[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Proposed Rules]
[Pages 62516-62532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25705]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 83, No. 233 / Tuesday, December 4, 2018 /
Proposed Rules
[[Page 62516]]
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127, and 129
RIN 3245-AG86
National Defense Authorization Acts of 2016 and 2017, Recovery
Improvements for Small Entities After Disaster Act of 2015, and Other
Small Business Government Contracting
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is
proposing to amend its regulations to implement several provisions of
the National Defense Authorization Acts (NDAA) of 2016 and 2017 and the
Recovery Improvements for Small Entities After Disaster Act of 2015
(RISE Act), as well as implementing other clarifying amendments. The
proposed rule would clarify that contracting officers have the
authority to request information in connection with a contractor's
compliance with applicable limitations on subcontracting clauses;
provide exclusions for purposes of compliance with the limitations on
subcontracting for certain contracts performed outside of the United
States, environmental remediation contracts, and information technology
service acquisitions that require substantial cloud computing; require
a prime contractor with a commercial subcontracting plan to include
indirect costs in its subcontracting goals; establish that failure to
provide timely subcontracting reports may constitute a material breach
of the contract; clarify the requirements for size and status
recertification; and limit the scope of Procurement Center
Representative reviews of Department of Defense acquisitions performed
outside of the United States and its territories. The proposed rule
would also authorize agencies to receive double credit for small
business goaling achievements as announced in SBA's scorecard for local
area small business set asides in connection with a disaster. Finally,
SBA is proposing to remove the kit assembler exception to the non-
manufacturer rule.
DATES: Comments must be received on or before February 4, 2019.
ADDRESSES: You may submit comments, identified by RIN 3245-AG86, by any
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
For mail, paper, disk, or CD-ROM submissions: Brenda
Fernandez, U.S. Small Business Administration, Office of Policy,
Planning and Liaison, 409 Third Street SW, 8th Floor, Washington, DC
20416.
Hand Delivery/Courier: Brenda Fernandez, U.S. Small
Business Administration, Office of Policy, Planning and Liaison, 409
Third Street SW, 8th Floor, Washington, DC 20416.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please submit the information to Brenda
Fernandez, U.S. Small Business Administration, Office of Policy,
Planning and Liaison, 409 Third Street SW, 8th Floor, Washington, DC
20416, or send an email to [email protected]. Highlight the
information that you consider to be CBI and explain why you believe SBA
should hold this information as confidential. SBA will review the
information and make the final determination on whether it will publish
the information.
FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, Office of Policy,
Planning and Liaison, 409 Third Street SW, Washington, DC 20416; (202)
205-7337; [email protected].
SUPPLEMENTARY INFORMATION:
I. National Defense Authorization Act for Fiscal Year 2016, Public Law
114-92, 129 Stat. 726, November 25, 2015 (NDAA of 2016)
Posting Notice of Substantial Bundling
Section 863 of the NDAA of 2016 amended section 15(e)(3) of the
Small Business Act (15 U.S.C. 644(e)(3)) to provide that if the head of
a contracting agency determines that an acquisition plan involves a
substantial bundling of contract requirements, the head of the
contracting agency shall publish a notice of such determination on a
public website within 7 days of making such determination. Section 863
also amended section 44(c)(2) of the Small Business Act (15 U.S.C.
657q(c)(2)) to provide that upon determining that a consolidation of
contract requirements is necessary and justified, the Senior
Procurement Executive (SPE) or Chief Acquisition Officer (CAO) shall
publish a notice on a public website that such determination has been
made. An agency may not issue the solicitation any earlier than 7 days
after publication of the notice. The SPE or CAO must also publish the
justification along with the solicitation. The requirement may be
delegated. SBA proposes to amend Sec. 125.2(d) by adding new
paragraphs (d)(1)(v) and (d)(7) to implement these changes.
II. National Defense Authorization Act for Fiscal Year 2017, Public Law
114-328, 130 Stat. 2000, December 23, 2016 (NDAA of 2017)
Procurement Center Representative Reviews
Section 1811 of the NDAA of 2017 amended section 15(l) of the Small
Business Act (15 U.S.C. 644(l)) to provide that Procurement Center
Representatives (PCRs) may review any acquisition, even those where the
acquisition is set aside, partially set aside or reserved for small
business. SBA's current rules provide that PCRs will review all
acquisitions that are not set aside or reserved for small business.
These rules were intended to focus limited resources on acquisitions
that were not already going to small business, but were not intended to
prohibit a PCR from reviewing any acquisition as part of the PCR's role
as an advocate for small business. SBA proposes to amend Sec.
125.2(b)(1)(i) to provide that PCRs may review any acquisition
regardless of whether it is set aside, partially set aside, or reserved
for small business or other socioeconomic categories. SBA believes that
this change will enable PCRs to advocate for total set asides, or
partial set asides, when appropriate and necessary.
Section 1811 of the NDAA of 2017 also amended section 15(l) of the
Small Business Act to limit the scope of PCR review of solicitations
for contracts or orders by or for the Department of
[[Page 62517]]
Defense if the acquisition is conducted pursuant to the Arms Control
Export Act (22 U.S.C. 2762), is a humanitarian operation as defined in
10 U.S.C. 401(e), is for a contingency operation as defined in 10
U.S.C. 101(a)(13), is to be awarded pursuant to an agreement with the
government of a foreign country in which Armed Forces of the United
States are deployed, or where both the place of award and place of
performance are outside of the United States and its territories. SBA
is proposing to amend Sec. 125.2(b)(1)(i) to implement these
amendments. PCRs may still review acquisitions awarded in the United
States and its territories but performed outside of the United States
and its territories, or awarded outside of the United States and its
territories for performance in the United States or its territories, if
the acquisition is not a foreign military sales, or in connection with
a contingency operation, humanitarian operation or status of forces
agreement. SBA considers performance to be outside of the United States
and its territories if the acquisition is awarded and performed or
delivered outside of the United States and its territories. If the
acquisition is awarded in the United States and its territories or some
performance or delivery occurs in the United States and its
territories, SBA considers that to be performed in the United States
and its territories.
Material Breach of Subcontracting Plan
Section 1821 of the NDAA of 2017 amended section 8(d)(9) of the
Small Business Act (15 U.S.C. 637(d)(9)) to provide that it shall be a
material breach of a contract or subcontract when the contractor or
subcontractor with a subcontracting plan fails to comply in good faith
with the requirement to provide assurances that the offeror shall
submit such periodic reports or cooperate in any studies or surveys as
may be required by the Federal agency or the Administration in order to
determine the extent of compliance by the offeror with the
subcontracting plan. Such a breach may be considered in any past
performance evaluation of the contractor. SBA is proposing to revise
Sec. 125.3(d) to implement this provision.
Section 1821 also provides that SBA must provide examples of
activities that would be considered a failure to make a good faith
effort to comply with a small business subcontracting plan. Good faith
effort considers a totality of the contractor's actions to provide the
maximum practicable opportunity to small businesses to participate as
subcontractors (including those in the socio-economic small business
areas), consistent with the information and assurances provided in the
subcontracting plan. A failure to exert good faith effort is first
predicated upon evidence that an other-than-small-business (OTSB)
federal prime contractor, required to have a subcontracting plan with
negotiated Small Business Concern (SBC) goals approved by a federal
contracting officer, has failed to attain these goals and this failure
may be attributable to a lack of good faith effort by the OTSB prime
contractor. The term SBC for purposes of this rule includes all
categories of small business socio-economic concerns including small
business, small disadvantaged businesses, veteran owned small
businesses, service disabled veteran owned small businesses, women
owned small businesses, small businesses in historically underutilized
business zones, Historically Black Colleges and Universities (HBCU/
Minority Institutions (MI)) (NASA only) and any successor small
business designations. A failure to exert good faith efforts must take
into account all actions, or lack thereof, the contractor made to
promote subcontracting opportunity to small businesses to the extent
agreed upon in the approved subcontracting plan. SBA is reorganizing
this section to reflect these new examples in proposed Sec.
125.3(d)(3)(ii). SBA is proposing to renumber current Sec.
125.3(d)(3)(i) through (iii) as Sec. 125.3(d)(3)(i)(A) through (C) to
better organize this section for clarity and ease of understanding .
This rule does not add a new requirement for supporting documentation
for the subcontracting plan.
III. Recovery Improvements for Small Entities After Disaster Act of
2015, Public Law 114-88, 129 Stat. 686, November 25, 2015 (RISE Act)
Section 2108 of the RISE Act authorizes SBA to establish
contracting preferences for small business concerns located in disaster
areas, and provide agencies with double credit for awards to small
business concerns located in disaster areas. In order to implement the
changes made by section 2108 of the RISE Act, SBA is proposing to add a
new part 129 to title 13 of the Code of Federal Regulations. SBA will
implement section 2105 in a separate rulemaking.
Section 2108 of the RISE Act amends section 15 of the Small
Business Act (15 U.S.C. 644) by adding a subsection (f), which
authorizes procuring agencies to provide contracting preferences for
small business concerns located in areas for which the President has
declared a major disaster, during the period of the declaration.
Section 2108 provides that this contracting preference shall be
available for small business concerns located in disaster areas if the
small business will perform the work required under the contract in the
disaster area. Under Sec. 6.208 of Federal Acquisition Regulation
(FAR), title 48 of the Code of Federal Regulations, contracting
officers may set aside solicitations to allow only offerors residing or
doing business in the area affected by a major disaster. Under existing
FAR 26.202-1, such local area set asides may be further set aside for
small business concerns. SBA is proposing to use the existing FAR
definitions to provide that an agency will receive credit for an
``emergency response contract'' awarded to a ``local firm'' that
qualifies as a small business concern under the applicable size
standard for a ``Major disaster or emergency area.'' FAR 26.201.
Section 2108 also provides that if an agency awards a contract to a
small business located in a disaster area through a contracting
preference, the value of the contract shall be doubled for purposes of
determining compliance with the small business contracting goals
described in section 15(g)(1)(A) of the Small Business Act. Proposed
Sec. 129.300 states that agencies shall receive double credit for
awarding a contract through the use of a local small business or
socioeconomic set aside authorized by proposed Sec. 129.200, i.e., a
set-aside restricted to SBCs, 8(a) Business Development (BD) Program
Participants, Women-Owned, Service-Disabled Veteran-Owned or HUBZone
SBCs located in a disaster area. It is SBA's intent that agencies will
enter accurate data into the Federal Procurement Data System (FPDS).
SBA will provide the extra credit through the agency scorecard process.
Local area set aside and small business contract designations already
exist in FPDS, and implementation has already occurred in FY 2017.
IV. Other Small Business Government Contracting Amendments
Clarification That the Non-Manufacturer 500 Employee Size Standard Does
Not Apply to Information Technology Value Added Resellers
On September 10, 2014, SBA proposed to eliminate the information
technology value added reseller (ITVAR) exception to NAICS 541519,
which had a size standard of 150 employees. 79 FR 53646. In the
proposed rule, SBA specifically noted that elimination of the exception
would
[[Page 62518]]
result in these acquisitions, which are primarily for supplies, being
subject to the non-manufacturer rule (NMR), which has a size standard
of 500 employees. As a result of public comment, SBA altered the
language in the ITVAR exception (13 CFR 121.201, footnote 18) to make
it clear that the manufacturing performance or limitations on
subcontracting requirements and the NMR apply to acquisitions under the
ITVAR exception, but retained the 150 employee size standard. 81 FR
4436 (January 26, 2016). By definition, contractors under the ITVAR
exception are non-manufacturers, and it would make no sense for SBA to
retain a 150 employee size standard if concerns could also qualify
under the NMR 500 employee size standard. In a size appeal before the
SBA Office of Hearings and Appeals, a firm tried to argue that the size
standard under the ITVAR exception was the 500 employee non-
manufacturer size standard. Size Appeal of York Telecom Corporation,
SBA No. SIZ-5742 (May 18, 2016). The appeal was denied, and this rule
proposes to clarify in Sec. 121.406(b)(1)(i) that the NMR size
standard of 500 employees does not apply to acquisitions that have been
assigned the ITVAR NAICS code 541519 exception, footnote 18. The size
standard for any acquisition under 541519, footnote 18 is 150 employees
for all offerors.
Setting Aside an Order Under a Multiple Award Set Aside Contract
In the final rule implementing 15 U.S.C. 644(r), SBA contemplated
the set aside of orders for certain types of SBCs, such as HUBZone
SBCs, 8(a) BD Program Participants, SDVO SBCs, or WOSBs. 78 FR 61114,
61124 (October 2, 2013). SBA noted that at the time, the small business
programs had major differences with respect to application of the
limitations on subcontracting (LOS) and NMR, and therefore it would be
difficult for SBCs and agencies to determine the rules that applied to
a particular order. SBA was also concerned about the possibility that
SBCs could be deprived of an opportunity to compete for orders under a
set aside contract if an agency repeatedly set aside orders for other
socioeconomic categories. Since that time, SBA has attempted to
harmonize the application of the LOS and NMR for each of the various
types of small business contracts. The concerns identified in the SBA
final rule have since been addressed to enable fair and proper
implementation of order set asides. Specifically, the SBA final rule
standardized the LOS and NMR across the socioeconomic programs. 81 FR
34243. In addition, some agencies have pursued the strategy of allowing
order set asides against set aside multiple award contracts, including
notification and incorporation of the clause at FAR 52.219-13, and
agencies have reported that they have not encountered any industry
concerns. SBA is requesting comment on whether SBA should allow
agencies to set aside orders for a socioeconomic small business program
(8(a), HUBZone, SDVO, WOSB) under a multiple award contract that was
originally conducted as a total small business set-aside. Because SBA
believes that a change is appropriate at this time, SBA is proposing to
remove the term ``Full and Open'' from Sec. 125.2(e)(6) to
specifically afford discretion to an agency to set-aside one or more
particular orders for HUBZone SBCs, 8(a) BD SBCs, SDVO SBCs or WOSBs,
as appropriate, where the underlying multiple award contract was
initially set-aside for small business. Set asides under multiple award
set-aside contracts may be implemented by agencies in different ways,
including: (1) Establishing set asides to socioeconomic programs at the
order solicitation level under multiple award small business set-aside
contracts, and (2) establishing socioeconomic set-aside pools at the
master contract solicitation level for a multiple award small business
set-aside contract. SBA is requesting comments on any burden or adverse
impact associated with each of these two approaches. In addition, SBA
is specifically interested in whether these two approaches impact the
ability for all types of small businesses (e.g. 8(a), HUBZone, WOSB,
SDVOSB) to compete and receive orders.
Recertification of Size and Status
SBA's rules require recertification of size and status for all
long-term (over 5 years) contracts. This includes indefinite delivery
contracts under which orders will be placed at a future date and
contracts that had not been set-aside for small business, but were
awarded to a small business. Thus, SBA is proposing to amend Sec. Sec.
125.18(e), 126.601(h), and 127.503(h) to clarify that a concern must
recertify its status on full and open contracts. In addition, SBA is
adding a new paragraph to Sec. Sec. 124.521 and 124.1015 to reflect
the status recertification requirements for 8(a) participants and SDB
concerns, which are already present in the SDVO, HUBZone, and WOSB
regulations. This change provides greater consistency among the status
recertification requirements for small business program contracts. One
result of these proposed changes, is that a prime contractor relying on
similarly situated entities (an SDVOSB prime with an SDVOSB
subcontractor, for example) to meet the applicable performance
requirements may not count the subcontractor towards its performance
requirements if the subcontractor recertifies as an entity other than
that which it had previously certified.
Indirect Costs in Commercial Subcontracting Plans
Other than small business concerns that have a commercial
subcontracting plan report on performance through a summary
subcontracting report (SSR), and SBA's rules currently require that a
contractor using a commercial subcontracting plan must include all
indirect costs in its SSR. However, SBA's rules do not require
contractors to include indirect costs in their commercial
subcontracting plan goals, which leads to inconsistencies when
comparing the SSR to the commercial subcontracting plan. SBA is
proposing to revise Sec. 125.3(c)(1)(iv) to require that prime
contractors with commercial subcontracting plans must include indirect
costs in the commercial subcontracting plan goals. This will allow
agencies to negotiate more realistic commercial subcontracting plans
and monitor performance through the SSR.
Subcontracting Compliance Reviews
SBA is also proposing to change the nomenclature that applies to
subcontracting compliance reviews. Instead of rating firms as
``Outstanding,'' ``Highly Successful,'' or ``Acceptable,'' SBA will
utilize the terminology ``Exceptional,'' ``Very Good,'' and
``Satisfactory.'' SBA proposes to revise Sec. 125.3(f)(3) to implement
these changes to align title 13 of the CFR and the FAR to rectify
ambiguity in terminology which causes confusion by Government personnel
and industry partners when attempting to ascertain the value and
differences of the SBA's rating under Sec. 125.3(f)(3) in an SBA
Compliance Review and the ratings in FAR 42.1503 under a Subcontracting
Evaluation when FAR 52.219-9 is used and made part of the firm's past
performance record.
Independent Contractors--Employees/Subcontractors
SBA's size regulations provide that SBA considers ``all individuals
employed on a full-time, part-time, or other basis'' to be employees of
the firm whose size is at issue. 13 CFR 121.106(a). ``This includes
employees obtained from a temporary employee
[[Page 62519]]
agency, professional employee organization or leasing concern.'' Id.
Further, ``SBA will consider the totality of the circumstances,
including criteria used by the IRS for Federal income tax purposes, in
determining whether individuals are employees of a concern.'' Id. In
determining what it means to be employed on an ``other'' basis, SBA
issued Size Policy Statement No. 1. 51 FR 6099-01 (February 20, 1986).
The Size Policy Statement sets forth 11 criteria SBA will consider in
determining whether an individual should be treated as an employee. If
an individual meets one or more of the criteria they may be treated as
an employee. Pursuant to this guidance, an individual contractor paid
through a 1099 may be properly treated as an employee for purposes of
SBA's regulations (including SBA's regulations governing performance of
work or LOS requirements). The reason for such treatment was to prevent
a firm that exceeded an applicable employee-based size standard from
``firing'' a specific number of employees in order to get below the
size standard, but to then hire them back or ``subcontract'' to them as
independent contractors. SBA did not want to encourage firms to attempt
to evade SBA's size regulations.
Historically, SBA has said that if an individual qualifies as an
``employee'' under part 121 of SBA's regulations for purposes of
determining size, then SBA should consider that individual to be an
employee of the firm for the performance of work (or now LOS)
requirements of 13 CFR 125.6 (or 124.510). It would not be equitable to
say that a given individual counts against a firm in determining size
(because he/she is considered an ``employee'' of the firm) and then to
say that that same individual also counts against the firm for the LOS
requirements (because he/she is not considered an ``employee'' of the
firm). Thus, for a contract that is assigned a NAICS code having an
employee-based size standard, an independent contractor could be deemed
an ``employee'' of the concern for which he/she is doing work. If such
an individual is considered an employee for size purposes, he/she would
also be considered an employee for LOS purposes.
It appears that SBA's regulation at 13 CFR 125.6(e)(3) has caused
some confusion as to how to properly treat independent contractors for
purposes of the LOS provisions. That provision provides that ``Work
performed by an independent contractor shall be considered a
subcontract, and may count toward meeting the applicable LOS where the
independent contractor qualifies as a similarly situated entity.''
(Emphasis added). This provision was meant to apply to service or
construction contracts. For service contracts, work performed by an
independent contractor would always be considered a subcontract, so
that a service contractor could not claim that a non-similarly situated
entity independent contractor should be considered an employee of the
service contractor. For example, for a WOSB service contract, SBA did
not want a WOSB prime contractor to pass performance of the contract to
one or more independent contractors that would not themselves qualify
as WOSBs. The provision identifies that an independent contractor could
qualify as a ``similarly situated entity'' and meet the LOS that way,
but would not permit a service contractor to effectively avoid meeting
the LOS by claiming that independent contractors were in fact employees
of the firm.
This proposed rule revises Sec. 125.6(e)(3) to clarify SBA's
intent regarding both contracts assigned a NAICS code with an employee-
based size standard and those assigned a NAICS code with a receipts-
based size standard. Where a contract is assigned a NAICS code with an
employee-based size standard, an independent contractor may be deemed
an employee of the firm under the terms of the Size Policy Statement.
Where a contract is assigned a NAICS code with a receipts-based size
standard, an independent contractor could not be considered an employee
of the firm for which he or she is performing work, but, rather, would
always be deemed a subcontractor. In either case, as a subcontractor,
an independent contractor may be considered a ``similarly situated
entity'' and work performed by the independent contractor would then
count toward meeting the applicable limitation on subcontracting.
Limitation on Subcontracting Compliance
Congress has expressed its strong support for small business
government contracting, and has provided agencies with numerous tools
to set aside acquisitions for exclusive competition among, or in some
cases award contracts on a sole source basis to, SBCs, 8(a) BD Program
Participants, HUBZone SBCs, WOSBs, Economically Disadvantaged Women-
Owned (EDWOSB) SBCs, and SDVO SBCs. 15 U.S.C. 631(a), 637(a), (m),
644(a), (j), 657a, 657f. As a condition of these preferences, small
businesses are limited in their ability to subcontract to other than
small business concerns, so that small businesses actually perform a
certain percentage of the work. These LOS appear in solicitations and
contract clauses for small business set aside and sole source awards.
Like with all contract administration, it is the responsibility of the
contracting officer to monitor compliance with terms and conditions of
a contract. (FAR 1.602-2), including the LOS clause. SBA is proposing
language to clarify that contracting officers have the discretion to
request information from contractors to demonstrate compliance with LOS
clauses. The Government Accountability Office (GAO) has noted in
reports that contracting officers have not been monitoring compliance
with the limitations on subcontracting. ``Contract Management;
Increased Use of Alaska Native Corporations' Special 8(a) Provisions
Calls for Tailored Oversight,'' GAO-06-39, April 2006; ``8(a)
Subcontracting Limitations, Continued Noncompliance with Monitoring
Requirements Signals Need for Regulatory Change,'' GAO-14-706,
September 2014; and ``Federal Contracting Monitoring and Oversight of
Tribal 8(a) Firms Need Attention,'' GAO-12-84, January 2012. The type
of information that small business prime contractors may be requested
to provide to demonstrate compliance with the LOS could be copies of
subcontracts for a particular procurement or an email that lists the
amount that the prime contractor has paid to its subcontractors for a
particular procurement and whether those subcontractors are similarly
situated entities. In addition, SBA proposed to require information
demonstrating compliance with the applicable LOS from all prime
contractors performing set-aside and sole-source contracts awarded
through SBA's small business programs when the prime contractor intends
to rely on similarly situated subcontractors to comply with the LOS. 79
FR 77955 (December 29, 2014). SBA did not adopt such a requirement in
the final rule, but indicated that it intended to seek comment on this
issue. 81 FR 34243 (May 31, 2016).
SBA is proposing to add new Sec. 125.6(e)(4) to clarify that
contracting officers may request information regarding LOS compliance,
and to clarify that it is not required for every contract. SBA is
requesting comment on whether all small business prime contractors
performing set-aside or sole source contracts should be required to
demonstrate compliance with LOS to the contracting officer, and if so,
how
[[Page 62520]]
often should this be required, such as annually or quarterly. What
salient data would best provide assurance of compliance? Should
demonstrating compliance depend on the length of the contract or the
type of contract? Whether it is for commercial products and services?
Whether the contract is fixed price? Whether the contract is above the
SAT or the TINA threshold? What other considerations should there be
when applying the requirement for a contractor to document LOS
compliance? We are requesting that industry provide comment on what
information can be efficiently requested and provided.
Exclusions From the Limitations on Subcontracting
SBA's LOS regulations provide that for a set aside service
contract, the prime contractor must agree that it will not pay more
than 50% of the amount paid from the government to firms that are not
similarly situated. 13 CFR 125.6(a)(1). Unlike supply and construction
contracts, where materials are excluded, no costs are specifically
excluded under a service contract, other than for mixed contracts where
the non-service portion, such as incidental supplies, are excluded. SBA
has received several requests from industry for exclusions related to
specific types of contracts, and one related to all industries. Some
have advocated that certain direct costs, such as airline tickets and
hotel costs, be excluded from the calculation of the amount paid under
the contract. In addition, in certain types of contracts or industries,
there are factors that may complicate compliance with the LOS,
potentially hindering agencies from setting aside acquisitions for
small business concerns.
For example, for certain contracts performed outside of the United
States, contractors must use non-U.S. local organizations or
independent contractors to perform consulting services regarding a
particular foreign country. These individuals are not located in the
United States, do not reside in the United States, and are not likely
to be employees of a United States SBC. SBA is proposing to further
clarify how to determine whether an individual is an employee or
independent contractor.
In the environmental remediation industry (NAICS 562910), a large
part of the cost of the contract is tied to the transportation and
disposal of hazardous, toxic and radiological waste. According to some
SBCs in this industry that have contacted SBA, given the fact that
these services are highly regulated and capital intensive, these
particular transportation services can generally be performed only by
other than small business concerns. For example, all of the disposal
facilities in the United States are large businesses, and most
railroads and shipping companies that transport hazardous waste are
other than small concerns. This rule proposes to exclude transportation
and disposal services from the LOS compliance determination where small
business concerns cannot provide the disposal or transportation
services. Similarly, where the government acquires media services from
small business concerns, the placement of the content in the media may
require large payments to the other than small business concerns, even
though that is not the principal purpose of the acquisition. SBA is
proposing to exclude these media purchases from the LOS determination.
In a prior rulemaking, SBA determined that remote hosting on
servers or networks, or cloud computing, should be considered a service
and therefore the NMR would not apply. 13 CFR 121.1203(d)(3). Due to
the costs and scale involved, cloud computing is generally provided by
other than small business concerns. SBA is proposing to exclude cloud
computing from the LOS calculation, where the small business concern
will perform other services that are the primary purpose of the
acquisition. Alternatively, SBA is requesting comment on whether it
should treat cloud computing as a supply, and therefore the NMR would
apply, which would allow SBA to issue individual or class waivers of
the NMR for cloud computing. SBA is also requesting comment on the
definition of cloud computing, such as the definition in National
Institute of Standards and Technology Special Publication 800-145, so
that we can ensure the definition is not used to allow other than small
businesses to provide an excessive portion of services on small
business set aside contracts.
SBA is requesting comment on whether these types of costs should be
excluded from the calculation for purposes of compliance with the LOS.
For example, some have suggested that travel costs should be excluded.
However, SBA is also concerned about abuse of such exceptions. For
example, SBA does not want agencies to receive credit for a small
business contract award where the principal purpose of the acquisition
is to obtain services from an other than small business concern. If
that is the norm for a particular type of contract, perhaps that type
of contract should not be set aside for small business concerns. The
intent of the LOS is to prevent other than small business concerns from
benefitting more than small business concerns on small business set
aside contracts. SBA is requesting comment from industry on these
issues.
Subcontracting to a Small Business Under a Socioeconomic Program Set
Aside
In the context of socioeconomic set aside or sole source service
contracts, the ostensible subcontractor rule applies when a small
business is unduly reliant on an other than small subcontractor, or
when the other than small subcontractor will perform primary and vital
parts of the contract. In such cases, assuming that an exception to
joint venture affiliation does not apply, SBA will treat the small
business prime contractor and its subcontractor as joint venturers, and
therefore affiliates. If the subcontractor is other than small, the
prime contractor is ineligible for award due to this affiliation. SBA
has become aware of service contract set asides for the SDVO, HUBZone,
8(a) or WOSB programs, where the prime contractor subcontracts most or
all of the actual performance to a small business that is small for the
applicable NAICS code but not eligible to compete for award of the
prime contract, and thus not a similarly situated entity as that term
is defined at Sec. 125.1.
Under SBA's recently amended joint venture rules (81 FR 34243, May
31, 2016; 13 CFR 121.103(h)(3)(i)), a joint venture can qualify as
small as long as each member of the joint venture is small. In the
scenario described above, the joint venture regulation prevents SBA
from performing an analysis under the ostensible subcontractor rule
because both the prime contractor and subcontractor are small for the
size standard that applies to the contract and thus subject to the
exception from affiliation for joint venture partners that are each
small for the size standard. There is no existing regulatory mechanism
for an unsuccessful offeror, SBA, or contracting officer to protest a
socioeconomic set aside or sole source award to a prime contractor that
is unduly reliant on a small, but not similarly situated entity
subcontractor. The underlying premise that ostensible subcontractors
and their prime contractors should be treated as joint ventures is
still SBA's policy. Firms that are performing contracts in a manner
more consistent with a joint venture than a prime/sub relationship
should follow the requirements of SBA's regulations regarding
socioeconomic joint ventures.
[[Page 62521]]
The performance of a set-aside or sole source service contract by a
small business concern that is not eligible to compete for the prime
contract is contrary to the intent and purpose of the statutory
authorities for socioeconomic category set-aside and sole source
procurements. Thus, SBA is proposing language at Sec. Sec.
124.507(b)(2), 125.18(f), 125.29(c), 126.601(i), 126.801(a),
127.504(c), and 127.602, which will allow SBA to make a determination
concerning a small business program participant's overreliance on a
non-similarly situated subcontractor as part of an eligibility or
status protest determination. SBA will evaluate these contractor
relationships under the established ostensible subcontractor test. If
SBA finds that the subcontractor is an ostensible subcontractor, SBA
will treat the arrangement between the contractors as a joint venture
that does not comply with the formal requirements necessary to receive
and perform the socioeconomic program set aside or sole source award as
a joint venture.
This rulemaking will not apply to non-service contracts, such as
construction contracts or contracts involving non-manufacturers. Due to
the nature of the industry, SBA's rules allow small businesses to
subcontract large amounts of performance on construction contracts. The
Small Business Act, and SBA's regulations generally provide that for
set aside supply contracts, a non-manufacturer must supply the product
of a small business, unless SBA has issued a waiver. This means that
for an SDVO, HUBZone, 8(a), or WOSB set aside or sole source supply
contract, the prime contractor that is a non-manufacturer must qualify
as an SDVO, HUBZone, 8(a) or WOSB, but the product can be made by a
small business that does not qualify as SDVO, HUBZone, 8(a), or WOSB.
When the non-manufacturer rule applies to a small business program
contract, it is considered an exception to the limitations on
subcontracting. Where a waiver of the non-manufacturer rule has been
issued that applies to a small business program set-aside or sole
source contract, the prime contractor may supply a product manufactured
by any size business, also without regard to whether the subcontractor
qualifies for the applicable small business program set-aside or sole
source contract.
Kit Assemblers
SBA is proposing to remove specific rules related to kit assemblers
and the NMR, which are currently contained at 13 CFR 121.406(c). The
existing kit assembler rule requires that 50 percent of the total value
of the items in the kit must be manufactured by small business
concerns, but excludes items manufactured by other than small business
concerns if the contracting officer specifies the item for the kit.
This rule has led to confusion concerning how to calculate total value,
and whether a waiver of the non-manufacturer rule can or must be
requested in order to supply items manufactured by other than small
concerns. SBA recently amended its rules to address the NMR and
multiple item acquisitions. If the majority of items in a kit are made
by small business concerns, then the acquisition can be set aside for
small business without the need to request a waiver. If the majority of
items in a kit are not made by small business concerns, then an
individual or class waiver of one or more of the items is necessary for
the acquisition to be set aside for small business concerns for
acquisitions above the simplified acquisition threshold or for all
other socioeconomic set-asides, regardless of value. SBA is proposing
to delete the kit assembler exception, and instead apply the multiple
item rule in Sec. 121.406(e) to kit assembler acquisitions. Like all
other acquisitions, the NMR will not apply to small business set-asides
with a value at or below the simplified acquisition threshold.
Clarification on Size Determinations
SBA is also proposing to amend its regulations to remove language
that has caused confusion on when size is determined. The general rule
is that size is determined at the time of initial offer including
price, with the understanding that there are some exceptions such as
architecture and engineering procurements, and certain unpriced
indefinite delivery indefinite quantity (IDIQ) contracts. However,
Sec. 121.404(a) also contains the parenthetical, ``(or other formal
response to the solicitation).'' Some parties have misread this to mean
formal responses that are after the initial offer, such as final
proposal revisions. The clear intent of SBA's general rule is to give
both firms and the government certainty as to when size will be
determined, the initial response, including price, because in the
current government contracting environment a vast amount of time may
pass between initial offer and award. Offer covers bids and proposals,
and SBA recognizes that in simplified acquisitions the initial response
may be acceptance of the government's offer. Thus, SBA is proposing to
amend Sec. 121.404(a) to make it clear that size is generally
determined at the time of initial offer or response including price.
SBA is also proposing to add a paragraph at Sec. 121.404(a)(1)(iv), to
articulate an exception to the general rule for when size is
determined. When an agency uses an IDIQ multiple award contract that
does not require offers for the contract to include price, size will be
determined on the date of initial offer for the IDIQ contract, which
may not include price. This proposed change reflects the statutory
change found at section 825 of the National Defense Authorization Act
for Fiscal Year 2017, 114 Public Law 328, (December 23, 2016), and
section 876 of the John S. McCain National Defense Authorization Act
for Fiscal Year 2019, 115 Public Law 232, (August 13, 2018). SBA is
also proposing to remove the last sentence of paragraph Sec.
121.404(g)(5), because it conflicts with recent rules that provide that
a firm may rely on similarly situated entities to meet the applicable
LOS. The last sentence of (g)(5) is unnecessary, as Sec. 121.103(h) is
controlling with respect to the affiliation.
SBA proposes to amend Sec. 121.103(h)(4) to clarify that when two
or more small businesses either form a joint venture or are treated as
joint venturers due to their relationship as prime and subcontractor,
the joint venture exception to affiliation found at Sec.
121.103(h)(3)(i) applies if both firms are considered small for the
size standard associated with the procurement. SBA proposes to remove
the phrase ``and therefore affiliates'' from the ostensible
subcontractor rule at Sec. 121.103(h)(4) to clarify this point. To
allow affiliation between firms that are considered joint venturers
because of their ostensible subcontracting relationship, even when each
firm is individually small for the size standard associated with the
procurement, would negate the purpose of Sec. 121.103(h)(3)(i), which
explicitly provides an exception to affiliation for such joint
ventures.
The purpose of the ostensible subcontractor rule is to treat the
relationship between a prime contractor and its subcontractor as a
joint venture where the subcontractor performs primary and vital work
for the procurement. SBA's current joint venture rules do not aggregate
the partners to a joint venture in determining the size of the joint
venture, but rather permit a joint venture to qualify as small as long
as each partner to the joint venture is individually small. Thus, a
rule that equates a prime-sub relationship to that of a joint venture
because the subcontractor is performing primary and vital work and then
affiliates the two
[[Page 62522]]
parties (i.e., requiring them to aggregate their revenues or employees)
is inconsistent with the joint venture size rules themselves. The
phrase ``and therefore affiliates'' that SBA proposes to delete was a
holdover from previous regulations that aggregated the receipts or
employees of joint venture partners when determining whether a joint
venture qualified as a small business. When SBA changed its size
regulations to broaden the exclusion from affiliation for small
business to allow two or more small businesses to joint venture for any
procurement without being affiliated (i.e., the joint venture would be
considered small provided each of the joint venture partners
individually qualified as small and SBA would not aggregate the
receipts or employees of joint venture partners), SBA amended Sec.
121.103(h)(3), but did not make a correspondingly similar change in
Sec. 121.103(h)(4). See 81 FR 34243, 34258 (May 31, 2016). This
proposed rule intends to make it clear that if a prime-sub relationship
is deemed to be a joint venture because of the ostensible subcontractor
rule, then all of the rules pertaining to joint ventures would apply.
As already noted, a prime-sub relationship where both parties
individually qualified as small would be considered an award to small
business. Similarly, if the ostensible subcontractor were a large
business that was the SBA-approved mentor of the prime contractor, then
the award could qualify as an award to small business if the prime
contractor/prot[eacute]g[eacute] firm qualifies as small and the
relationship (treated as a joint venture) meets the normal requirements
for a joint venture. See Sec. Sec. 124.513(c) and (d); 125.18(b)(2)
and (3); 126.616(c) and (d); and 127.506(c) and (d). Although SBA
recognizes that it is unlikely that a prime-subcontractor relationship
would meet the necessary joint venture requirements of those
paragraphs, it is possible, and a prime-sub/joint venture that did in
fact meet those requirements could qualify as small.
In addition, the proposed rule further clarifies in Sec.
121.103(h)(4) to provide that the ostensible subcontractor rule does
not apply to similarly situated entities, as that term is defined at
Sec. 125.1. SBA notes, however, that when both partners to a joint
venture are small for the assigned NAICS code but the subcontractor
partner is not a similarly situated entity, the prime alone is
responsible for compliance with the applicable LOS and cannot rely on
its subcontractors to satisfy the LOS requirement.
Clarification Where One Acceptable Offer Is Received on a Set Aside
SBA is proposing to add new Sec. 125.2(e)(5) to clarify that a
contracting officer may make an award under a small business or
socioeconomic set-aside where only one acceptable offer is received.
The decision to conduct a set aside is based on the contracting
officer's expectation based on market research that he or she will
obtain two or more fair market price offers from capable small business
concerns. Pursuant to the FAR, the contracting officer must perform
market research before issuing a solicitation to determine whether
there are small businesses (including 8(a), HUBZone, SDVO SBCs, WOSBs)
that can perform the requirement. 48 CFR 10.001(a)(2); 19.202-2. A
contracting officer's ``rule of two'' determination is prospective.
Whether there appear to be at least two small businesses that can
perform a procurement at a fair price is an analysis that is done
during acquisition strategy planning and prior to the issuance of a
solicitation. As long as the market research leads a contracting
officer to conclude that the agency will receive offers from at least
two small business concerns that are technically acceptable and award
will be made at a fair market price, the ``rule of two'' is satisfied,
no matter how many offers are actually received or how many offers
remain after evaluations are conducted, a competitive range is
established, or offerors are eliminated in some other fashion.
The FAR currently addresses small business set-asides below
$150,000, and provides, ``If the contracting officer receives only one
acceptable offer from a responsible small business concern in response
to a set-aside, the contracting officer should make an award to that
firm.'' FAR 19.502-2(a). There is no reason this policy should not
apply to all set-asides above or below $150,000. The contracting
officer must determine that an offeror is responsible and price is fair
and reasonable before awarding any contract. FAR 9.103(a); 9.104-1;
14.408-2; and 15.304(c)(1). It would be inefficient and detrimental to
the Government and offerors to arbitrarily prevent an award where a
competition was conducted but only one offer was received. Such a
policy would unreasonably prolong the procurement process, requiring a
procuring agency to cancel one solicitation and reprocure using another
where only one small business offer is received, and could cause
contracting officers to limit the use of set-asides.
Compliance With Executive Orders 12866, 13563, 12988, 13132, 13771, the
Unfunded Mandates Reform Act of 1995, the Paperwork Reduction Act (44
U.S.C. Ch. 35), and the Regulatory Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a ``significant'' regulatory action for purposes of
Executive Order 12866. The benefits to small business from this
proposed rule far outweigh any associated costs. The proposed rule
makes several other changes needed to clarify ambiguities in or remedy
perceived problems with the current regulations. These proposed changes
should make SBA's regulations easier for SBCs to use and understand.
The proposed change to Sec. 121.404 clarifies when size for a
government contract is determined, which will reduce confusion for
small business concerns. The proposed change to Sec. 121.406 clarifies
that the size standard for information technology value added resellers
is 150 employees, again to eliminate confusion among small business
concerns. The proposed changes to Sec. 125.2(a) will benefit small
business by clarifying that a contracting officer can award a contract
to a small business under a set-aside if only one offer is received.
The proposed changes to Sec. 125.2(b) implement section 1811 of the
NDAA of 2017, and govern what acquisitions PCRs can review and would
not impact small business concerns. The proposed changes to Sec.
125.2(d) implement section 863 of the NDAA of 2016 and direct
contracting officers on how to notify the public about consolidation
and substantial bundling, and will not impact small business concerns.
The proposed changes to Sec. 125.2(e) authorize agencies to set aside
orders for socioeconomic programs where the contract was set aside for
small business, and will benefit firms that qualify for those set
asides. The proposed changes to Sec. 125.3 implement section 1821 of
the NDAA of 2017 by providing examples of a failure to make a good
faith effort to comply with small business subcontracting plans, and
will benefit small businesses by providing such examples so that
contracting officers can hold other than small prime contractors
accountable for failing to make a good faith effort to comply with
their small business subcontracting plan. The proposed changes to Sec.
125.3 also implement section 1821 by providing that the contracting
officer should evaluate whether an other than small business complied
with the requirement to report
[[Page 62523]]
on small business subcontracting plan performance. The proposed changes
to Sec. 125.6(a) will benefit small business concerns by allowing
small businesses to exclude certain costs from the calculation of the
limitations on subcontracting. Without these changes, some agencies
will not be able to set contracts aside for small business, because
certain costs attributable to other than small concerns are too high.
The proposed changes to Sec. 125.6 also help small businesses by
clarifying the difference between an employee and an independent
contractor. The proposed changes to Sec. 125.6 will impose some
requirements on small business concerns to demonstrate compliance with
the LOS, but only to the extent the information is not already in the
possession of the government. Contractors may have this information
readily available since it pertains to contract performance and
subcontracting of that performance. These information requests are not
mandatory, as the contracting officer simply has the discretion to
request such information. Contracting officers already have the
authority to request information on performance, and this proposed
change simply clarifies that the authority exists. Finally, the
benefits to small business concerns of this proposed rule substantially
outweigh any minor costs imposed by the exercise of existing
contracting authority. The proposed addition of part 129 implements
section 2108 of the RISE Act and benefits small businesses by providing
agencies with an incentive to set aside contracts for small business
concerns located in a disaster area. 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 proposed rule implements section 863 of the National Defense
Authorization Act of 2016, Public Law 114-92, 129 Stat. 726 (15 U.S.C.
644(e)(3)); section 2108 of the Recovery Improvements for Small
Entities After Disaster Act of 2015 (RISE Act), Public Law 114-88, 129
Stat. 686 (15 U.S.C. 644(f)); and sections 1811 and 1821 of the
National Defense Authorization Act of 2017, Public Law 114-328, 130
Stat. 2000 (15 U.S.C. 637(d), 644(l)). In addition, it makes several
other changes needed to clarify ambiguities in or remedy perceived
problems with the current regulations. These proposed changes should
make SBA's regulations easier to use and understand. With respect to
contractors demonstrating compliance with the limitations on
subcontracting, for decades the general rule has been that on a set
aside contract, a small business or socioeconomic small business must
generally perform some of the work (services, construction, or
manufacturing). This helps ensure that the benefits of a small business
set-aside contract flow to the recipients whom Congress intends to help
by creating the set aside authority. If performance of a set-aside
contract is passed through to other-than-small business concerns, there
may not be a need for set-asides in the first place, and the government
may be paying more for a good or service without any value added. These
limitations on subcontracting appear as a clause in a set aside
contract and help to ensure that the intended beneficiaries of set
aside contracts are receiving those benefits. The contracting officer
is responsible for monitoring compliance with clauses in a contract.
FAR 1.602. Nothing in SBA's regulations or the FAR prohibits a
contracting officer from requesting documents demonstrating compliance
with the limitations on subcontracting clause. It is SBA's view that
such authority exists, but that the authority is not clear or express.
Without clarifying the authority or process, some contracting officers
simply are not monitoring compliance. The result is that there may be
increased fraud, waste, and abuse, in the performance of contracts that
are set aside for small business concerns, because subcontractors that
are not eligible to receive the prime contract may be performing more
work than section 46 of the Small Business Act (15 U.S.C. 657s), SBA
regulations at 13 CFR 125.6, and FAR clause 52.219-14 permit. This type
of fraud frustrates the policy goals associated with awarding contracts
set aside for small business concerns.
In this proposed rule, SBA proposes to clarify, by expressly
stating, that the contracting officer may request information to
demonstrate a contractor's compliance with the limitations on
subcontracting clause. SBA proposes to clarify that it is within the
contracting officers' discretion to request such a showing of
compliance, because in some cases it will not be necessary, such as
when a small business performs the contract itself without the use of
subcontractors or when information regarding compliance is already
available to the Government. Through this proposed rule, SBA intends to
deter and reduce potential fraud, waste, and abuse, due to
noncompliance with the limitations on subcontracting. Additionally,
clarifying a contracting officer's authority to request that a small
business concern demonstrate compliance with the limitations on
subcontracting is consistent with recommendations made by the U.S.
Government Accountability Office (GAO) in several reports: ``Contract
Management; Increased Use of Alaska Native Corporations' Special 8(a)
Provisions Calls for Tailored Oversight,'' GAO-06-39, April 2006;
``8(a) Subcontracting Limitations, Continued Noncompliance with
Monitoring Requirements Signals Need for Regulatory Change,'' GAO-14-
706, September 2014; and ``Federal Contracting Monitoring and Oversight
of Tribal 8(a) Firms Need Attention,'' GAO-12-84, January 2012.
2. What are the potential benefits and costs of this regulatory action?
The majority of the proposed changes in this rule will have de
minimis costs and qualitative benefits that are difficult to quantity:
Protecting the integrity of the small business procurement system. The
rule proposes to provide exceptions to the LOS in certain service
contracts where small businesses must use the services of other than
small subcontractors in substantial amounts in order to fully perform a
set aside service contract. This will help small business by making
acquisitions available for small business set-asides that would not
otherwise be available. Many of the other clarifications in this rule
will benefit small businesses, by reducing confusion in the
marketplace, but this benefit is difficult to quantify. The proposed
rule allowing agencies to receive double credit toward its small
business procurement goals for awards to local small business concerns
in the event of a disaster is intended to benefit local small
businesses and provide employment and revenue to concerns located in an
area devastated by a disaster. While the authority for contracting
preferences for businesses located in a disaster area already exists in
FAR subpart 26.2, small businesses located in these areas may receive a
greater benefit under this proposed rule due to the incentive for the
procuring agency to receive double credit toward its small business
procurement goals by utilizing this authority.
SBA is proposing to clarify that the contracting officer may
require the prime contractor to demonstrate compliance with the LOS. We
believe that contracting officers already possesses the authority to
request
[[Page 62524]]
information from a contractor concerning compliance with a clause in
the contract pursuant to FAR 1.602-2. In addition, on some contracts,
compliance can already be reviewed or monitored by reviewing invoices.
The proposed rule would clarify that contracting officers have the
authority to request information in connection with a contractor's
compliance with applicable limitations on subcontracting clauses.
Approximately 56,000 firms received approximately 180,000 sole source
or set aside awards in FY 2016. SBA is proposing that a contracting
officer may request information regarding compliance with prime
contractors' limitations on subcontracting. In some cases this
information may not be necessary based on the nature of the contract
and the invoices submitted. SBA estimates that less than ten percent of
small business concerns and contracts would be subject to a request for
this information (5,600 small business concerns and 18,000 contracts),
and compliance should take on average less than an hour. Small
businesses that do not issue subcontracts will not have anything to
report. Small businesses may be able to easily report on any
subcontracts, as information on subcontracting and paying
subcontractors is routinely compiled as part of the normal accounting
procedures for any business concern. Accounting or contract management
personnel should be able to determine whether the firm issued any
subcontracts in connection with the prime contract. SBA estimates that
this rule will be finalized in FY 2019. SBA estimates an overall annual
cost of approximately $600,120 for small businesses to provide
information on compliance with the limitations on subcontracting, as
requested by the contracting officer.
This proposed rule will require an other than small prime
contractor with a commercial subcontracting plan to include indirect
costs in its subcontracting goals. Based on data from the Electronic
Subcontracting Reporting System (eSRS), in FY 2017 approximately 700
firms had commercial subcontracting plans. SBA estimates that
approximately 95% of those 700 firms include indirect costs in their
subcontracting goals. Thus, this proposal would impact approximately 35
firms. The burden would be de minimis, as the accounting or contract
manager would know the firm's indirect costs. The benefit of requiring
that indirect costs be included in subcontracting goals where a
commercial subcontracting plan is utilized, is that it will increase
the small business subcontracting goal and thus increase the amount of
funds the prime contractor will subcontract to small business concerns.
Increasing the value and number of awards to small business concerns
provides financial benefits to those firms, who may hire more staff and
invest in more resources to support the increased demand. Furthermore,
increasing the number and value of awards to small business concerns
has macroeconomic and qualitative benefits to the national economy
because small businesses are the foundation of the country's economic
success.
This proposed rule will establish that failure to provide timely
subcontracting reports may constitute a material breach of the
contract. These reports are already required by law at 13 CFR 125.3(a).
This rule will make failure to provide the report a material breach of
the contract, which could subject other than small business concerns to
liquidated damages. SBA is not aware of any case where a firm has been
subject to liquidated damages for failure to comply with a
subcontracting plan. Thus any costs would be de minimis. The benefit of
this proposed rule is that it will assist SBA and contracting officers
with oversight of prime contractor compliance with subcontracting plans
and may result in increased compliance with subcontracting plans.
This proposed rule requires recertification of status on full and
open contracts. SBA intended for recertification to occur whenever an
agency receives credit for an award towards it goals, and this proposed
rule is just a clarification that socioeconomic recertification is
required on all contracts, including full and open contracts. We
estimate that approximately 150 firms a year recertify on full and open
contracts. This will only impact firms that are acquired, merged, or
where there is a novation or the firm grows to be other than small on a
long term contract. Agencies have goals for the award of prime
contractor dollars to small and socioeconomic concerns. The purpose of
recertification is to ensure that an agency does not receive small
business credit for an award to an other-than-small concern.
This proposed rule will limit the scope of Procurement Center
Representative reviews of Department of Defense acquisitions performed
outside of the United States and its territories. This applies to the
government and will not impose costs or burdens on the public.
This proposed rule will remove the kit assembler exception to the
non-manufacturer rule. This clarification requires agencies to request
a waiver of the non-manufacturer rule for kits, in accordance with
existing regulations. This will reduce confusion, by having only one
non-manufacturer rule procedure for purposes of multi-item
procurements.
3. What are the alternatives to this rule?
Many of the proposed regulations are required to implement
statutory provisions, thus there are no apparent alternatives for these
regulations. With respect to the proposal clarifying that contracting
officers may request information on compliance with the limitations on
subcontracting, SBA considered whether prime contractors should be
required to provide this information on compliance with the LOS on all
set aside or sole source contracts. However, that may unnecessarily
burden small businesses, if compliance is already readily apparent to
the contracting officer based on the type of contract, invoicing, or
observation. We estimate the alternative considered, having all small
businesses provide information on compliance, would have an annual cost
of $1,867,040. SBA decided to clarify instead that the contracting
officer has the discretion to request such information to the extent
such information is not already available. This will enable the
contracting officer to request this information as he or she sees fit,
in order to ensure that the benefits of the small business programs are
flowing to the intended recipients. However, SBA is requesting comment
on whether all small businesses should provide information on
compliance with the LOS for set aside or sole source contracts.
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 E.O. 12866
(e.g.,
[[Page 62525]]
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 will have a 60 day comment period and will be
posted on www.regulations.gov to allow the public to comment
meaningfully on its provisions. In addition, the proposed rule was
discussed with the Small Business Procurement Advisory Council, which
consists of the Directors of the Office of Small and Disadvantaged
Business Utilization. SBA also submitted the rule to multiple agencies
with representatives on the FAR Small Business Subcommittee prior to
submitting the rule to the Office of Management and Budget for
interagency review.
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 proposed rule implements statutory provisions and will
provide clarification to rules that were requested by agencies and
stakeholders. In addition, SBA is proposing to make clear that
contracting officers may request information from their contractors in
order to determine whether the contractor is complying with the LOS.
This information may already be provided as part of invoicing under
certain contracts, and in any event, the information should be readily
provided by the contractor, as it simply pertains to what extent the
prime contractor is subcontracting work under the contract. Clarifying
that the contracting officer has the authority to request this
information, instead of requiring all small businesses to submit
reports, significantly reduces cost and burden.
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.
Unfunded Mandates Reform Act
This rule will not result in an unfunded mandate that will result
in expenditures by State governments of $100 million or more (adjusted
annually for inflation since 1995).
Executive Order 13132
SBA has determined that this proposed rule will not have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government.
Executive Order 13771
This proposed rule is expected to be an Executive Order 13771
regulatory action. Details on the estimated costs of this proposed rule
can be found in the rule's economic analysis.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
Small businesses, such as 8(a) BD Program Participants, HUBZone
SBCs, WOSBs, Economically Disadvantaged Women-Owned (EDWOSBCs, and SDVO
SBCs, are eligible to receive set-aside or sole source contracts. 15
U.S.C. 631(a), 637(a), (m), 644(a), (j), 657a, 657f. As a condition of
these preferences, and to help ensure that small businesses actually
perform a certain percentage of the work on a contract, the recipients
of set-aside or sole source contracts are limited in their ability to
subcontract to other-than-small business concerns by the limitations on
subcontracting (LOS) clauses in the particular contract. See, 48 CFR
52.219-3, 52.219-4, 52.219-7, 52.219-14, 52.219-18, 52.219-27, 52.219-
29, 52.219-30. Contracting officers are responsible for ensuring
contractor compliance with the terms of a contract (FAR 1.602-2). The
SBA proposed rule will provide express authority for contracting
officers to request information on contractor's compliance with the
LOS. Therefore, SBA will seek PRA review and approval from the Office
of Management and Budget (OMB) to cover contracting officers' requests
for information from small businesses regarding their LOS compliance.
A summary description of the reporting requirement, description of
respondents, and estimate of the annual burden is described below.
Included in the estimate is the time for reviewing requirements,
gathering and maintaining the data needed, and submitting the report to
the contracting officer.
Title: Compliance with the Limitations on Subcontracting.
OMB Control Number: (To be determined; new collection).
Summary Description of Compliance Information: In order to show
that it is in compliance with the limitations on subcontracting terms
that are included in its set-aside or sole source contract, a small
business concern may be required to submit certain information to the
contracting officer. The specific information relevant to a particular
contract will be identified by the contracting officer but could
include, where applicable, identification of subcontractor, dollar
amount of subcontract, and costs to be excluded from the LOS
calculation (e.g., for contracts for supplies, materials).
Description of and Estimated Number of Respondents: Small business
concerns that are awarded set-aside or sole source contracts. Based on
FPDS data, SBA estimates that approximately 56,000 concerns receive
approximately 180,000 small business sole source or set-aside awards in
a fiscal year and that no more than ten percent (5,600) of concerns
will be asked to provide information on compliance with the limitations
on subcontracting for no more than ten percent (18,000) of the awards
that have been received.
Estimated Annual Responses: 18,000.
Estimated Response Time per Respondent: 1 hour.
Total Estimated Annual Hour Burden: 18,000.
Estimated costs based on officer's salary: $33.34/hour (based on
median pay for accountants and auditors, Bureau of Labor Statistics).
Total estimated hour annual cost burden: 18,000 hours x $33.34/hour
= $600,120.
SBA will submit this new information collection (reporting
requirement) to the Office of Management and Budget (OMB) for review,
and invites the public to comment on: (1) Whether the reporting
requirement is necessary for the proper performance of SBA programs,
including whether the information will have a practical utility; (2)
the accuracy of SBA's estimate of the burden for the reporting
requirement; (3) ways to enhance the quality, utility, and clarity of
the information to be collected; and (4) ways to minimize the
[[Page 62526]]
burden imposed as a result of the reporting requirement on the
respondents, including the use of automated collection techniques, when
appropriate, and other forms of information technology.
Comments must be received by the deadline stated in the DATES
section of this rule. Refer to the ADDRESS section for instructions on
how and where to submit comments.
Regulatory Flexibility Act, 5 U.S.C. 601-612
Under the Regulatory Flexibility Act (RFA), this proposed rule may
have a significant impact on a substantial number of small businesses.
Immediately below, SBA sets forth an initial regulatory flexibility
analysis (IRFA) addressing the impact of the proposed rule in
accordance with section 603, Title 5, of the United States Code. The
IRFA examines the objectives and legal basis for this proposed rule;
the kind and number of small entities that may be affected; the
projected recordkeeping, reporting, and other requirements; whether
there are any Federal rules that may duplicate, overlap, or conflict
with this proposed rule; and whether there are any significant
alternatives to this proposed rule.
1. What are the need for and objective of the rule?
The proposed rule implements section 863 of the National Defense
Authorization Act of 2016, Public Law 114-92, 129 Stat. 726 (15 U.S.C.
644(e)(3)); section 2108 of the Recovery Improvements for Small
Entities After Disaster Act of 2015 (RISE Act), Public Law 114-88, 129
Stat. 686 (15 U.S.C. 644(f)); and sections 1811 and 1821 of the
National Defense Authorization Act of 2017, Public Law 114-328, 130
Stat. 2000 (15 U.S.C. 637(d), 644(l)). In addition, the proposed rule
makes several other changes needed to clarify ambiguities in or remedy
perceived problems with the current regulations. These proposed changes
should make SBA's regulations easier to use and understand. The
proposed rule will make it easier for agencies to award set aside
contracts to SBCs. Failure to promulgate this rule could result in a
loss of set aside opportunities for SBCs.
The proposed change to Sec. 121.404 clarifies when size for a
government contract is determined, which will reduce confusion for
small business concerns. The proposed change to Sec. 121.406 clarifies
that the size standard for information technology value added resellers
is 150 employees, again to eliminate confusion among small business
concerns. The proposed changes to Sec. 125.2(a) will benefit small
business by clarifying that a contracting officer can award a contract
to a small business under a set aside if only one offer is received.
The proposed changes to Sec. 125.2(b) implement section 1811 of the
NDAA 2017, and govern what acquisitions PCRs can review and would not
impact small business concerns. The proposed changes to Sec. 125.2(d)
implement section 863 of the NDAA of 2016 and direct contracting
officers on how to notify the public about consolidation and
substantial bundling, and will not impact small business concerns. The
proposed changes to Sec. 125.2(e) authorize agencies to set aside
orders for socioeconomic programs where the contract was set aside for
small business, and will benefit firms that qualify for those set
asides. The proposed changes to Sec. 125.3 implement section 1821 of
the NDAA of 2017 by providing examples of a failure to make a good
faith effort to comply with small business subcontracting plans, and
will benefit small businesses by providing such examples so that
contracting officers can hold other than small prime contractors
accountable for failing to make a good faith effort to comply with
their small business subcontracting plan. The proposed changes to Sec.
125.3 also implement section 1821 by providing that the contracting
officer should evaluate whether an other than small business complied
with the requirement to report on small business subcontracting plan
performance. The proposed changes to Sec. 125.6(a) will benefit small
business concerns by allowing small businesses to exclude certain costs
from the calculation of the limitations on subcontracting. Without
these changes, some agencies will not be able to set contracts aside
for small business, because certain costs attributable to other than
small concerns are too high. The proposed changes to Sec. 125.6 also
help small businesses by clarifying the difference between an employee
and an independent contractor. The proposed changes to Sec. 125.6 will
impose some information production requirements on small business
concerns, but only to the extent the information is not already in the
possession of the government. Further, this information is readily
available since it pertains to contract performance and subcontracting
of that performance. These reports are not mandatory, as the
contracting officer simply has the discretion to request such reports.
Contracting officers already have the authority to request information
demonstrating performance, and this proposed change simply clarifies
that the authority exists. Finally, the benefits to small business
concerns of this proposed rule substantially outweigh any minor costs
imposed by the reporting authority. The proposed addition of part 129
implements section 2108 of the RISE Act and benefits small businesses
by providing agencies with an incentive to set aside contracts for
small business concerns located in a disaster area.
With respect to the limitation on subcontracting to an ineligible
small business under a socioeconomic set aside (proposed 13 CFR
124.507(b)(2)(vi), 125.29(c), 126.601(i), and 127.504(c)), the rule
will impact very few firms. The vast majority of small business prime
contractors self-perform the required percentage of work, or will
subcontract to a similarly situated entity, as is allowed under FAR
52.219-3 (Notice of HUBZone Set-Aside or Sole Source Award), 52-219-27
(Notice of Service-Disabled Veteran-Owned Small Business Set-Aside),
and as will be allowed when SBA's rules on similarly situated entities
(13 CFR 125.6) are implemented in the FAR. The benefits that will flow
to the intended beneficiaries of a socio-economic set-aside far
outweigh any impact on firms that have no intention of performing the
contract or are not eligible to bid on that contract.
2. What are SBA's description and estimate of the number of small
entities to which the rule will apply?
If the proposed rule is adopted in its present form, the rule would
be applicable to all small business concerns participating in the
Federal procurement market that seek to perform government prime
contracts or to perform subcontracts awarded by other than small
concerns. SBA estimates that there are approximately 320,000 firms
identified as small business concerns in the Dynamic Small Business
Search database.
3. What are the projected reporting, recordkeeping, and other
compliance requirements of the rule and an estimate of the classes of
small entities which will be subject to the requirements?
The proposed rule does not impose new recordkeeping requirements.
Contractors already keep records on contract performance and
subcontracting. Information may be required, but only to the extent the
information is not available through invoices or existing progress
reports. The proposed rule would clarify that contracting officers may
request access to information in connection with a
[[Page 62527]]
contractor's compliance with applicable limitations on subcontracting
clauses. Approximately 56,000 firms received sole source or set aside
awards in FY 2016. SBA is clarifying that a contracting officer may
request information to assure compliance with the LOS clause, and in
some cases this information may not be necessary based on the nature of
the contract and the invoices submitted. We estimate that less than ten
percent of contracts would be subject to a request to provide this
information (18,000), and compliance should take less than an hour for
each of those contracts. Accounting or contract management personnel
should be able to determine whether the firm issued any subcontracts in
connection with the prime contract. We estimate the SBA rule will be
finalized in FY 2019. We estimate an overall annual cost of
approximately $600,120.
4. What are the relevant Federal rules which may duplicate, overlap or
conflict with the rule?
We are not aware of any rules that duplicate, overlap or conflict
with this rule. The FAR will have to be amended to implement portions
of this rule. That will be done through a separate rulemaking.
5. What alternatives will allow the Agency to accomplish its regulatory
objectives while minimizing the impact on small entities?
Many of the proposed changes are required to implement statute, and
impose requirements on contracting personnel, agencies or other than
small concerns, and do not impact small business concerns. Further,
many of the proposed changes will benefit small business concerns by
clarifying areas where there is confusion and by making it easier for
agencies to set aside contracts and orders for small business and small
socioeconomic concerns. As an alternative, SBA considered whether prime
contractors should be required to provide information on compliance
with the LOS on all set aside or sole source contracts. However, that
may unnecessarily burden small businesses, if compliance is already
readily apparent to the contracting officer based on the type of
contract, invoicing, or observation.
List of Subjects
13 CFR Part 121
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,
Government property, Small businesses.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance.
13 CFR Part 126
Administrative practice and procedure, Government procurement,
Reporting and recordkeeping requirements, Small businesses.
13 CFR Part 127
Government contracts, Reporting and recordkeeping requirements,
Small businesses.
13 CFR Part 129
Administrative practice and procedure, Government contracts,
Government procurement, Small businesses.
Accordingly, for the reasons stated in the preamble, SBA proposes
to amend 13 CFR parts 121, 124, 125, 126, and 127 and to add 13 CFR
part 129 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for 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 revising the first sentence of paragraph
(h)(4) to read as follows:
Sec. 121.103 How does SBA determine affiliation?
* * * * *
(h) * * *
(4) A contractor and its ostensible subcontractor are treated as
joint venturers for size determination purposes. * * *
* * * * *
0
3. Amend Sec. 121.404 by revising paragraph (a) introductory text,
adding paragraph (a)(1)(iv), and revising paragraph (g)(5) to read as
follows:
Sec. 121.404 When is the size status of a business concern
determined?
(a) SBA determines the size status of a concern, including its
affiliates, as of the date the concern submits a written self-
certification that it is small to the procuring activity as part of its
initial offer or response which includes price.
(1) * * *
(iv) For an indefinite delivery, indefinite quantity (IDIQ),
Multiple Award Contract, where concerns are not required to submit
price as part of the offer for the IDIQ contract, size will be
determined as of the date of initial offer, which may not include
price.
* * * * *
(g) * * *
(5) If during contract performance a subcontractor that is not a
similarly situated entity performs primary and vital requirements of a
contract, the contractor and its ostensible subcontractor will be
treated as joint venturers. See Sec. 121.103(h)(4).
* * * * *
0
4. Amend Sec. 121.406 by:
0
a. Revising paragraph (b)(1)(i);
0
b. Removing paragraph (c); and
0
c. Redesignating paragraphs (d) through (f) as paragraphs (c) through
(e) respectively.
The revision 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?
* * * * *
(b) * * *
(1) * * *
(i) Does not exceed 500 employees (or 150 employees for the
Information Technology Value Added Reseller exception to NAICS Code
541519, which is found at Sec. 121.201, footnote 18);
* * * * *
PART 124--8(a) BUSINESS DEVELOPMENT/SMALL DISADVANTAGED BUSINESS
STATUS DETERMINATIONS
0
5. The authority citation for part 124 continues 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
6. Amend Sec. 124.503 by revising paragraphs (c)(1)(iii) and (iv) and
adding paragraph (c)(1)(v) to read as follows:
Sec. 124.503 How does SBA accept a procurement for award through the
8(a) BD program?
* * * * *
(c) * * *
(1) * * *
(iii) The Participant is small for the size standard corresponding
to the NAICS code assigned to the requirement by the procuring activity
contracting officer;
(iv) The Participant has submitted required financial statements to
SBA; and
[[Page 62528]]
(v) The Participant is performing the primary and vital
requirements of the service contract, or of an order, and is not
unusually reliant on a subcontractor that is not similarly situated, as
that term is defined at Sec. 125.1.
0
7. In Sec. 124.507, add paragraph (b)(2)(vi) to read as follows:
Sec. 124.507 What procedures apply to competitive 8(a) procurements?
* * * * *
(b) * * *
(2) * * *
(vi) Performing the primary and vital requirements of the service
contract, or of an order, or is unusually reliant on a subcontractor
that is not a similarly situated entity, as that term is defined at
Sec. 125.1.
0
8. In Sec. 124.521, add paragraph (e) to read as follows:
Sec. 124.521 What are the requirements for representing 8(a) status,
and what are the penalties for misrepresentation?
* * * * *
(e) Recertification. (1) Generally, a concern that represents
itself and qualifies as an 8(a) Participant at the time of initial
offer (or other formal response to a solicitation), which includes
price, including a Multiple Award Contract, is considered an 8(a)
Participant throughout the life of that contract. For an indefinite
delivery, indefinite quantity (IDIQ), Multiple Award Contract, where
concerns are not required to submit price as part of the offer for the
contract, a concern that represents itself and qualifies as an 8(a)
Participant at the time of initial offer, which may not include price,
is considered an 8(a) Participant throughout the life of that contract.
This means that if an 8(a) Participant is qualified at the time of
initial offer for a Multiple Award Contract, then it will be considered
an 8(a) Participant for each order issued against the contract, unless
a contracting officer requests a new 8(a) certification in connection
with a specific order. Where a concern later fails to qualify as an
8(a) Participant, the procuring agency may exercise options and still
count the award as an award to an SDB. However, the following
exceptions apply:
(i) Where an 8(a) contract is novated to another business concern,
or where the concern performing the 8(a) contract is acquired by,
acquires, or merges with another concern and contract novation is not
required, the concern must comply with the process outlined at
Sec. Sec. 124.105(i) and 124.515.
(ii) Where an 8(a) Participant receives a non-8(a) contract that is
novated to another business concern, the concern that will continue
performance on the contract must certify its status as an 8(a)
Participant to the procuring agency, or inform the procuring agency
that it does not qualify as an 8(a) Participant, within 30 days of the
novation approval. If the concern is not an 8(a) Participant, the
agency can no longer count the options or orders issued pursuant to the
contract, from that point forward, towards its SDB goals.
(iii) Where an 8(a) Participant receives a non-8(a) contract, and
that Participant acquires, is acquired by, or merges with another
concern and contract novation is not required, the concern must, within
30 days of the transaction becoming final, recertify its 8(a) status to
the procuring agency, or inform the procuring agency that it no longer
qualifies as an 8(a) Participant. If the contractor is not an 8(a)
Participant, the agency can no longer count the options or orders
issued pursuant to the contract, from that point forward, towards its
SDB goals. The agency and the contractor must immediately revise all
applicable Federal contract databases to reflect the new status.
(2) For the purposes of contracts (including Multiple Award
Contracts) with durations of more than five years (including options),
a contracting officer must request that a business concern recertify
its 8(a) status no more than 120 days prior to the end of the fifth
year of the contract, and no more than 120 days prior to exercising any
option. Where a concern fails to recertify its 8(a) status during the
120 days prior to the end of the fifth year of the contract, the option
shall not be exercised.
(3) Recertification does not change the terms and conditions of the
contract. The limitations on subcontracting, nonmanufacturer and
subcontracting plan requirements in effect at the time of contract
award remain in effect throughout the life of the contract.
(4) Where the contracting officer explicitly requires concerns to
recertify their status in response to a solicitation for an order, SBA
will determine eligibility as of the date the concern submits its self-
representation as part of its response to the solicitation for the
order.
(5) A concern's status may be determined at the time of a response
to a solicitation for an basic ordering agreement (BOA), basic
agreement (BA), or blanket purchase agreement (BPA) and each order
issued pursuant to the BPA, BOA, or BA.
0
9. In Sec. 124.1015, add paragraph (f) to read as follows:
Sec. 124.1015 What are the requirements for representing SDB status,
and what are the penalties for misrepresentation?
* * * * *
(f) Recertification. (1) Generally, a concern that represents
itself and qualifies as an SDB at the time of initial offer (or other
formal response to a solicitation), which includes price, including a
Multiple Award Contract, is considered an SDB throughout the life of
that contract. For an indefinite delivery indefinite quantity (IDIQ),
Multiple Award Contract, where concerns are not required to submit
price as part of their offer for the contract, a concern that
represents itself and qualifies as an SDB at the time of initial offer,
which may not include price, is considered an SDB throughout the life
of that contract. This means that if an SDB is qualified at the time of
initial offer for a Multiple Award Contract, then it will be considered
an SDB for each order issued against the contract, unless a contracting
officer requests a new SDB certification in connection with a specific
order. Where a concern later fails to qualify as an SDB, the procuring
agency may exercise options and still count the award as an award to an
SDB. However, the following exceptions apply:
(i) Where a contract is novated to another business concern, the
concern that will continue performance on the contract must certify its
status as an SDB to the procuring agency, or inform the procuring
agency that it does not qualify as an SDB, within 30 days of the
novation approval. If the concern is not an SDB, the agency can no
longer count the options or orders issued pursuant to the contract,
from that point forward, towards its SDB goals.
(ii) Where a concern that is performing a contract acquires, is
acquired by, or merges with another concern and contract novation is
not required, the concern must, within 30 days of the transaction
becoming final, recertify its SDB status to the procuring agency, or
inform the procuring agency that it no longer qualifies as an SDB. If
the contractor is not an SDB, the agency can no longer count the
options or orders issued pursuant to the contract, from that point
forward, towards its SDB goals. The agency and the contractor must
immediately revise all applicable Federal contract databases to reflect
the new status.
(2) For the purposes of contracts (including Multiple Award
Contracts) with durations of more than five years (including options),
a contracting officer must request that a business concern recertify
its SDB status no more than 120 days prior to the end of the fifth
[[Page 62529]]
year of the contract, and no more than 120 days prior to exercising any
option.
(3) A business concern that did not certify itself as an SDB,
either initially or prior to an option being exercised, may recertify
itself as an SDB for a subsequent option period if it meets the
eligibility requirements at that time.
(4) Recertification does not change the terms and conditions of the
contract. The limitations on subcontracting, nonmanufacturer and
subcontracting plan requirements in effect at the time of contract
award remain in effect throughout the life of the contract.
(5) Where the contracting officer explicitly requires concerns to
recertify their status in response to a solicitation for an order, SBA
will determine eligibility as of the date the concern submits its self-
representation as part of its response to the solicitation for the
order.
(6) A concern's status may be determined at the time of a response
to a solicitation for an Agreement and each order issued pursuant to
the Agreement.
PART 125--GOVERNMENT CONTRACTING PROGRAMS
0
9. The authority citation for part 125 is revised to read as follows:
Authority: 15 U.S.C. 632(p), (q); 634(b)(6); 637; 644; 657f;
657r.
0
10. Amend Sec. 125.2 by:
0
a. Revising paragraph (a);
0
b. In paragraph (b)(1)(i)(A):
0
i. Revising the second sentence; and
0
ii. Adding a sentence at the end of the paragraph;
0
c. Adding paragraph (d)(1)(v);
0
d. Redesignating paragraph (d)(7) as paragraph (d)(8);
0
e. Adding new paragraph (d)(7); and
0
f. Revising paragraph (e)(6).
The revisions and additions to read as follows:
Sec. 125.2 What are SBA's and the procuring agency's responsibilities
when providing contracting assistance to small businesses?
(a)(1) The objective of the SBA's contracting programs is to assist
small business concerns, including 8(a) BD Participants, HUBZone small
business concerns, Service Disabled Veteran-Owned Small Business
Concerns, Women-Owned Small Businesses and Economically Disadvantaged
Women-Owned Small Businesses, in obtaining a fair share of Federal
Government prime contracts, subcontracts, orders, and property sales.
Therefore, these regulations apply to all types of Federal Government
contracts, including Multiple Award Contracts, and contracts for
architectural and engineering services, research, development, test and
evaluation. Small business concerns must receive any award (including
orders, and orders placed against Multiple Award Contracts) or
contract, part of any such award or contract, any contract for the sale
of Government property, or any contract resulting from a reverse
auction, regardless of the place of performance, which SBA and the
procuring or disposal agency determine to be in the interest of:
(i) Maintaining or mobilizing the Nation's full productive
capacity;
(ii) War or national defense programs;
(iii) Assuring that a fair proportion of the total purchases and
contracts for property, services and construction for the Government in
each industry category are placed with small business concerns; or
(iv) Assuring that a fair proportion of the total sales of
Government property is made to small business concerns.
(2) If the contracting officer receives only one acceptable offer
from a responsible small business concern in response to any small or
socioeconomic set-aside, the contracting officer should make an award
to that firm.
(b) * * *
(1) * * *
(i) * * * (A) * * * At the SBA's discretion, PCRs may review any
acquisition 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. * * * Unless the contracting agency
requests a review, PCRs will not review an acquisition by or on behalf
of the Department of Defense if the acquisition is conducted for a
foreign government pursuant to section 22 of the Arms Control Export
Act (22 U.S.C. 2762), is a humanitarian operation as defined in 10
U.S.C. 401(e), is for a contingency operation as defined in 10 U.S.C.
101(a)(13), is to be awarded pursuant to an agreement with the
government of a foreign country in which Armed Forces of the United
States are deployed, or where both the place of award and place of
performance are entirely outside of the United States and its
territories.
* * * * *
(d) * * *
(1) * * *
(v) Not later than 7 days after making a determination that an
acquisition strategy involving a consolidation of contract requirements
is necessary and justified under subparagraph (d)(1)(i) of this
section, the Senior Procurement Executive (SPE) or Chief Acquisition
Officer (CAO), or designee, shall publish a notice on the agency's
website that such determination has been made. Any solicitation for a
procurement related to the acquisition strategy shall not be issued
earlier than 7 days after such notice is published. Along with the
publication of the solicitation, the SPE or CAO (or designee) must
publish in the Government-wide Point of Entry (GPE) the justification
for the determination, which shall include the information in
paragraphs (d)(1)(i)(A) through (E) of this section.
* * * * *
(7) Notification to Public of Rationale for Substantial Bundling.
If the head of a contracting agency determines that an acquisition plan
for a procurement involves a substantial bundling of contract
requirements, the head of a contracting agency shall publish a notice
on the agency's website that such determination has been made not later
than 7 days after making such determination. Any solicitation for a
procurement related to the acquisition plan may not be published
earlier than 7 days after such notice is published. Along with the
publication of the solicitation, the head of a contracting agency shall
publish in the GPE a justification for the determination, which shall
include the following information:
(i) The specific benefits anticipated to be derived from the
bundling of contract requirements and a determination that such
benefits justify the bundling.
(ii) An identification of any alternative contracting approaches
that would involve a lesser degree of bundling of contract
requirements.
(iii) An assessment of--the specific impediments to participation
by small business concerns as prime contractors that result from the
bundling of contract requirements; and
(iv) The specific actions designed to maximize participation of
small business concerns as subcontractors (including suppliers) at
various tiers under the contract or contracts that are awarded to meet
the requirements.
* * * * *
(e) * * *
(6) * * *
(i) Notwithstanding the fair opportunity requirements set forth in
10 U.S.C. 2304c and 41 U.S.C. 253j, the contracting officer has the
authority to set aside orders against Multiple Award Contracts,
including contracts that were set aside for small business. This
includes order set asides for 8(a) Participants, HUBZone SBCs, SDVO
SBCs and WOSBs.
* * * * *
[[Page 62530]]
0
11. Amend Sec. 125.3 by:
0
a. Revising the last sentence of paragraph (c)(1)(iv);
0
b. Revising paragraph (d)(3);
0
c. Adding paragraph (d)(11); and
0
d. Revising the first sentence of paragraph (f)(3).
The revisions and addition to read as follows:
Sec. 125.3 What types of subcontracting assistance are available to
small businesses?
* * * * *
(c) * * *
(1) * * *
(iv) * * * A contractor authorized to use a commercial
subcontracting plan must include all indirect costs in its
subcontracting goals and in its SSR;
* * * * *
(d) * * *
(3) Evaluating whether the prime contractor made a good faith
effort to comply with its small business subcontracting plan.
(i) Evidence that a large business prime contractor has made a good
faith effort to comply with its subcontracting plan or other
subcontracting responsibilities includes supporting documentation that:
(A) The contractor performed one or more of the actions described
in paragraph (b) of this section, as appropriate for the procurement;
(B) Although the contractor may have failed to achieve its goal in
one socioeconomic category, it over-achieved its goal by an equal or
greater amount in one or more of the other categories; or
(C) The contractor fulfilled all of the requirements of its
subcontracting plan.
(ii) Examples of activities reflective of a failure to make a good
faith effort to comply with a subcontracting plan include, but are not
limited, to:
(A) Failure to submit the acceptable individual or summary
subcontracting reports in eSRS by the report due dates or as provided
by other agency regulations within prescribed time frames;
(B) Failure to pay small business concern subcontractors in
accordance with the terms of the contract with the prime;
(C) Failure to designate and maintain a company official to
administer the subcontracting program and monitor and enforce
compliance with the plan;
(D) Failure to maintain records or otherwise demonstrate procedures
adopted to comply with the plan including subcontracting flow-down
requirements;
(E) Adoption of company policies or documented procedures that have
as their objectives the frustration of the objectives of the plan;
(F) Failure to correct substantiated findings from federal
subcontracting compliance reviews or participate in subcontracting plan
management training offered by the government;
(G) Failure to conduct market research identifying potential small
business concern subcontractors through all reasonable means including
outreach, industry days, or the use of federal database marketing
systems such as SBA's Dynamic Small Business Search (DSBS) or SUBNet
Systems or any successor federal systems;
(H) Failure to comply with regulations requiring approval by the
contracting officer to change small business concern subcontractors
that were used in preparing offers; or
(I) Falsifying records of subcontracting awards to SBCs.
* * * * *
(11) Evaluating whether the contractor or subcontractor complied in
good faith with the requirement to provide periodic reports and
cooperate in any studies or surveys as may be required by the Federal
agency or the Administration in order to determine the extent of
compliance by the contractor or subcontractor with the subcontracting
plan. Failure to make a good faith effort shall be a material breach of
such contract or subcontract and may be considered in any past
performance evaluation of the contractor.
* * * * *
(f) * * *
(3) Upon completion of the review and evaluation of a contractor's
performance and efforts to achieve the requirements in its
subcontracting plans, the contractor's performance will be assigned one
of the following ratings: Exceptional, Very Good, Satisfactory,
Marginal or Unsatisfactory. * * *
* * * * *
0
12. Amend Sec. 125.6 by:
0
a. Adding two sentences at the end of paragraph (a)(1);
0
b. Adding a sentence at the end of paragraph (c);
0
c. Revising paragraph (e)(3); and
0
d. Adding paragraph (e)(4).
The revision and additions to read as follows:
Sec. 125.6 What are the prime contractor's limitations on
subcontracting?
(a) * * *
(1) * * * Other direct costs may be excluded to the extent they are
not the principal purpose of the acquisition and small business
concerns do not provide the service, such as airline travel, work
performed by a transportation or disposal entity under a contract
assigned the environmental remediation NAICS code (562910), cloud
computing services, or mass media purchases. In addition, work
performed by an independent contractor under a contract that was
awarded pursuant to the Foreign Assistance Act of 1961 may also be
excluded.
* * * * *
(c) * * * A prime contractor may no longer count a similarly
situated entity towards compliance with the limitations on
subcontracting where the subcontractor ceases to qualify as small or
under the relevant socioeconomic status.
* * * * *
(e) * * *
(3)(i) For contracts assigned a NAICS code with an employee-based
size standard, where an independent contractor is not otherwise treated
as an employee of the concern for which he/she is performing work for
size purposes under Sec. 121.106(a) of this chapter, work performed by
the independent contractor shall be considered a subcontract. Such work
will count toward meeting the applicable limitation on subcontracting
where the independent contractor qualifies as a similarly situated
entity.
(ii) For contracts assigned a NAICS code with a revenue-based size
standard, work performed by an independent contractor shall be
considered a subcontract, and will count toward meeting the applicable
limitation on subcontracting where the independent contractor qualifies
as a similarly situated entity. A firm's treatment and reporting of an
individual for tax purposes governs whether that individual should be
treated as an employee or independent contractor for limitations on
subcontracting purposes.
(4) The contracting officer may require the contractor to
demonstrate its compliance with the limitations on subcontracting, if
the information regarding such compliance is not already available to
the contracting officer (e.g., invoices).
* * * * *
0
13. Amend Sec. 125.18 by:
0
a. In paragraph (e)(1)(i), removing the phrase ``an SDVO contract'' and
adding in its place the phrase ``a contract'';
0
b. In paragraph (e)(1)(ii), removing the phrase ``an SDVO SBC
contract'' and adding in its place the phrase ``a contract''; and
0
c. Adding paragraph (f).
The addition to read as follows:
[[Page 62531]]
Sec. 125.18 What requirements must an SDVO SBC meet to submit an
offer on a contract?
* * * * *
(f) Ostensible subcontractor. Where a subcontractor that is not
similarly situated performs primary and vital requirements of a set
aside or sole source service contract or order, or where a prime
contractor is unduly reliant on a small business that is not similarly
situated to perform the set aside service or sole source contract or
order, the prime contractor is not eligible for award of an SDVO
contract. When the subcontractor is small for the size standard
assigned to the procurement, this issue may be grounds for an SDVO
status protest, as described in subpart D of this part. When the
subcontractor is other than small, or alleged to be other than small
for the size standard assigned to the procurement, this issue may be
grounds for a size protest subject to the ostensible subcontractor
rule, as described at Sec. 121.103(h)(4) of this chapter.
0
14. In Sec. 125.29, add paragraph (c) to read as follows:
Sec. 125.29 What are the grounds for filing an SDVO SBC protest?
* * * * *
(c) Ostensible subcontractor. In cases where the prime contractor
appears unduly reliant on a small, non-similarly situated entity
subcontractor or where the small non-similarly situated entity is
performing the primary and vital requirements of the contract, the
Director, Office of Government Contracting will consider a protest only
if the protester presents credible evidence of the alleged undue
reliance or credible evidence that the primary and vital requirements
will be performed by the subcontractor.
PART 126--HUBZONE PROGRAM
0
15. The authority citation for part 126 is revised to read as follows:
Authority: 15 U.S.C. 632(a), 632(j), 632(p), 644 and 657a; Pub.
L. 111-240, 24 Stat. 2504.
0
16. Amend Sec. 126.601 by:
0
a. In paragraph (h)(1)(i), removing the phrase ``HUBZone contract (or
a HUBZone contract awarded through full and open competition based on
the HUBZone price evaluation preference'' and adding in its place the
word ``contract'';
0
b. In paragraph (h)(1)(ii), removing the phrase ``HUBZone contract''
and adding in its place the word ``contract''; and
0
c. Adding paragraph (i).
The addition to read as follows:
Sec. 126.601 What additional requirements must a qualified HUBZone
SBC meet to bid on a contract?
* * * * *
(i) Ostensible subcontractor. Where a subcontractor that is not
similarly situated performs primary and vital requirements of a set
aside service contract, or where a prime contractor is unduly reliant
on a small business that is not similarly situated to perform the set
aside service contract, the prime contractor is not eligible for award
of a HUBZone contract. When the subcontractor is small for the size
standard assigned to the procurement, this issue may be grounds for a
HUBZone status protest, as described in subpart H of this part. When
the subcontractor is alleged to be other than small for the size
standard assigned to the procurement, this issue may be grounds for a
size protest under the ostensible subcontractor rule, as described at
Sec. 121.103(h)(4) of this chapter.
0
17. Amend Sec. 126.801 by adding in paragraph (a) a sentence after the
third sentence to read as follows:
Sec. 126.801 How does one file a HUBZone status protest?
(a) * * * SBA will also consider a protest challenging whether a
HUBZone prime contractor is unduly reliant on a small, non-similarly
situated entity subcontractor or if such subcontractor performs the
primary and vital requirements of the contract. * * *
* * * * *
PART 127--WOMEN-OWNED SMALL BUSINESS FEDERAL CONTRACT PROGRAM
0
18. The authority citation for part 127 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 637(m), 644 and 657r.
Sec. 127.503 [Amended]
0
19. In Sec. 127.503, amend paragraphs (h)(1)(i) and (ii) by removing
the phrase ``WOSB/EDWOSB contract'' wherever it appears and adding in
its place the word ``contract''.
0
20. In Sec. 127.504, add paragraph (c) to read as follows:
Sec. 127.504 What additional requirements must a concern satisfy to
submit an offer on an EDWOSB or WOSB requirement?
* * * * *
(c) Where a subcontractor that is not similarly situated performs
primary and vital requirements of a set aside service contract, or
where a prime contractor is unduly reliant on a small business that is
not similarly situated to perform the set aside service contract, the
prime contractor is not eligible for award of a WOSB or EDWOSB
contract. When the subcontractor is small for the size standard
assigned to the procurement, this issue may be grounds for a WOSB or
EDWOSB status protest, as described in subpart F of this part. When the
subcontractor is other than small, or alleged to be other than small,
for the size standard assigned to the procurement, this issue may be a
ground for a size protest, as described at Sec. 121.103(h)(4) of this
chapter.
0
21. Amend Sec. 127.602 by revising the second sentence and adding a
new third sentence to read as follows:
Sec. 127.602 What are the grounds for filing an EDWOSB or WOSB status
protest?
* * * SBA will also consider a protest challenging the status of a
concern as an EDWOSB or WOSB if the contracting officer has protested
because the WOSB or EDWOSB apparent successful offeror has failed to
provide all of the required documents, as set forth in Sec. 127.300.
In addition, when sufficient credible evidence is presented, SBA will
consider a protest challenging whether the prime contractor is
unusually reliant on a small, non-similarly situated entity
subcontractor, as defined in Sec. 125.1 of this chapter, or a protest
alleging that such subcontractor is performing the primary and vital
requirements of a set aside or sole source WOSB or EDWOSB contract.
0
22. Add part 129 to read as follows:
PART 129--CONTRACTS FOR SMALL BUSINESSES LOCATED IN DISASTER AREAS
Sec.
129.100 What definitions are important in this part?
129.200 What contracting preferences are available for small
business concerns located in disaster areas?
129.300 What small business goaling credit do agencies receive for
awarding a contract to a small business concern under this part?
129.400 What are the applicable performance requirements?
129.500 What are the penalties of misrepresentation of size or
status?
Authority: 15 U.S.C. 636(j)(13)(F)(ii), 644(f).
Sec. 129.100 What definitions are important in this part?
For the purposes of this part:
Concern located in a disaster area is a firm that during the last
twelve months--
(1)(i) Had its main operating office in the area; and
[[Page 62532]]
(ii) That office generated at least half of the firm's gross
revenues and employed at least half of the offeror's permanent
employees.
(2) If the firm does not meet the criteria in paragraph (1) of this
definition, factors to be considered in determining whether a firm
resides or primarily does business in the disaster area include--
(i) Physical location(s) of the firm's permanent office(s) and date
any office in the disaster area(s) was established;
(ii) Current state licenses;
(iii) Record of past work in the disaster area(s) (e.g., how much
and for how long);
(iv) Contractual history the firm has had with subcontractors and/
or suppliers in the disaster area;
(v) Percentage of the firm's gross revenues attributable to work
performed in the disaster area;
(vi) Number of permanent employees the firm employs in the disaster
area;
(vii) Membership in local and state organizations in the disaster
area; and
(viii) Other evidence that establishes the firm resides or
primarily does business in the disaster area. For example, sole
proprietorships may submit utility bills and bank statements.
Disaster area means the area for which the President has declared a
major disaster under section 401 of the Robert T. Stafford Disaster
Relief and Assistance Act (42 U.S.C. 5170), during the period of the
declaration.
Emergency response contract means a contract with private entities
that supports assistance activities in a disaster area, such as debris
cleanup, distribution of supplies, or reconstruction.
Sec. 129.200 What contracting preferences are available for small
business concerns located in disaster areas?
Contracting officers may set aside solicitations for emergency
response contracts to allow only small businesses located in the
disaster area to compete.
Sec. 129.300 What small business goaling credit do agencies receive
for awarding an emergency response contract to a small business concern
under this part?
If an agency awards an emergency response contract to a local small
business concern through the use of a local area set aside that is also
set aside under a small business or socioeconomic set-aside (8(a),
HUBZone, SDVO, WOSB, EDWOSB), the value of the contract shall be
doubled for purposes of determining compliance with the goals for
procurement contracts under section 15(g)(1)(A) of the Small Business
Act (15 U.S.C. 644(g)(1)(A)). The procuring agency shall enter the
actual contract value, not the doubled contract value in the required
contract reporting systems, and appropriately code the contract action
to receive the credit. SBA will provide the double credit as part of
the Scorecard process.
Sec. 129.400 What are the applicable performance requirements?
The performance requirements of Sec. 125.6 of this chapter apply
to small and socioeconomic set asides under this part. A similarly
situated entity as that term is used in Sec. 125.6 of this chapter
must qualify as a concern located in a disaster area.
Sec. 129.500 What are the penalties of misrepresentation of size or
status?
The penalties relevant to the particular size or socioeconomic
status representation under title 13 Sec. Sec. 121.108, 125.32,
126.900, and 127.700 of this chapter are applicable to set asides under
this part.
Dated: November 8, 2018.
Linda E. McMahon,
Administrator.
[FR Doc. 2018-25705 Filed 12-3-18; 8:45 am]
BILLING CODE 8025-01-P