[Federal Register Volume 87, Number 80 (Tuesday, April 26, 2022)]
[Rules and Regulations]
[Pages 24836-24843]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-08577]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 2, 19, and 52

[FAC 2022-06; FAR Case 2016-002; Item I; Docket No. 2016-0002, Sequence 
No. 1]
RIN 9000-AN34


Federal Acquisition Regulation: Applicability of Small Business 
Regulations Outside the United States

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

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to support the Small Business 
Administration (SBA) policy of including overseas contracts in agency 
small business contracting goals. This final rule allows small business 
contracting procedures, e.g., set-asides, to apply to overseas 
procurements.

DATES: Effective: May 26, 2022.

FOR FURTHER INFORMATION CONTACT: Ms. Mahruba Uddowla, Procurement 
Analyst, at 703-605-2868, or by email at [email protected], for 
clarification of content. For information

[[Page 24837]]

pertaining to status or publication schedules, contact the Regulatory 
Secretariat Division at 202-501-4755 or [email protected]. Please cite 
FAC 2022-06, FAR Case 2016-002.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published a proposed rule at 84 FR 39793 on 
August 12, 2019, to support SBA's policy of including overseas 
contracts in agency small business contracting goals by allowing small 
business contracting procedures, e.g., set-asides, to apply to overseas 
procurements (i.e., procurements outside the United States and its 
outlying areas), which is expected to expand overseas opportunities for 
small business concerns. Twenty-six respondents submitted comments on 
the proposed rule.

II. Discussion and Analysis

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

A. Summary of Significant Changes From the Proposed Rule

    This final rule makes conforming changes to FAR solicitation 
provisions 52.204-8, Annual Representations and Certifications, and 
52.212-3, Offeror Representations and Certifications--Commercial 
Products and Commercial Services. These changes are required to resolve 
conflicts between these provisions and the changes in the proposed rule 
to the prescriptions at FAR 19.309.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: Multiple respondents expressed their support for the rule.
    Response: The Councils acknowledge the respondents' support for the 
rule.
2. Opposition to the Rule
    Comment: A few respondents expressed their opposition to the rule.
    Response: The Councils acknowledge the respondents' opposition to 
the rule. The Councils have taken into consideration all of the public 
comments in the development of this final rule.
3. Legal Concerns Regarding Overseas Application of the Small Business 
Act
    Comment: One respondent stated that the Small Business Act must 
show an affirmative intent to apply overseas and reconcile conflicts of 
law, otherwise the statute is meant to apply only within the 
territorial jurisdiction of the United States. The respondent further 
stated the Small Business Act is silent regarding its application 
overseas and does not account for conflicts of law. A second respondent 
stated that it has been the position of DoD that the Small Business Act 
does not apply outside of the United States and its outlying areas. 
According to the respondent, absent a statement of Congressional 
intent, the Government Accountability Office (GAO) has deferred to 
DoD's interpretation of the Small Business Act embodied in FAR 
19.000(b) (Latvian Connection Gen. Trading & Constr. LLC, B-408633, 
2013 CPD 224, September 8, 2013). The respondent described GAO's 
deference to DoD's interpretation embodied in the FAR as an example of 
``Chevron'' deference, which does not give agencies license to follow 
statutes to the extent they deem desirable; instead, it is deference to 
an agency's permissible interpretation of an ambiguous statute. A third 
respondent noted that the Federal Acquisition Regulatory Council (FAR 
Council) stated that the change in the proposed rule is being done to 
be consistent with SBA's own rules. The respondent stated that by 
revising FAR 19.000(b) to explicitly make application of FAR part 19 
``discretionary'' for overseas contracts, the FAR Council is amending 
the FAR to continue to conflict with SBA's regulations directly, or at 
the very least conflict with SBA's stated interpretation of its 
regulations. This respondent mentioned that SBA's interpretation of the 
Small Business Act is that the application of the Act overseas is 
mandatory, not discretionary. The respondent recommended that the FAR 
Council consult with SBA to ensure the FAR rule, and FAR 19.000(b) in 
particular, conform to SBA's regulations. Two respondents expressed 
concern regarding conflicts between this FAR rule and treaties and 
international agreements. One of the respondents stated the proposed 
rule did not require the contracting officer to document how they 
considered international agreements when exercising their discretion. 
The other respondent indicated that overseas contracting officers will 
not have the discretion to apply FAR part 19 when international 
treaties or international agreements require solicitation or award to 
host nation sources. According to this respondent, if the proposed rule 
is adopted, it should be revised to reflect this lack of discretion.
    Response: In its October 2, 2013, final rule, SBA applied the Small 
Business Act to overseas acquisitions. The Councils note that, at the 
time of the GAO's decision in the cited Latvian Connection case, SBA's 
regulations were silent regarding the application of the Small Business 
Act outside the United States and its outlying areas. SBA's final rule 
amended 13 CFR 125.2, which SBA stated was issued in part to clarify 
its position that the Small Business Act applies ``regardless of the 
place of performance''.
    The Councils proposed to amend the FAR to support SBA's changes to 
the basis for the Governmentwide small business contracting goals. This 
rule will allow for application of FAR part 19 overseas and thereby 
expand opportunities for small business concerns overseas. The Councils 
are aware that the SBA regulations at 13 CFR 125.2 do not make 
application of small business set-aside and sole-source authorities 
discretionary for overseas acquisitions. However, the Councils 
recognize that overseas acquisitions are subject to international 
agreements, treaties, local laws, diplomatic and other considerations 
that are unique to the overseas environment and may limit the 
Government's ability to apply the small business preferences in FAR 
part 19 on a mandatory basis. In addition, the Councils believe that 
policies issued subsequent to the promulgation of SBA's regulations, 
such as those in Executive Order (E.O.) 14005, Ensuring the Future Is 
Made in All of America by All of America's Workers, addressing steps to 
increase reliance on domestic manufacturing, will operate more 
effectively with a discretionary policy for use of set-asides overseas.
    It is not practicable to list in the FAR everything that may affect 
the decision to set aside an overseas acquisition. Therefore, the 
Councils are amending the FAR to make the use of part 19 discretionary 
outside the United States and its outlying areas, so agencies and their 
contracting officers can consider these factors in the exercise of 
their discretion. The Councils confirm that SBA representatives 
participated in the development of both the proposed and final FAR 
rules and concurred with both the proposed and final FAR rules.
4. Rule Creates Conflicts Within the FAR
    Comment: Two respondents stated that the proposed rule created 
conflicts

[[Page 24838]]

within the FAR. The respondents cited the following examples of 
conflicts:
     The provisions at FAR 52.204-8, Annual Representations and 
Certifications, and 52.212-3, Offeror Representations and 
Certifications--Commercial Products and Commercial Services, explicitly 
provide that small business representations only apply when the 
resulting contract is to be performed in the United States or its 
outlying areas. This conflict makes the rule unclear for offerors and 
contracting officers.
     FAR 19.702(b)(3) and 19.708 do not explicitly require 
small business subcontracting plans for any contract performed entirely 
outside the United States or its outlying areas. The respondent 
believes that it is illogical for an agency to set aside an overseas 
contract for small business when it is prohibited from requiring small 
business subcontracting for those same contracts. The respondent points 
to Defense Federal Acquisition Regulation Supplement (DFARS) clause 
252.225-7002(b), Qualifying Country Sources as Subcontractors, as a 
further example that complements the FAR's prohibition on requiring a 
small business subcontracting plan for overseas contract.
     FAR part 25, Foreign Acquisition, is problematic to 
reconcile with the proposed rule. Specifically, the respondent points 
to the requirements at FAR 25.802 and DFARS 225.7401 for contracting 
officers to incorporate relevant requirements of international 
agreements into solicitations and contracts, while the proposed rule is 
silent on how contracting officers are to account for international 
agreements in making their discretionary set-aside decisions.
     It is difficult for a small business to comply with the 
requirements at FAR 52.219-14, Limitations on Subcontracting, and the 
``Balance of Payments'' regulations at DFARS 225.75 (e.g., World Trade 
Organization Government Procurement Agreement) because each requirement 
specifies use of certain sources.
    Response: With regard to the representation provisions, the 
Councils concur that there is a conflict. Conforming edits have been 
made to resolve the conflict at FAR 52.204-8(c)(1)(xii) and (xiii) as 
well as FAR 52.212-3(c).
    With regard to FAR subpart 19.7, the Councils note that FAR 
19.702(b) states that small business subcontracting plans are not 
required for contracts performed entirely overseas, but it does not 
prohibit use of set-asides for prime contracts overseas. Therefore, 
there is no conflict that needs to be resolved.
    With regard to FAR 25.802, this final rule provides discretion to 
contracting officers in making a set-aside decision for overseas 
acquisitions so they can choose the appropriate acquisition strategy 
for the location. The discretion provided in the rule will allow 
contracting officers to avoid possible conflicts between FAR 52.219-14 
and other regulations. For further discussion related to international 
agreements, see the responses to comments under category 9. For further 
discussion related to the limitations on subcontracting, see the 
response to comments under category 11.
5. Application of Consolidation and Bundling to Overseas Contracts
    Comment: Two respondents recommend not revising the definition of 
``bundling'' in FAR subpart 2.1, Definitions, to make bundling 
applicable to a contract that will be awarded and performed entirely 
outside of the United States. The respondents believe that if the 
requirements of FAR 7.107-2, Consolidation; 7.107-3, Bundling; and 
7.107-4, Substantial bundling, are mandatory for overseas contracts, 
then: (a) Contracting officers would be required to justify not 
applying FAR part 19, and (b) this would cause overseas procurement 
actions involving bundling to be extremely burdensome, time consuming, 
and unlikely to occur. Therefore, contracting officers should not be 
required to follow consolidation and bundling procedures for overseas 
contracts. One of the respondents stated that making bundling 
requirements applicable to overseas acquisitions is problematic for two 
reasons. First, such requirements can be inconsistent with acquisition 
approaches and source restrictions in international agreements, foreign 
military sales (FMS) letters of offer and acceptance, and other 
arrangements with foreign partners. Second, agencies regularly use the 
bundling strategy to make overseas requirements attractive to capable 
vendors to induce them to enter foreign markets.
    Response: The Small Business Act does not exempt an agency from 
justifying its consolidation and bundling of contract requirements 
based on location of award, location of service performance, or 
location of supply delivery. The Councils note that the FAR currently 
applies the consolidation requirements to overseas contracts, which is 
consistent with the Small Business Act. As such, this rule is not 
making any changes to the FAR definition of ``consolidation or 
consolidated requirement'' at FAR 2.101, Definitions, nor the 
applicability of FAR 7.107-2, Consolidation. The bundling requirements 
at FAR 7.107-3, Bundling, and 7.107-4, Substantial bundling, require an 
agency to make a written determination that such action is necessary 
and justified, allowing agencies to bundle in certain circumstances. 
Applying the bundling requirements to overseas contracts requires 
agencies to provide for maximum practicable participation by small 
business concerns as contractors. Providing for maximum practicable 
participation by small business concerns is not the same as mandating 
the use of set-asides or creating a de facto justification requirement 
for not applying FAR part 19 to overseas contracts. The respondent's 
comments on the DoD FMS Program are outside the scope of this case.
6. Negative Impacts of the Rule
a. Higher Prices
    Comment: Two respondents stated the changes in the proposed rule 
would negatively impact the taxpayer by driving up prices. One of the 
respondents believed that foreign-owned entities would almost always 
have better pricing for contracts performed overseas than U.S.-owned 
small businesses. The other respondent believed the changes would 
result in higher liabilities, ignorance of the market and environment, 
and less control over the work.
    Response: The Councils recognize that overseas contracts are 
subject to considerations that are unique to the overseas environment, 
as described in the response to comments under category 3. In 
acknowledgment of these considerations, this final rule retains the 
proposed rule text to make the use of FAR part 19 discretionary outside 
the United States and its outlying areas to allow contracting officers 
to use the most appropriate acquisition strategy. When the contracting 
officer is determining whether to set aside the procurement, fair 
market price, quality, and delivery are some of the factors considered. 
Any new entrants into overseas markets, whether small or other than 
small business concerns, will experience the same challenges: Competing 
with native businesses who know the market, economic conditions, and 
applicable laws. However, each time U.S. small businesses go through 
the solicitation process for overseas contracts, they will gain 
experience and knowledge. By allowing discretionary use of small 
business procurement rules

[[Page 24839]]

for overseas contracts, contracting officers can develop appropriate 
acquisition strategies to encourage U.S. small businesses to 
participate and become competitive. Small businesses will win contracts 
when their proposal or bid demonstrates they can perform the work at 
the lowest price or based on tradeoffs among price and non-price 
evaluation factors.
b. Additional Acquisition Lead Time
    Comment: One respondent stated that contracting officers must 
already consider complex sourcing requirements for overseas 
acquisitions, and adding small business goals and set-asides to the 
process will add to acquisition lead time without adding corresponding 
value. The respondent noted that nothing currently precludes small 
businesses from competing for overseas acquisitions.
    Response: The Councils recognize the complex sourcing requirements 
for overseas acquisitions. Discretionary use of FAR part 19 for 
overseas procurements will address an important public policy objective 
of the Government to enhance the participation of small businesses in 
overseas Federal acquisition as appropriate.
c. Improper Influence of Government Personnel
    Comment: One respondent commented that allowing for discretionary 
authority to set aside overseas procurements may lead to prospective 
offerors trying to influence Government personnel in favor of set-
asides or full and open competition in corrupt ways, since there are 
likely to be very few U.S. small businesses capable of fulfilling any 
complicated Government requirement in many foreign countries.
    Response: The FAR addresses improper business practices and 
personal conflicts of interest in Government procurement at part 3, 
which applies regardless of the location or situation. Part 3 states 
that expenditure of public funds requires the highest degree of public 
trust and an impeccable standard of conduct. Therefore, Government 
personnel are required to act in good faith when making acquisition 
decisions, which are subject to review as appropriate.
d. Contract Issues and Financial Hardship
    Comment: One respondent believed that it is impossible for a 
contracting officer to take into account all the possible unforeseen 
impediments and costs that a U.S. small business could encounter when 
performing in a foreign country. By making set-aside decisions, the 
contracting officer would end up awarding contracts with higher rates 
of default, delays, and claims than contracts awarded with unrestricted 
competition or including participation by host nation firms. Two 
respondents commented that U.S. small businesses are not suitable for 
overseas acquisitions and may end up suffering substantial losses by 
operating overseas. One of the respondents believed that small 
businesses, unlike large businesses, are unlikely to have the 
capability to make the necessary capital outlay, assign the necessary 
personnel, or offer local partners sufficient expectation of future 
work, to effectively prepare to perform in foreign countries, which may 
lead to project delays and increased costs for which the contractor 
could be liable. The other respondent used the cost of Value Added 
Taxes (VAT) on materials and services purchased in foreign countries, 
which the respondent calculates as averaging 20 percent, as an example 
to highlight the unsuitability of a small business for overseas 
acquisitions. According to the respondent, while some contractors are 
exempt from paying VAT for work performed on behalf of the U.S. 
Government, the contractors must still pay the VAT at initial point of 
sale and then wait 6 months to a year for a refund of that VAT from the 
foreign government. According to the respondent, this creates financial 
hardship for small businesses.
    Response: The Councils recognize overseas contracts are subject to 
considerations that are unique to the overseas environment, as 
described in the response to comments under category 3, for both small 
business concerns and other than small business concerns. In 
acknowledgment of these considerations, this final rule retains the 
proposed rule text to make the use of FAR part 19 discretionary outside 
the United States and its outlying areas to allow contracting officers 
to utilize the most appropriate acquisition strategy. The Councils note 
that prospective contractors are required to meet certain standards in 
order to be determined responsible and therefore, eligible for award. 
If there are questions regarding a prospective small business 
contractor's responsibility, the matter would be referred to SBA in 
accordance with FAR subpart 19.6. Offerors are expected to practice 
sound business judgment in deciding which overseas opportunities to 
pursue and be aware of potential financial risks.
7. Overseas Construction and Services Contracts
    Comment: A few respondents noted that overseas construction 
contracts are high risk and complex. The respondents pointed to 
difficulties with supply chain management, meeting specified staffing 
requirements, understanding local market conditions, and managing local 
subcontractors and material suppliers as examples of the complexities 
of overseas construction contracts. One of the respondents stated that 
overseas construction and architect-engineer (A/E) contracts are 
inherently local in nature and require detailed knowledge of host 
nation laws and requirements related to construction, e.g., building 
standards, permitting and licensing requirements, environmental 
matters. As such, the respondents stated that overseas construction 
contracts are not suitable for small businesses. Two respondents stated 
FAR part 19 should exclude overseas construction and service contracts. 
One of the respondents proposed a revision at FAR 19.000(b) to exclude 
construction contracts.
    Response: The Councils considered the recommended revision and 
decided not to adopt it in the final rule since it does not reflect the 
best course of action for every overseas construction acquisition. The 
Councils recognize overseas construction and service contracts are 
subject to considerations that are unique to the overseas environment, 
as described in the response to comments under category 3, for both 
small business concerns and other than small business concerns. In 
acknowledgment of these considerations, this final rule retains the 
proposed rule text to make the use of FAR part 19 discretionary outside 
the United States and its outlying areas.
8. Clarification Needed
a. Change Not Clear
    Comment: One respondent stated the proposed rule is not clear 
regarding what is meant by ``applying'' FAR part 19 to overseas 
acquisitions. The respondent requested the rule state whether 
application referred to where the contracting officer is located or 
where contract performance will take place.
    Response: The final rule does not change the way FAR part 19 
applies in the United States and its outlying areas. The rule is 
written to provide maximum flexibility to contracting officers to apply 
FAR part 19 outside the United States and its outlying areas.

[[Page 24840]]

b. Revisions Required to FAR 19.309
    Comment: One respondent stated FAR 19.309 requires updating to 
indicate when provisions and clauses must be added.
    Response: The final rule retains the proposed rule text to make 
changes to FAR 19.309, Solicitation provisions and contract clauses, 
which allows the provisions and clauses to be added when the 
contracting officer exercises their discretion and applies FAR part 19 
to an overseas procurement.
9. Treaties and Other International Agreements
    Comment: One respondent concluded that the Competition in 
Contracting Act (CICA) explains how it applies when international 
agreements and treaties apply for contracts awarded outside of the 
United States. Two respondents pointed out that neither the Small 
Business Act nor the proposed rule do the same to reconcile U.S. 
obligations in applicable treaties and international agreements. One of 
these respondents stated that the proposed rule is contrary to 
international treaty obligations, other applicable international 
agreement obligations, or local laws. Consequently, the contracting 
officer may not have the discretion to apply FAR part 19 to most 
construction and services contracts to be performed in a foreign 
overseas location. Treaties and international agreements are treated as 
paramount and are recognized as authorized restrictions on competition 
outside the United States.
    Response: The Councils agree that the Small Business Act does not 
specifically address U.S. contracting obligations under applicable 
treaties or international agreements. The Councils also agree that 
contracting officers may not be able to apply FAR part 19 to overseas 
acquisitions when treaties or international agreements require 
solicitation or award to host nation sources or prohibit setting aside 
awards for U.S. firms. This FAR rule clarifies that FAR part 19 may be 
applied to procurements for supplies to be delivered or services to be 
performed outside the United States and its outlying areas. The 
proposed changes will encourage agencies to see if there are 
opportunities to contract with small businesses for overseas 
acquisitions and apply the Small Business Act to contracts awarded for 
performance overseas.
10. Foreign Entities
a. Rule Is Supported by Inaccurate Data on Foreign Entities
    Comment: One respondent stated that SBA cannot determine size 
standards for foreign entities, and that the entities are not eligible 
for socioeconomic categories. These entities are shown by default as 
``other than small'' in the System for Award Management (SAM) and 
Federal Procurement Data System (FPDS), even though the entities may be 
small. The respondent noted that the proposed changes ignore that many 
contracts awarded outside the United States, for performance outside 
the United States, are awarded to foreign entities.
    Response: SBA establishes size standards corresponding to North 
American Industry Classification System (NAICS) codes, which apply to 
all offerors for a specific procurement, regardless of whether the 
offerors are foreign entities. SBA's regulations define ``business 
concern'' as an entity that is ``organized for profit, with a place of 
business located in the United States, and which operates primarily 
within the United States or which makes a significant contribution to 
the U.S. economy through payment of taxes or use of American products, 
materials or labor'' (13 CFR 121.105). Such entities that meet the 
definition of ``business concern'' may be considered small for FAR part 
19 procurements if they meet the size standard for the NAICS code 
assigned to a specific procurement. According to SBA, SAM and FPDS 
function as intended.
b. Rule Excludes Small Foreign Entities
    Comment: A respondent commented that, since non-U.S. businesses are 
not considered ``small,'' applying small business size standards 
outside the United States excludes foreign entities and limits 
competition to U.S. companies only, contrary to CICA.
    Response: As explained in the response to the comment under 
category 10a, SBA's regulations allow ``non-U.S. businesses'' to be 
considered small business concerns for the purposes of FAR part 19 
procurements if they meet the criteria at 13 CFR 121.105. The Councils 
note that CICA provides an exception that allows agencies to exclude 
from competition other than small businesses in furtherance of sections 
9 and 15 of the Small Business Act (see 10 U.S.C. 2304(b)(2) and 41 
U.S.C. 3303(b)).
c. Rule Allows Foreign Entities To Benefit From Set-Asides
    Comment: One respondent questioned why a small business that is 
``foreign located, foreign owned, foreign controlled'' should be 
allowed to benefit from Federal procurement regulations.
    Response: This FAR rule is not changing which business concerns 
qualify for part 19 procurements. See the response to the comment under 
category 10a for discussion of SBA's definition of ``business 
concern.''
11. Compliance With the Limitations on Subcontracting Requirements
    Comment: Two respondents raised concerns that many small businesses 
will likely have difficulties complying with the limitations on 
subcontracting requirements. One respondent pointed out that unlike 
large businesses, small businesses lack the necessary on-site personnel 
to perform certain percentages of work that are required by the FAR. 
The respondent further stated that in some countries labor laws mandate 
the use of local labor, which creates the concern of how to apply and 
administer the limitations on subcontracting requirements. The other 
respondent stated that in certain countries, non-local entities would 
need to be ``sponsored,'' which means a U.S. small business cannot 
operate without contracting out all on-site performance to a local 
subcontractor.
    Response: The Councils recognize overseas contracts are subject to 
considerations that are unique to the overseas environment. It is not 
practicable to list in the FAR every factor that may affect an overseas 
acquisition. In acknowledgment of these considerations, this final rule 
retains the proposed rule text to make the use of FAR part 19 
discretionary outside the United States and its outlying areas to allow 
contracting officers to utilize the most appropriate acquisition 
strategy. In addition, the Councils note that offerors should practice 
sound business judgment in deciding which opportunities to pursue. The 
Councils also note that FAR part 9 addresses certain standards every 
prospective contractor is required to meet to be determined responsible 
and therefore eligible for award.
12. Compliance With Existing Set-Aside and Subcontracting Regulations
    Comment: One respondent recommended that effort be made in forcing 
greater compliance with existing small business set-aside and 
subcontracting regulations instead of pursuing the changes in the 
proposed

[[Page 24841]]

rule. The respondent believes the proposed rule is expanding the 
definition of small business to include ``foreign located, foreign 
owned, foreign controlled'' businesses overseas.
    Response: Agencies have procedures and processes in place to 
monitor and ensure compliance with existing acquisition regulations. 
For example, with respect to compliance with the acquisition 
regulations in FAR part 19, the agencies' Office of Small and 
Disadvantaged Business Utilization, or for DoD, Office of Small 
Business Programs, along with the procurement center representatives at 
SBA, have oversight of the use of FAR part 19 in the procurement 
process. As a result of these roles and functions, the Government has 
met its statutory small business goals since fiscal year 2013. This 
rule is expected to expand opportunities for small businesses overseas.
    For further discussion related to businesses that may qualify as 
small for FAR part 19 procurements, see the response to comments under 
category 10c.
13. Small Businesses as Subcontractors for Overseas Acquisitions
    Comment: One respondent stated that U.S. small businesses in most 
cases are better off supplying their expertise under overseas 
acquisitions as subcontractors to prime contractors that are able to 
undertake the necessary preparations to perform the Government's 
overall requirements. The respondent believes that small businesses 
incur excessive overhead charges compared to large businesses, which 
will result in the Government being charged significantly more overhead 
costs.
    Response: The Councils do not concur with the assumption that small 
businesses are not suitable as prime contractors for overseas 
acquisitions. This FAR case clarifies that FAR part 19 may be applied 
to overseas acquisitions. The changes will encourage agencies to seek 
opportunities to contract to small businesses for overseas 
acquisitions. The Councils note that market research and competition 
will help to establish fair and reasonable prices, inclusive of 
overhead, for overseas acquisitions, regardless of whether offerors are 
small businesses or large businesses.
14. Exemption From Adjudication for Complaints About Noncompliance 
Overseas
    Comment: One respondent recommended that contracting officer 
decisions to set aside, or not to set aside, procurements outside of 
the United States and its outlying areas for small business be excluded 
from available grounds for protest. Similarly, the respondent 
recommended that advertisements of procurements alleged to represent 
bundling of requirements for performance outside of the United States 
and its outlying areas also be excluded from available grounds for 
protest. The respondent believes that because the proposed change has 
the effect of making compliance with the Small Business Act optional 
for procurements outside of the United States and its outlying areas, 
those procurements should be exempt from protests related to 
noncompliance with the Small Business Act.
    Response: The Councils do not have jurisdiction to exclude bundling 
actions or set-aside decisions as an available ground for protest. 
Agency level protests are governed by E.O. 12979, Agency Procurement 
Protests (October 25, 1995). GAO protests are governed by 4 CFR part 
21. Protests in Federal courts are governed by 28 U.S.C. 1491. 
Therefore, the respondent's recommendation is not incorporated into the 
final rule.
15. Outside the Scope of This Rule
    Comment: One respondent asked how this rule would impact the DoD 
requirement at DFARS 219.201 and if agencies outside of the United 
States would have to use the DD Form 2579, Small Business Coordination 
Record. A second respondent recommended that if the form 2579 was left 
as ``fully open and competitive with no set aside,'' even if a small 
business wins the award, there should be zero credit for the small 
business winning the award because neither the agency nor the SBA had 
anything to do with its award to a small business. This respondent 
further asked why the agency or SBA should receive credit when not 
making solicitations set aside for small business. A third respondent 
noted that the proposed rule is contrary to the countless Defense 
agreements that restrict competition to local contractors. This 
respondent specifically referred to the input a host nation would 
normally have regarding changes to an existing Status of Forces 
Agreement (SOFA). The respondent further stated that any changes 
without host nation input would not be well received by the host 
nation. One respondent noted that there are several DoD statutory 
exemptions for categories of contracts that should not be included by 
SBA for goaling purposes. The respondent also stated that these same 
contracting categories are exempt from SBA procurement center 
representative oversight. Therefore, the respondent does not believe 
the proposed rule is consistent with SBA's goaling guidelines. One 
respondent noted that SBA had a regulation stating that, unless a small 
business was owned and located in the United States, it was not a small 
business that could benefit from Federal procurement regulations.
    Response: These comments are outside the scope of this rule. 
Although FAR 19.502-2 addresses small business set-asides, the use of 
the DD Form 2579 is addressed in DFARS 219.201. The procedures 
addressing credit for small business awards, small business procurement 
goals, and how they are implemented, are established in Section 15(g) 
of the Small Business Act and are not included in this FAR rule. DoD-
specific requirements related to review by procurement center 
representatives are addressed in DFARS 219.402. Guidance specific to 
compliance with Defense agreements and SOFAs, as well as the statutory 
exemptions, are implemented by DoD and are DoD-specific. Past 
definitions of ``business concern'' in SBA's regulations are not 
relevant to this rule.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold (SAT) and for Commercial Products (Including Commercially 
Available Off-the-Shelf (COTS) Items) or for Commercial Services

    This rule amends the prescriptions at FAR 19.309, Solicitation 
provisions and contract clauses, for provision 52.219-1, Small Business 
Program Representations; provision 52.219-2, Equal Low Bids; and clause 
52.219-28, Post-Award Small Business Program Rerepresentation. As a 
result of those amendments, this rule makes conforming changes to FAR 
provisions 52.204-8, Annual Representations and Certifications and 
52.212-3, Offeror Representations and Certifications--Commercial 
Products and Commercial Services. However, this rule does not impose 
any new requirements on contracts at or below the SAT, for commercial 
products including COTS items, or for commercial services. The 
provisions and clause continue to apply to acquisitions at or below the 
SAT, and apply or not apply to commercial products including COTS 
items, and for commercial services.

IV. Expected Impact of the Rule

    Currently, FAR 19.000(b) states that FAR part 19, except for FAR 
subpart 19.6, applies only in the United States or its outlying areas. 
Some contracting officers have interpreted the phrase ``applies only in 
the United States'' to mean that they are not allowed to use

[[Page 24842]]

the set-aside and sole-source procedures of FAR part 19 for overseas 
procurements. Other contracting officers have interpreted ``applies 
only in the United States'' to mean that they are not required to use 
FAR part 19 procedures for overseas procurements but may do so if they 
choose. These conflicting interpretations have resulted in inconsistent 
use of FAR part 19 procedures for overseas procurements across Federal 
agencies. Conflicting interpretations may also contribute to low 
numbers of overseas contract actions that are set aside for small 
businesses.
    This rule clarifies that contracting officers are allowed, but not 
required, to use the set-aside and sole-source procedures of FAR part 
19 for overseas procurements. While SBA's regulations do not make the 
use of small business regulations discretionary for overseas 
procurements, it is necessary for the FAR to make the use of the small 
business preferences in FAR part 19 discretionary to resolve the 
conflicts between, on the one hand, the Small Business Act and SBA's 
regulations and, on the other hand, international treaties and 
agreements, local laws, diplomatic and other factors that are unique to 
the overseas environment. Depending on the location of contract 
performance or delivery, these factors may limit the Government's 
ability to apply the small business preferences in FAR part 19 on a 
mandatory basis. To resolve these conflicts, this final rule makes the 
use of FAR part 19 discretionary outside the United States and its 
outlying areas.
    As a result of the clarification provided in this rule, contracting 
officers may set aside more overseas actions for small businesses in 
the future. However, this rule does not impose additional costs or 
reduce existing costs for small businesses who may compete. The rule 
merely allows additional opportunities to be provided to small 
businesses through set-asides and other tools in FAR part 19 for 
overseas procurements.
    Data are not available on the number of overseas procurements 
contracting officers have not set aside for small business as a result 
of the conflicting interpretations described in the first paragraph of 
this section. According to data obtained from the Federal Procurement 
Data System (FPDS) for fiscal years 2019, 2020, and 2021 combined, 
there were 359,567 awards for performance overseas, including 
contracts, task orders and delivery orders, and calls under FAR part 13 
blanket purchase agreements. Of those awards, 344,720 were made to 
approximately 12,002 unique large businesses, while 14,846 awards were 
made to approximately 3,223 unique small businesses. These numbers 
indicate that approximately 4 percent of actions awarded for 
performance outside the United States are awarded to small businesses.
    Contract awards to small businesses could increase if contracting 
officers expand their use of set-asides and other tools in FAR part 19 
for overseas procurements. FAR 19.502-2(b) states that the set-aside 
authority can only be used where a contracting officer has a reasonable 
expectation that offers will be received from two small businesses and 
that award will be made at a fair market price. Similarly, sole-source 
authority under any of the small business programs also requires 
certain conditions to be met before being utilized. The conditions for 
using the FAR part 19 sole-source authorities include, but are not 
limited to, making award at a fair and reasonable price. It is not 
possible to identify how many small businesses will have the 
capability, capacity, or inclination to compete for contracts performed 
outside the United States. In addition, it is not possible to predict 
how many overseas procurements contracting officers will set aside for 
small businesses as a result of the FAR changes.

V. Executive Orders 12866 and 13563

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

VI. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before an interim or final rule takes effect, DoD, GSA, and NASA will 
send the rule and the ``Submission of Federal Rules Under the 
Congressional Review Act'' form to each House of the Congress and to 
the Comptroller General of the United States. A major rule cannot take 
effect until 60 days after it is published in the Federal Register. The 
Office of Information and Regulatory Affairs (OIRA) in the Office of 
Management and Budget has determined that this is not a major rule 
under 5 U.S.C. 804.

VII. Regulatory Flexibility Act

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

    DoD, GSA, and NASA are amending the Federal Acquisition 
Regulation (FAR) to give agencies the tools they need, especially 
the ability to use set-asides, to maximize opportunities for small 
businesses outside the United States. Currently, the FAR states that 
the small business programs do not apply outside of the United 
States and its outlying areas (FAR 19.000(b)). However, with the 
changes to the Small Business Administration's (SBA's) guidelines 
for establishment of small business goals in response to section 
1631(c) of the National Defense Authorization Act for Fiscal Year 
2013 (Pub. L. 112-239), contracts performed outside of the United 
States are now included in the Government's small business 
contracting goals. In addition, SBA has clarified that, as a general 
matter, its small business contracting regulations apply regardless 
of the place of performance.
    This rule is seeking to increase opportunities for small 
business overseas and to support SBA's changes by expanding the use 
of set-asides and other tools to contracts performed outside of the 
United States.
    There were no significant issues raised by the public in 
response to the Initial Regulatory Flexibility Analysis.
    This rule may have a positive economic impact on small 
businesses. The rule expands existing procurement mechanisms (e.g., 
set-asides) to contracts performed outside the United States. 
Therefore, small businesses available to compete for Federal 
contracts performed outside the United States are most directly 
affected by this rule.
    Analysis of the System for Award Management (SAM) as of January 
2022 indicates there are over 420,000 small business registrants 
that can potentially benefit from the implementation of this rule. 
It is not possible to identify which of these small businesses will 
have the capability, capacity, and/or inclination to compete for 
contracts performed outside the United States. An analysis of the 
Federal Procurement Data System (FPDS) for fiscal years 2019, 2020, 
and 2021 revealed that for the combined three years, there were 
approximately 359,567 awards for performance overseas, including 
contracts, task orders and delivery orders, and calls under part 13 
blanket purchase agreements (BPAs). Of those awards, 344,720 were 
made to approximately 12,002 unique large businesses, while 14,846 
awards were made to approximately 3,223 unique small businesses.
    This number could increase if contracting officers expand their 
use of set-asides and other tools in FAR part 19 for overseas 
contracts.
    Therefore, this rule could affect a smaller number of small 
businesses than those found in SAM, but potentially more than those

[[Page 24843]]

revealed by FPDS. DoD, GSA, and NASA note that the set-aside 
authority can only be used where a contracting officer has a 
reasonable expectation that offers will be received from at least 
two small businesses and that award will be made at a fair market 
price. Similarly, sole-source authority under any of the small 
business programs also requires certain conditions to be met before 
being utilized.
    Nonetheless, this rule may have a significant positive economic 
impact on small business concerns competing for Federal contracting 
opportunities since it will provide additional Federal contracting 
opportunities.
    This rule does not include any new reporting, recordkeeping, or 
other compliance requirements for small businesses.
    This final rule is not expected to have a negative impact on any 
small entity.

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

VIII. Paperwork Reduction Act

    This rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. 3501-3521).

List of Subjects in 48 CFR Parts 2, 19, and 52

    Government Procurement.

William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 19, and 52 as 
set forth below:

0
1. The authority citation for 48 CFR parts 2, 19, and 52 continues to 
read as follows:

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

PART 2--DEFINITIONS OF WORDS AND TERMS

0
2.101 [Amended]
0
2. Amend section 2.101, in paragraph (b)(2), in the definition of 
``Bundling'', by removing paragraph (3).

PART 19--SMALL BUSINESS PROGRAMS

0
3. Amend section 19.000 by revising paragraph (b) to read as follows:


19.000  Scope of part.

* * * * *
    (b)(1) Unless otherwise specified in this part (see subparts 19.6 
and 19.7)--
    (i) Contracting officers shall apply this part in the United States 
and its outlying areas; and
    (ii) Contracting officers may apply this part outside the United 
States and its outlying areas.
    (2) Offerors that participate in any procurement under this part 
are required to meet the definition of ``small business concern'' at 
2.101 and the definition of ``concern'' at 19.001.

0
4. Amend section 19.309 by revising paragraphs (a)(1), (b), and (c)(1) 
to read as follows:


19.309  Solicitation provisions and contract clauses.

    (a)(1) Insert the provision at 52.219-1, Small Business Program 
Representations, in solicitations exceeding the micro-purchase 
threshold when the contract is for supplies to be delivered or services 
to be performed in the United States or its outlying areas, or when the 
contracting officer has applied this part in accordance with 
19.000(b)(1)(ii).
* * * * *
    (b) When contracting by sealed bidding, insert the provision at 
52.219-2, Equal Low Bids, in solicitations when the contract is for 
supplies to be delivered or services to be performed in the United 
States or its outlying areas, or when the contracting officer has 
applied this part in accordance with 19.000(b)(1)(ii).
    (c)(1) Insert the clause at 52.219-28, Post-Award Small Business 
Program Rerepresentation, in solicitations and contracts exceeding the 
micro-purchase threshold when the contract is for supplies to be 
delivered or services to be performed in the United States or its 
outlying areas, or when the contracting officer has applied this part 
in accordance with 19.000(b)(1)(ii).
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. Amend section 52.204-8 by revising the date of the provision and 
paragraphs (c)(1)(xii) introductory text and (c)(1)(xiii) to read as 
follows:


52.204-8   Annual Representations and Certifications.

* * * * *

Annual Representations and Certifications (May 2022)

* * * * *
    (c)(1) * * *
    (xii) 52.219-1, Small Business Program Representations (Basic, 
Alternates I, and II). This provision applies to solicitations when the 
contract is for supplies to be delivered or services to be performed in 
the United States or its outlying areas, or when the contracting 
officer has applied part 19 in accordance with 19.000(b)(1)(ii).
* * * * *
    (xiii) 52.219-2, Equal Low Bids. This provision applies to 
solicitations when contracting by sealed bidding and the contract is 
for supplies to be delivered or services to be performed in the United 
States or its outlying areas, or when the contracting officer has 
applied part 19 in accordance with 19.000(b)(1)(ii).
* * * * *

0
6. Amend section 52.212-3 by revising the date of the provision and 
paragraph (c) introductory text to read as follows:


52.212-3  Offeror Representations and Certifications--Commercial 
Products and Commercial Services.

* * * * *

Offeror Representations and Certifications--Commercial Products and 
Commercial Services (May 2022)

* * * * *
    (c) Offerors must complete the following representations when the 
resulting contract is for supplies to be delivered or services to be 
performed in the United States or its outlying areas, or when the 
contracting officer has applied part 19 in accordance with 
19.000(b)(1)(ii). Check all that apply.
* * * * *
[FR Doc. 2022-08577 Filed 4-25-22; 8:45 am]
BILLING CODE 6820-EP-P