Required to Implement Statutes 
or Executive Orders--Commercial Items.

* * * * *

Contract Terms and Conditions Required To Implement Statutes or 
Executive Orders--Commercial Items (JAN 2017)

    (b) * * *
    _(17)(i) 52.219-9, Small Business Subcontracting Plan (JAN 2017) 
(15 U.S.C. 637(d)(4)).
* * * * *
    _(60) 52.242-5, Payments to Small Business Subcontractors (JAN 
2017)(15 U.S.C. 637(d)(12)).
* * * * *

0
10. Amend section 52.219-9 by--
0
a. Revising the date of the clause;
0
b. Adding in paragraph (b), in alphabetical order, the definitions of 
``Reduced payment'' and ``Untimely payment'';
0
c. Adding paragraph (d)(15);
0
d. In Alternate III--
0
1. Revising the date of the Alternate; and
0
2. Removing from the introductory paragraph of Alternate III 
``clause;'' and adding ``clause:'' in its place; and
0
e. In Alternate IV--
0
1. Revising the date of the Alternate; and
0
2. Adding paragraph (d)(15).
    The revisions and additions read as follows:


52.219-9  Small Business Subcontracting Plan.

* * * * *

Small Business Subcontracting Plan (JAN 2017)

    (b) * * *
* * * * *
    Reduced payment means a payment that is for less than the amount 
agreed upon in a subcontract in accordance with its terms and 
conditions, for supplies and services for which the Government has 
paid the prime contractor.
* * * * *
    Untimely payment means a payment to a subcontractor that is more 
than 90 days past due under the terms and conditions of a 
subcontract for supplies and services for which the Government has 
paid the prime contractor.
    (d) * * *
    (15) Assurances that the offeror will pay its small business 
subcontractors on time and in accordance with the terms and 
conditions of the underlying subcontract, and notify the contracting 
officer when the prime contractor makes either a reduced or an 
untimely payment to a small business subcontractor (see 52.242-5).
* * * * *

Alternate III (JAN 2017). * * *

* * * * *

Alternate IV (JAN 2017). * * *

    (d) * * *
    (15) Assurances that the offeror will pay its small business 
subcontractors on time and in accordance with the terms and 
conditions of the underlying subcontract, and notify the contracting 
officer when the prime contractor makes either a reduced or an 
untimely payment to a small business subcontractor (see 52.242-5).


0
11. Add section 52.242-5 to read as follows:


52.242-5  Payments to Small Business Subcontractors.

    As prescribed in 42.1504, insert the following clause:

Payments to Small Business Subcontractors (JAN 2017)

    (a) Definitions. As used in this clause--
    Reduced payment means a payment that is for less than the amount 
agreed upon in a subcontract in accordance with its terms and 
conditions, for supplies and services for which the Government has 
paid the prime contractor.
    Untimely payment means a payment that is more than 90 days past 
due under the terms and conditions of a subcontract, for supplies 
and services for which the Government has paid the prime contractor.
    (b) Notice. The Contractor shall notify the Contracting Officer, 
in writing, not later than 14 days after--
    (1) A small business subcontractor was entitled to payment under 
the terms and conditions of the subcontract; and
    (2) The Contractor--
    (i) Made a reduced or untimely payment to the small business 
subcontractor; or
    (ii) Failed to make a payment, which is now untimely.
    (c) Content of notice. The Contractor shall include the 
reason(s) for making the reduced or untimely payment in any notice 
required under paragraph (b) of this clause.
    (End of clause)

[FR Doc. 2016-30221 Filed 12-19-16; 8:45 am]
 BILLING CODE 6820-EP-P