[Federal Register Volume 84, Number 230 (Friday, November 29, 2019)]
[Rules and Regulations]
[Pages 65647-65666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25517]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121, 124, 125, 126, 127, 129, and 134
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: Final rule.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is
amending 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 to clarify existing regulations. This rule
clarifies that contracting officers have the authority to request
information in connection with a contractor's compliance with
applicable limitations on subcontracting clauses; provides exclusions
for purposes of compliance with the limitations on subcontracting for
certain contracts performed outside of the United States, for
environmental remediation contracts, and for information technology
service acquisitions that require substantial cloud computing; requires
a prime contractor with a commercial subcontracting plan to include
indirect costs in its subcontracting goals; establishes that failure to
provide timely subcontracting reports may constitute a material breach
of the contract; clarifies the requirements for size and status
recertification; and limits the scope of Procurement Center
Representative (PCR) reviews of Department of Defense acquisitions
performed outside of the United States and its territories. This rule
also authorizes 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 removing the kit assembler exception to the non-manufacturer rule.
DATES: This rule is effective on December 30, 2019.
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:
Introduction
SBA published a proposed rule regarding these changes in the
Federal Register on December 4, 2018 (83 FR 62516), inviting the public
to submit comments on or before February 4, 2019. SBA received
extensive responses on the proposed rule from 38 entities, which
comprised almost 250 specific comments. One commenter requested
additional time to submit comments. SBA declined to provide an
extension of the comment period on grounds of administrative
efficiency, since this rule implements statutory requirements and makes
other changes of critical importance to small businesses. SBA's
discussion below summarizes the proposed rule, the comments related to
each section of the proposed rule, and SBA's responses.
Summary of Proposed Rule, Comments, and SBA's Responses
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 proposed to amend Sec. 125.2(d) by adding new
paragraphs (d)(1)(v) and (d)(7) to implement these changes.
Specifically, SBA proposed that the notice be published on the
contracting agency's website. SBA received three comments on these
proposed new paragraphs and all three supported the proposal to require
public notification of a consolidation determination. Based on agency
comments, SBA is adopting a final rule that requires publication of the
notice on the Government Point of Entry website because this will be a
more efficient and effective mechanism to notify the public. Notice
provided through one Government website, which already serves as the
means for most procurement-related notices, will likely be viewed by a
larger portion of the public than through an individual agency website.
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 PCRs may review any
acquisition, even those where the
[[Page 65648]]
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 proposed 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. This provision
merely gives to the SBA PCR the authority to review set-aside actions
where he or she deems it appropriate. It is not the intent that this
will be done in every case. In fact, SBA believes that such a review
will not generally be done. Where a PCR seeks to review a set-aside
action, the PCR will notify the contracting officer. SBA expects its
review to generally be limited to the issue presented, and SBA does not
believe this will adversely affect the acquisition timeline. SBA
received two comments on this proposed change. One supported the change
and one opposed it. The commenter who opposed the proposed rule based
his opposition on the perception that PCRs favor 8(a) firms over other
small businesses. SBA deduced from this comment that the commenter was
concerned that a PCR looking at all acquisitions will not assess
whether a particular acquisition is appropriate for all of SBA's
government contracting programs, but will instead default to assuming
it should be awarded to an 8(a) firm. SBA disagrees that PCRs favor one
small business program over another. PCRs seek to ensure that
contracting officers consider all of SBA's small business programs, and
that the market research performed supports the contracting officer's
decision to use a particular program. This final rule adopts the
proposed change, as it clarifies SBA's current position that PCRs may
review any acquisition, which promotes more awards to small businesses.
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 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
proposed to amend Sec. 125.2(b)(1)(i) to implement these amendments.
Under the proposed rule, PCRs would still be able to 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 and civic assistance provided in conjunction with military
operations, or status of forces agreement. The proposed rule clarified
that 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. SBA received one comment in support of the
proposed change. SBA continues to believe that the proposed language
properly captures the intent of the statutory provision. As such, SBA
adopts the proposed change in this final rule.
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 proposed to revise Sec.
125.3(d) to implement this provision.
SBA also proposed revising Sec. 125.3(d) to reflect Section 1821's
requirement 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 predicated upon evidence that an
other than small Federal prime contractor, required to have a
subcontracting plan with negotiated small business concern goals
approved by a Federal contracting officer, has failed to attain these
goals as outlined in the plan, and that this failure may be
attributable to a lack of good faith effort by the other than small
prime contractor. The term SBC for purposes of this rule includes all
categories of small business, including 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 took to promote subcontracting opportunities to small
businesses to the extent agreed upon in the approved subcontracting
plan. SBA also proposed to reorganize this section to reflect these new
examples in Sec. 125.3(d)(3)(ii).
SBA received eight comments regarding the proposed changes to
clarify what good faith means. Six comments supported the proposed
change and two comments opposed it. The six comments in support
expressed appreciation for SBA's attempt to implement the statutory
requirement as clearly and thoroughly as possible. Additionally,
commenters noted that the proposed changes will provide greater
protection to small businesses by outlining explicitly what they can
expect from a large business that is making a good faith effort to
comply with a small business subcontracting plan. Commenters also noted
that the proposed changes will help agencies hold large business prime
contractors accountable if they breach their small business
subcontracting plans.
The two commenters opposing the proposed change expressed wariness
about holding contractors to a precise
[[Page 65649]]
definition of good faith because other factors, besides those outlined
in the proposed language, may affect a contractor's ability to meet its
goals. While SBA understands these concerns, Congress's clear intent
was that SBA implement a more robust and detailed definition of
compliance. SBA does not intend, nor believe, that the expanded
definition of good faith will be overly burdensome for contractors. In
addition, the examples set forth in the rule are not intended to be
inclusive. Factors beyond those identified in the rule may be
considered in determining whether good faith efforts were made. One
commenter specifically expressed concern that the examples would allow
contractors to be found to have acted in bad faith without due process.
SBA does not believe the proposed changes put contractors at risk of
specious or capricious findings of bad faith. Contractors have the
opportunity to correct substantiated findings of subcontracting
compliance reviews, per the new Sec. 125.3(d)(3)(ii)(F). Further,
contractors retain their right to rebut and appeal determinations of
non-compliance that would result in liquidated damages, a breach of
contract finding, or an adverse past performance assessment. Both
commenters in opposition suggested that SBA use the FAR language on
good faith rather than drafting their own regulations. SBA's proposed
changes mirror the FAR's language but primarily seek to implement
Congress's intent.
SBA is making one change to the proposed rule in response to a
comment noting that Sec. 125.3(d)(3)(ii)(H) incorrectly states that a
failure of good faith may be found if a contractor does not get a
contracting officer's approval prior to changing small business
subcontractors. Prime contractors must provide contracting officers
with a written explanation of why they are changing a small business
subcontractor, but the regulations do not require a contracting
officer's prior approval. SBA has revised the regulation to reflect
this correction.
The rule renumbers current Sec. 125.3(d)(3)(i-iii) as Sec.
125.3(d)(3)(i)(A-C) to better organize this section for clarity and
ease of understanding. The final rule includes examples of good faith
in the revised Sec. 125.3(d)(3)(i), while examples of activities that
would be considered a failure to make a good faith effort are included
in the revised Sec. 125.3(d)(3)(ii).
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. To implement the changes
made by section 2108 of the RISE Act, SBA proposed to add a new part
129 to title 13 of the Code of Federal Regulations. SBA will implement
section 2105, ``Use of Federal surplus property in disaster areas,'' 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), 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 proposed 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 provided that agencies would receive double credit for
awarding a contract through the use of a local small business or
socioeconomic set-aside authorized by Sec. 129.200 (i.e., a set-aside
restricted to SBCs, 8(a) Business Development (BD) Program
Participants, Women-Owned Small Business (WOSB), Service-Disabled
Veteran-Owned (SDVO) or HUBZone SBCs located in a disaster area). SBA
believes 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.
SBA received nine comments regarding the proposed addition of part
129. Eight of the comments support the proposed amendments. They
supported Congress's intent to encourage small business contracting in
areas adversely affected by disasters and believed that SBA's proposed
part 129 accomplished Congress's intent. One commenter stated that it
would be confusing to discern which type of procurement goal credit is
subject to double credit, especially if the information provided in the
SBA Procurement Scorecard differs from that in the Federal Procurement
Database System (FPDS) or from the information on https://www.usaspending.gov, which tracks Federal procurement spending. While
the amount of procurement goal credit for such awards will differ in
the SBA Procurement Scorecard as compared to FPDS, the same contract
identification information will be present. FPDS will identify those
awards that are subject to double credit because they were awarded to
firms in a disaster area. Although SBA understands the commenter's
concern that implementing this double credit may be confusing, SBA
believes that it is constrained by the statue which requires this
double credit. As such, the final rule adopts part 129 as proposed.
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 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
[[Page 65650]]
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. Id. In response, SBA proposed to amend Sec. 121.406(b)(1)(i)
to clarify 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. SBA received
six comments related to this proposed amendment: Five supported the
clarification and one opposed it. The commenter opposed to the change
suggested that SBA should increase the size standard for NAICS code
541519 from 150 to 500 employees because an increased number of ITVARs
would lead to cost savings and a reduction of the Federal deficit. SBA
does not agree with this analysis and is adopting the amendment as
proposed. SBA does not believe that a non-manufacturer with close to
500 employees should be considered small.
Setting Aside an Order Under a Multiple Award Set-Aside Contract
On October 2, 2013, SBA published a final rule implementing 15
U.S.C. 644(r). 78 FR 61114. In that rule, 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. SBA
noted that at the time, the small business programs had major
differences with respect to the application of the limitations on
subcontracting and NMR requirements, 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 limitations on subcontracting and NMR
requirements for each of the various types of small business contracts.
The concerns identified in the 2013 final rule have since been
addressed to enable fair and proper implementation of order set-asides.
Specifically, on May 31, 2016, SBA published a final rule to
standardize the limitations on subcontracting and NMR requirements
across socioeconomic programs. 81 FR 34243. In addition, some agencies
have pursued the strategy of allowing order set-asides against set-
aside multiple award contracts (MACs), including notification and
incorporation of the clause at FAR 52.219-13, and agencies have
reported that they have not encountered any industry concerns. In
connection with this rule, SBA requested comment on whether SBA should
allow agencies to set aside orders for a socioeconomic small business
program (8(a), HUBZone, SDVO, WOSB) under a MAC that was awarded under
a total small business set-aside. Because SBA believes that a change is
appropriate at this time, SBA proposed 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
MAC 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 requested comments on any
burden or adverse impact associated with each of these two approaches.
In addition, SBA was specifically interested in whether these two
approaches could impact the ability for all types of small businesses
(e.g., 8(a), HUBZone, WOSB, SDVOSB) to compete and receive orders.
SBA received twenty-two comments regarding this proposed change.
Twelve of the comments support the proposed change and ten oppose the
change. The comments that oppose the proposed amendment note that it is
unfair to the original small business awardees of a MAC to allow
socioeconomic small business program set-asides under those contracts
where it was not originally contemplated. Additionally, those who
oppose this proposed change note that allowing such set-asides under
small business MACs will reduce the number of offerors for the orders
that are set-aside for socioeconomic small business program
participants. The comments in opposition also note that small
businesses would be discouraged from bidding on MACs because they would
have no way of knowing if any future orders would be set aside for
their socioeconomic status. SBA believes these concerns should be
assuaged by the fact that the rule would not affect already-awarded
MACs, unless set-asides were already contemplated in the solicitation.
Going forward, small businesses would know at the time of offer what
kind of set-asides, if any, were available at the time of award and on
future orders. SBA believes this type of forecasting and notification
to offerors would also address the concerns of commenters opposed to
the proposed change because they do not believe it is fair to the
``original'' small businesses that submit offers on a MAC. The rule
would apply only to future contracts and thus potential offerors will
know in advance if it is worthwhile to submit an offer.
SBA received one comment requesting clarification on whether a
contracting officer can set aside orders for a contract if the contract
was not set aside for small businesses. SBA's current regulation at
Sec. 125.2(e)(6)(i) provides that contracting officers can ``set-aside
orders against Multiple Award Contracts that were competed on a full
and open basis.'' The proposed rule revised this provision to say that
contracting officers can ``set aside orders against Multiple Award
Contracts, including contracts that were set aside for small
businesses.'' SBA is adopting the amendment as proposed.
SBA received one comment regarding the two alternative approaches
discussed in the proposed rule for implementing this change: Using
small business pools or small business set-asides at the order level.
The commenter supports both proposed approaches but notes that category
management has a negative impact on small businesses. No comments were
received which identify any burdens associated with either approach.
SBA is adopting the amendment as proposed.
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 proposed to amend Sec. Sec.
125.18(f),
[[Page 65651]]
126.601(i), and 127.503(h) to clarify that a concern must recertify its
status on full and open contracts. In addition, SBA added a new
paragraph to Sec. Sec. 124.521 and 124.1015 to reflect the status
eligibility and 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 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.
SBA received 32 comments on the proposed change to certification
requirements. Twenty-five opposed, three supported, and four sought
clarification. Many of the comments that opposed this provision
expressed concerns that the requirement would be overly burdensome and
would add ``complexities to an already difficult compliance system.''
Several commenters specifically disagreed with the proposed change to
the 8(a) and SDB certification requirements. One commenter noted it
takes firms up to four years to demonstrate satisfactory past
performance and thus by the time they were eligible for a contract,
they would not be able to perform on any options. Several others
pointed out that the 8(a) program is different from SBA's other
government contracting programs. SBA recognizes these concerns but does
not believe that this provision fails to acknowledge the unique
features of the 8(a) program. Congress intended that 8(a) program
participation be limited to nine years. SBA already permits long-term
contracts to extend for up to five years past the completion of a
Participant's program term in the 8(a) program. Allowing firms to work
on options indefinitely would conflict with Congress's clear desire for
8(a) Participants to leave the program and go on to successfully and
independently participate in the government contracting arena. Further,
SBA did not contemplate the proposed rules as a forced attempt to bring
the 8(a) program requirements into alignment with the other programs,
but rather as an opportunity to consider all the programs holistically.
SBA respectfully disagrees with commenters who do not believe
consistency between programs is a worthy goal. Consistency better
enables small businesses and contracting officers to understand and
comply with SBA's requirements, ensuring that eligible small businesses
are equipped to bid on contracts that have been appropriately set
aside. SBA is adopting the proposed changes as final.
Indirect Costs in Commercial Subcontracting Plans
Other than small business concerns that have a commercial
subcontracting plan report on performance through a summary subcontract
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 proposed 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. SBA
received one comment in support of this change and is adopting the
proposed rule as final.
Subcontracting Compliance Reviews
SBA proposed revisions to the nomenclature it uses regarding
subcontracting compliance reviews in order to better align title 13 of
the CFR with the FAR. Currently, the rating terminology differs between
SBA's rating system under Sec. 125.3(f)(3) (for an SBA Compliance
Review) and that used pursuant to FAR 42.1503 (for a past performance
evaluation including small business subcontracting under FAR 52.219-9).
SBA believes the difference in terminology leads to confusion for
Government personnel and industry partners attempting to ascertain the
value of a rating. As such, in Sec. 125.3(f)(3), SBA proposed to
revise the terms used to rate firms from ``Outstanding,'' ``Highly
Successful,'' or ``Acceptable'' to ``Exceptional,'' ``Very Good,'' and
``Satisfactory,'' respectively. SBA received three comments in support
of this change and, therefore, is adopting the proposed revisions as
final.
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 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 (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, he or she 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 limitations on subcontracting 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 limitations on
subcontracting) 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 limitations on subcontracting 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 limitations on subcontracting purposes.
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
limitations on
[[Page 65652]]
subcontracting provisions. That provision provides that, ``Work
performed by an independent contractor shall be considered a
subcontract, and may count toward meeting the applicable limitations on
subcontracting 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 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 limitations on subcontracting that way, but would not
permit a service contractor to effectively avoid meeting the
limitations on subcontracting by claiming that independent contractors
were in fact employees of the firm.
The proposed rule revised 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. Under the proposed rule, where a contract is assigned a
NAICS code with an employee-based size standard, an independent
contractor would 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 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.
SBA received thirteen comments on the proposed change. Ten opposed,
two sought clarification, and one was supportive. The comments in
opposition all expressed concern that the proposed rule was confusing,
and that SBA's intent was unclear and could be viewed as contradictory.
Several pointed out that small businesses would need to devote
unnecessary time and effort towards assessing whether an independent
contractor counted as an employee or a subcontractor for a procurement.
One commenter pointed out the difficulty for businesses performing
contracts under both employee-based and revenue-based NAICS codes. SBA
recognizes these concerns and concludes that it would be needlessly
time-consuming and difficult for small businesses, especially those
performing under multiple NAICS codes, to apply the rule consistently.
SBA agrees with the commenters who pointed out that looking to Sec.
121.106(a), which lays out the analysis of whether an individual is an
employee or a sub-contractor, makes sense for all NAICS codes and
contracts. As such, SBA has revised the proposed rule to clarify that
contractors should apply the analysis in Sec. 121.106(a) to determine
whether independent contractors are employees or subcontractors, and
that in situations where the independent contractor is a subcontractor,
their work may be counted toward the applicable limitation on
subcontracting if they are a similarly situated entity.
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 perform a certain
percentage of the work. These limitations on subcontracting appear in
solicitations and contract clauses for small business set-aside and
sole-source awards. As with all contract administration, it is the
responsibility of the contracting officer to monitor compliance with
the terms and conditions of a contract. (FAR 1.602-2, including the
limitations on subcontracting clause). SBA proposed language to clarify
that contracting officers have the discretion to request information
from contractors to demonstrate compliance with limitations on
subcontracting 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-06-399, 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 limitations
on subcontracting 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 limitations on subcontracting 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 limitations on
subcontracting. 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 proposed adding new Sec. 125.6(e)(4) to clarify that
contracting officers may request information regarding limitations on
subcontracting compliance, and to clarify that it is not required for
every contract. SBA requested comment on whether all small business
prime contractors performing set-aside or sole source contracts should
be required to demonstrate compliance with limitations on
subcontracting to the contracting officer, and if so, how often should
this be required, such as annually or quarterly.
SBA received 17 comments with a range of suggestions. Nine
commenters opposed regular mandatory reporting requirements. Five
comments supported a requirement that contractors must demonstrate
limitations on subcontracting compliance annually. One commenter
thought compliance should be demonstrated once per base period. Another
suggested once during the base period, once during each subsequent
option period, and at completion. A third suggested that contracting
officers should ask for evidence of compliance if they believe ``there
is reason for additional evidence
[[Page 65653]]
to be submitted.'' Comments about what type of evidence would suffice
similarly ranged among several options. Two commenters suggested using
the same type of evidence required for mentor-prot[eacute]g[eacute]
joint venture performance of work requirements. Two others suggested
copies of subcontracting agreements or a list of subcontractors paid
that note which subcontractors are similarly situated. Several
commenters, both those in favor of a mandatory reporting rule and those
opposed, thought if and when such evidence was required, contracting
officers should have discretion to request the documents they deem
relevant. On balance, SBA agrees that contracting officers are best
positioned to assess if, how, and when additional scrutiny of
contractors' limitations on subcontracting compliance would be helpful.
As such, the final rule does not require limitations on subcontracting
compliance reporting but, rather, indicates that contracting officers
have the discretion to request demonstration of compliance at any point
during performance or upon completion of a contract. The rule includes
examples of what documentation could adequately demonstrate compliance
but is not intended to be an exhaustive list.
Exclusions From the Limitations on Subcontracting
SBA's limitations on subcontracting 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 other 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 limitations on subcontracting,
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 small business concern. SBA proposed
to clarify how to determine whether work performed by certain required
contractors should be considered. Specifically, SBA proposed that work
performed by an independent contractor under a contract that was
awarded pursuant to the Foreign Assistance Act of 1961 could be
excluded from determining limitations on subcontracting compliance. 22
U.S.C. 2151 et seq. SBA received one comment on this provision. The
commenter disagreed with the proposed language in Sec. 125.6(a)(1)
because it allowed but did not mandate that work performed by
individuals on contracts outside the United States pursuant to the
Foreign Assistance Act of 1961 could be excluded from determining
limitations on subcontracting compliance. The commenter suggested using
language indicating that such exclusion is mandatory. In addition, the
commenter noted that not all work performed outside the United States
for which some portion of local performance is required is done under
the Foreign Assistance Act of 1961. SBA agrees that any work required
to be done by local foreign contractors should be excluded from any
limitations on subcontracting determination (i.e., should be excluded
from the ``total value of the contract'' in determining whether a small
business did not subcontract more than the limitations on
subcontracting percentage) and has changed the text of Sec.
125.6(a)(1) to reflect that.
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 the disposal
facilities in the United States are large businesses, and most
railroads and shipping companies that transport hazardous waste are
other than small business concerns. This rule proposed to exclude
transportation and disposal services from the limitations on
subcontracting 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 proposed to exclude
these media purchases from the limitations on subcontracting
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 proposed to exclude cloud
computing from the limitations on subcontracting calculation, where the
small business concern will perform other services that are the primary
purpose of the acquisition. Of course, where cloud computing itself is
the primary purpose of the procurement, the limitations on
subcontracting could not be met by a small business, and, therefore,
such a procurement should not be set aside or reserved for small
business.
Of the 17 comments received regarding excluding direct costs to the
extent they are not the principal purpose of the acquisition, nearly
all supported SBA's intent behind the proposed rule. Eleven commenters
supported the proposed language without additional change. Four
commenters supported the categories SBA included in the proposed rule,
but opposed the rule on the basis that it was not broad enough and
requested that SBA exclude all other direct costs from limitations on
subcontracting compliance calculations. SBA does not believe that all
direct costs should be excluded from the limitations on subcontracting
determination. In addition, SBA does not believe that the statutory
language would support such a change.
Based on the positive feedback from industry, the final rule at
125.6(a)(1) adopts the language that specifies that the above-mentioned
industries are excluded from limitations on subcontracting compliance
calculations. The regulatory text provides that 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'' in the four identified industries (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
[[Page 65654]]
media purchases). The regulatory text is not meant to be inclusive. It
allows a small business in another industry in a similar situation to
the four identified to also demonstrate that certain direct costs
should be excluded because they are not the principal purpose of the
acquisition and small business concerns do not provide the service.
One commenter requested clarification as to whether SBA intended
for only services to be excluded. As discussed, supply and construction
contracts already have industry-specific exclusions, so this provision
is intended to bridge a gap that SBA saw regarding service contracts.
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 business
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. 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 joint venture rules, 13 CFR 121.103(h)(3)(i)), a joint
venture can qualify as small if each member of the joint venture is
small. In the scenario described above, the size regulation would not
prevent the joint venture from being eligible for the contract (i.e.,
where both parties to a joint venture are small, the joint venture
itself is small). There is no existing regulatory mechanism for an
unsuccessful offeror, the SBA, or a 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.
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 proposed language at Sec. Sec.
124.503(c)(1)(v), 124.507(b)(2), 125.18(f), 125.29(c), 126.601(i),
126.801(a), 127.504(c), and 127.602 to 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's intent was to
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.
SBA received 32 comments on the proposed change to the rules on
subcontracting to a small business under a socioeconomic set-aside.
Several commenters opposed the change because they believed that
subcontracting to a small business, even if it is not a similarly
situated entity, still benefits the small business community. While SBA
encourages benefits that accrue to the small business community as a
whole, Congress's clear intent in authorizing separate and distinct
Government contracting programs was to bolster specific socioeconomic
groups' ability to successfully compete for and perform on Government
contracts. SBA would be subverting Congress's intent if it focused on
rules that benefit the overall small business community at the expense
of the groups identified by Congress as meriting focus. As such, SBA
continues to believe that it is constrained by statute to ensure that
the eligible prime contractor together with one or more other similarly
situated small businesses is performing the primary and vital
requirements of a contract by meeting the applicable limitation of
subcontracting percentage.
Other commenters protested on the basis that requiring small
business prime contractors to ensure that their subcontractors are
similarly situated entities would be overly burdensome. Again, SBA
appreciates this concern, but it does not outweigh SBA's mandate to
protect the interests of participants in its Government contracting
programs.
Another commenter recommended that instead of applying the
ostensible subcontractor standard in this context, SBA should merely
require that the 8(a)/HUBZone/WOSB/SDVOSB contractor be able to
demonstrate that it, together with any similarly situated entity, will
meet the limitations on subcontracting provisions. SBA agrees that if
the awardee together with similarly situated entities will meet the
limitations on subcontracting provisions, SBA would not have to look
further to determine who is doing the primary and vital parts of a
contract. The final rule adopts the proposed language recognizing that
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, WOSB, HUBZone or 8(a) contract. However,
the final rule also specifies that SBA will not find that a prime
contractor is unduly reliant on one or more non-similarly situated
subcontracts where the prime contractor can demonstrate that it,
together with any similarly situated entity, will meet the limitations
on subcontracting provisions set forth in Sec. 125.6.
Finally, one commenter recommended a comparable change to Sec.
134.1003 with respect to protests of SDVO eligibility for contracts
awarded by the Department of Veterans Affairs (VA). Specifically, the
commenter believed that similar treatment should be afforded to a firm
that was verified as an SDVO small business by VA's Center for
Verification and Evaluation (CVE), received a VA contract that was
restricted to CVE-verified SDVO small business concerns, and then
subcontracted primary and vital portions of the contract to a non-CVE-
verified business concern, whether or not small. SBA agrees, and has
added a new paragraph to Sec. 134.1003 that would authorize a protest
challenging whether the prime contractor is unusually reliant on a
subcontractor that is not CVE verified, or a protest alleging that such
subcontractor is performing the primary and vital requirements of a VA
procurement contract.
[[Page 65655]]
Kit Assemblers
SBA proposed 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. 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. In connection with this rule, SBA proposed
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. SBA
received four comments on this proposed change, evenly split between
those opposed and those in support. The comments opposed did so because
they believe kit assemblers should be excluded from the limitations on
subcontracting compliance calculation, along with the other identified
groups in the proposed rule at Sec. 125.6. The proposed rule did not
contemplate exclusions beyond those already identified. The commenters
supporting the change believe that applying the multiple item rule in
Sec. 121.406(e) to kit assemblers makes sense and makes a separate
rule for kit assemblers unnecessary. The rule adopts the proposed
language as final.
Clarification on Size Determinations
SBA proposed 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
that size will be determined at the time of the initial response,
including price. 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 proposed adding 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 also amended 121.404(g)(5) to reflect the
proposed change to 121.103(h)(4) (removing ``and therefore
affiliates'').
SBA received 13 comments on the proposed changes to Sec. 121.404.
Three of these opposed the changes, but all three referenced SBA's
current rule requiring recertification at the time of a merger or
acquisition at Sec. 121.404(g)(2)(i). SBA did not propose to revise
that provision. Of the ten comments that pertained to the proposed
changes, all ten were supportive of the changes. Commenters appreciated
the clarification and believe that the proposed language will reduce
confusion and uncertainty for small businesses. SBA is adopting the
proposed language as final.
SBA proposed 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 proposed 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 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
proposed 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).
All 12 comments on Sec. 121.103(h)(4) expressed confusion at the
current disconnect between the ostensible subcontractor rule at Sec.
121.103(h)(4) and the exception to affiliation for joint venture
language at Sec. 121.103(h)(3)(i). Commenters supported a
clarification. SBA believes removing ``and therefore affiliates'' from
Sec. 121.103(h)(4) will clear up this confusion and is adopting the
proposed change as final.
Clarification Where One Acceptable Offer Is Received on a Set-Aside
SBA proposed to add new Sec. 125.2(a)(2) 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-
[[Page 65656]]
aside is grounded in 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 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 acceptable
offers from at least two small business concerns 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 re-procure using
another where only one small business offer is received, and could
cause contracting officers to limit the use of set-asides. SBA received
no comments opposing this proposed change and adopts it as final in
this rule.
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
rule is a ``significant'' regulatory action for purposes of Executive
Order 12866. The benefits to small business from this rule far outweigh
any associated costs. The rule makes several other changes needed to
clarify ambiguities in or remedy perceived problems with the current
regulations. These changes should make SBA's regulations easier for
SBCs to use and understand. The change to Sec. 121.404 clarifies when
size for a Government contract is determined, which will reduce
confusion for small business concerns. The 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 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 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 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 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 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 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 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 changes to Sec. 125.6 also help small
businesses by clarifying the difference between an employee and an
independent contractor. The changes to Sec. 125.6 will impose some
requirements on small business concerns to demonstrate compliance with
the limitations on subcontracting, 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 change simply clarifies that the
authority exists. Finally, the benefits to small business concerns of
this rule substantially outweigh any minor costs imposed by the
exercise of existing contracting authority. The 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 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 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
[[Page 65657]]
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 rule, SBA clarifies that the contracting officer may
request information to demonstrate a contractor's compliance with the
limitations on subcontracting clause. SBA also clarifies that it is
within the contracting officer's 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 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-06-399, 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 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 will
provide exceptions to the limitations on subcontracting 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 provision
allowing agencies to receive double credit toward their 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 rule due to the incentive for the procuring
agency to receive double credit toward its small business procurement
goals by utilizing this authority.
We believe that, pursuant to FAR 1.602-2, contracting officers
already possess the authority to request information from a contractor
concerning compliance with a clause in the contract at issue. In
addition, on some contracts, compliance can already be reviewed or
monitored by reviewing invoices. This rule clarifies that contracting
officers have the authority to request information in connection with a
contractor's compliance with applicable limitations on subcontracting
clauses. Approximately 53,000 firms received approximately 185,000
sole-source or set-aside awards in FY 2018. SBA is clarifying 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 will be subject to a request for
this information (5,300 small business concerns and 18,500 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 an
overall annual cost of approximately $815,110 for small businesses to
provide information on compliance with the limitations on
subcontracting, as requested by the contracting officer. The difference
between this figure and the $600,120 figure cited in the rule reflects
an adjustment in the hourly wage rate included as part of the
calculation of the overall annual cost. After adding approximately 30%
to the hourly wage rate to account for the cost of benefits, SBA
arrived at $815,110 as more accurately reflecting the estimated overall
annual cost.
This 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 2018, approximately 1200 firms had
commercial subcontracting plans. SBA estimates that approximately 95%
of those 1200 firms include indirect costs in their subcontracting
goals. Thus, this rule will impact approximately 60 firms. The burden
will be de minimis, as the accounting or contract manager will 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
[[Page 65658]]
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 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 will be de minimis. The benefit of
this rule is that it will assist SBA and contracting officers with
oversight of prime contractor compliance with subcontracting plans and
should result in increased compliance with subcontracting plans.
This final 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 rule is merely
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 rule will limit the scope of PCR 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 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 provisions contained in this rule are required to
implement statutory provisions, thus there are no apparent alternatives
for these regulations. With respect to the provision 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
limitations on subcontracting on all set-aside or sole source
contracts. However, SBA believed that would 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,
to ensure that the benefits of the small business programs are flowing
to the intended recipients.
Executive Order 13563
As far as practicable or relevant, SBA considered the requirements
below in developing this rule.
1. Did the agency use the best available techniques to quantify
anticipated present and future costs when responding to E.O. 12866
(e.g., identifying changing future compliance costs that might result
from technological innovation or anticipated behavioral changes)?
To the extent possible, the Agency utilized the most recent data
available in the Federal Procurement Data System--Next Generation,
System for Award Management and Electronic Subcontracting Reporting
System.
2. Public participation: Did the agency: (a) Afford the public a
meaningful opportunity to comment through the internet on any proposed
regulation, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the public; (c)
provide timely online access to the rulemaking docket on
Regulations.gov; and (d) seek the views of those who are likely to be
affected by rulemaking, even before issuing a notice of proposed
rulemaking?
SBA published a proposed rule with a 60-day comment period, and the
proposed rulemaking was 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 Acquisition
Small Business Team prior to submitting the rule to OMB for interagency
review. SBA received almost 250 specific comments to the proposed rule,
which SBA considered in drafting this final rule.
3. Flexibility: Did the agency identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public?
Yes, this rule implements statutory provisions and clarifies
certain SBA regulations, as requested by agencies and stakeholders. In
addition, SBA clarifies that contracting officers may request
information from their contractors to determine whether the contractor
is complying with the limitations on subcontracting. 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 in section 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce
[[Page 65659]]
burden. This action does not have any retroactive or preemptive effect.
Executive Order 13132
SBA has determined that this 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 rule is expected to be an Executive Order 13771 regulatory
action. Details on the estimated costs of this rule can be found in the
rule's regulatory impact analysis.
Unfunded Mandates Reform Act of 1995
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).
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 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). This rule will
provide express authority for contracting officers to request
information on contractors' compliance with the limitations on
subcontracting requirements. SBA did not receive any comments on this
information collection.
SBA sought review and approval from OMB for this information
collection, as discussed in the proposed rule. SBA received a Notice of
Office of Management and Budget Action on June 10, 2019, certifying OMB
pre-approval of the information collection. SBA is not making any
substantive changes to the information collection described in the
proposed rule and submitted to OMB. The information collection is
titled ``Compliance with the Limitations on Subcontracting'' and has
been assigned OMB Control Number 3245-400.
A summary description of the reporting requirement, description of
respondents, and estimate of the annual burden is provided 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: 3245-0400.
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 limitations on
subcontracting 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 53,000 concerns receive
approximately 185,000 small business sole source or set-aside awards in
a fiscal year and that no more than ten percent (5,300) of concerns
will be asked to provide information on compliance with the limitations
on subcontracting for no more than ten percent (18,500) of the awards
that have been received.
Estimated Annual Responses: 18,500.
Estimated Response Time per Respondent: 1 hour.
Total Estimated Annual Hour Burden: 18,500.
Estimated Costs Based on Respondent's Salary: $44.06/hour (based on
2018 Median Pay for accountants and auditors, Bureau of Labor
Statistics, plus an additional 30% to account for cost of benefits, as
discussed in the Regulatory Impact Assessment).
Total Estimated Hour Annual Cost Burden: 18,500 hours x $44.06/hour
= $815,110.
Regulatory Flexibility Act, 5 U.S.C. 601-612
Under the Regulatory Flexibility Act (RFA), this rule may have a
significant on a substantial number of small businesses. Immediately
below, SBA sets forth a final regulatory flexibility analysis (FRFA)
addressing the impact of the rule in accordance with section 603, title
5, of the United States Code. The FRFA examines the objectives and
legal basis for this 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 final rule; and whether there are any
significant alternatives to this final rule.
1. What are the need for and objective of the rule?
The 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 rule makes
several other changes needed to clarify ambiguities in or remedy
perceived problems with the current regulations. These changes should
make SBA's regulations easier to use and understand. The 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 change to Sec. 121.404 clarifies when size for a Government
contract is determined, which will reduce confusion for small business
concerns. The 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 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 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
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 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 changes to Sec. 125.3 implement section 1821 of the
NDAA of
[[Page 65660]]
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 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 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 changes to
Sec. 125.6 also help small businesses by clarifying the difference
between an employee and an independent contractor. The 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 change simply clarifies
that the authority exists. Finally, the benefits to small business
concerns of this rule substantially outweigh any minor costs imposed by
the reporting authority. The 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 (the new 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?
The rule will 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 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 rule clarifies that contracting officers may request
access to information in connection with a contractor's compliance with
applicable limitations on subcontracting clauses. Approximately 53,000
firms received sole source or set-aside awards in FY 2018. SBA is
clarifying that a contracting officer may request information to ensure
compliance with the limitations on subcontracting 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 (18,500), 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 an overall annual cost
of approximately $815,110. As discussed above in the Regulatory Impact
Analysis, this figure differs from the figure included in the IRFA to
reflect the increased hourly rate that is included as part of the cost
analysis.
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 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 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
limitations on subcontracting 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.
[[Page 65661]]
13 CFR Part 129
Administrative practice and procedure, Government contracts,
Government procurement, Small businesses.
Accordingly, for the reasons stated in the preamble, SBA amends 13
CFR parts 121, 124, 125, 126, and 127 and adds 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 reads 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
(v) The Participant can demonstrate that it, together with any
similarly situated entity, will meet the limitations on subcontracting
provisions set forth in Sec. 124.510.
* * * * *
0
7. Amend Sec. 124.507 by:
0
a. Removing the word ``and'' at the end of paragraph (b)(2)(iv);
0
b. Removing the period at the end of paragraph (b)(2)(v) and adding in
its place ``; and''; and
0
c. Adding paragraph (b)(2)(vi).
The addition reads as follows:
Sec. 124.507 What procedures apply to competitive 8(a) procurements?
* * * * *
(b) * * *
(2) * * *
(vi) Can demonstrate that it, together with any similarly situated
entity, will meet the limitations on subcontracting provisions set
forth in Sec. 124.510.
* * * * *
0
8. Amend Sec. 124.521 by adding 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 is an eligible
8(a) Participant at the time of initial offer or response, which
includes price, for an 8(a) contract, 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 8(a) Contract, where concerns are not required to submit
price as part of the offer for the contract, a concern that is an
eligible 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 8(a) 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)
eligibility determination 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 a
Small Disadvantaged Business (SDB).
(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 that was initially awarded a non-
8(a) contract that is subsequently novated to another business concern,
the concern that will continue performance on the contract must certify
its SDB status 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.
(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 SDB status
[[Page 65662]]
to the procuring agency, or inform the procuring agency that it no
longer qualifies as an SDB. If the contractor is no longer a current
8(a) Participant, the contractor is not eligible for orders limited to
8(a) awardees. 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 for which they directly certify information to reflect the
new status.
(2) For the purposes of 8(a) contracts (including Multiple Award
Contracts) with durations of more than five years (including options),
a contracting officer must verify in DSBS whether a business concern
continues to be an eligible 8(a) Participant 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
qualify as an eligible 8(a) Participant 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
qualify as eligible 8(a) Participants 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 will be determined at the time of a response
to a solicitation for a basic ordering agreement (BOA), basic agreement
(BA), or blanket purchase agreement (BPA) and each order issued
pursuant to the BOA, BA, or BPA.
0
9. Amend Sec. 124.1015 by adding 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 for which
they directly certify information 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 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
10. 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, 657(f),
and 657r.
0
11. 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 the paragraph (e)(6) subject heading and paragraph
(e)(6)(i).
The revisions and additions 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) General. 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:
[[Page 65663]]
(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) One acceptable offer. 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 humanitarian or civic assistance provided in
conjunction with military operations 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 Government
Point of Entry (GPE) 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 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 GPE 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) Set-aside of orders against Multiple Award Contracts. (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 (and where appropriate EDWOSBs).
* * * * *
0
12. 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 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;
[[Page 65664]]
(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 submission of a
written explanation to 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. The contractor or subcontractor's failure to comply with this
requirement in good faith 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
13. 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) introductory text;
0
c. Revising paragraph (e)(3); and
0
d. Adding paragraph (e)(4).
The additions and revision 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 overseas on awards made pursuant to the Foreign Assistance
Act of 1961 or work required to be performed by a local contractor, is
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) For contracts 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.
(4) Contracting officers may, at their discretion, require the
contractor to demonstrate its compliance with the limitations on
subcontracting at any time during performance and upon completion of a
contract if the information regarding such compliance is not already
available to the contracting officer. Evidence of compliance includes,
but is not limited to, invoices, copies of subcontracts, or a list of
the value of tasks performed.
* * * * *
0
14. 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 reads as follows:
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 or sole source service contract or
order, the prime contractor is not eligible for award of an SDVO
contract.
(1) 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.
(2) SBA will find that a prime SDVO contractor is performing the
primary and vital requirements of a contract or order and is not unduly
reliant on one or more non-similarly situated subcontracts where the
prime contractor can demonstrate that it, together with any similarly
situated entity, will meet the limitations on subcontracting provisions
set forth in Sec. 125.6.
0
15. Amend Sec. 125.29 by adding 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
16. 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
17. 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 reads 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
[[Page 65665]]
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.
(1) 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.
(2) SBA will find that a prime HUBZone contractor is performing the
primary and vital requirements of a contract or order and is not unduly
reliant on one or more non-similarly situated subcontracts where the
prime contractor can demonstrate that it, together with any similarly
situated entity, will meet the limitations on subcontracting provisions
set forth in Sec. 125.6.
0
18. Amend Sec. 126.801 by adding a new fourth sentence to paragraph
(a) 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
19. 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
20. Amend Sec. 127.503 by removing the phrase ``WOSB/EDWOSB contract''
wherever it appears and adding in its place the word ``contract'' in
paragraphs (h)(1)(i) and (ii).
0
21. Amend Sec. 127.504 by adding 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) 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 WOSB or EDWOSB contract.
(1) 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.
(2) SBA will find that a prime WOSB or EDWOSB contractor is
performing the primary and vital requirements of a contract or order
and is not unduly reliant on one or more non-similarly situated
subcontracts where the prime contractor can demonstrate that it,
together with any similarly situated entity, will meet the limitations
on subcontracting provisions set forth in Sec. 125.6.
0
22. Amend Sec. 127.602 by revising the second sentence and adding a
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
23. 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 an emergency response 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
(ii) Generated at least half of the firm's gross revenues and
employed at least half of its permanent employees in the area.
(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.
[[Page 65666]]
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 13 CFR 121.108, 125.32, 126.900, and
127.700 are applicable to set-asides under this part.
PART 134--RULES OF PROCEDURE GOVERNING CASES BEFORE THE OFFICE OF
HEARINGS AND APPEALS
0
24. The authority citation for part 134 continues to read as follows:
Authority: 5 U.S.C. 504; 15 U.S.C. 632, 634(b)(6), 634(i),
637(a), 648(l), 656(i), and 687(c); 38 U.S.C. 8127(f); E.O. 12549,
51 FR 6370, 3 CFR, 1986 Comp., p. 189.
Subpart J issued under 38 U.S.C. 8127(f)(8)(B).
Subpart K issued under 38 U.S.C. 8127(f)(8)(A).
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25. Amend Sec. 134.1003 by redesignating paragraph (c) as paragraph
(d) and by adding new paragraph (c) to read as follows:
Sec. 134.1003 Grounds for filing a CVE Protest.
* * * * *
(c) Unusual reliance. SBA will consider a protest challenging
whether the prime contractor is unusually reliant on a subcontractor
that is not CVE verified, or a protest alleging that such subcontractor
is performing the primary and vital requirements of a VA procurement
contract.
* * * * *
Dated: November 19, 2019.
Christopher Pilkerton,
Acting Administrator.
[FR Doc. 2019-25517 Filed 11-27-19; 8:45 am]
BILLING CODE 8025-01-P