[Federal Register Volume 89, Number 105 (Thursday, May 30, 2024)]
[Proposed Rules]
[Pages 46831-46836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11517]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Parts 206, 212, 252, and 270
[Docket DARS-2024-0017]
RIN 0750-AM01
Defense Federal Acquisition Regulation Supplement: Pilot Program
To Incentivize Contracting With Employee-Owned Businesses (DFARS Case
2024-D004)
AGENCY: Defense Acquisition Regulations System, Department of Defense
(DoD).
ACTION: Proposed rule.
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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition
Regulation Supplement (DFARS) to implement sections of the National
Defense Authorization Acts for Fiscal Year 2022 and Fiscal Year 2024
that authorize DoD to establish a pilot program that allows for the
noncompetitive award of certain follow-on contracts to certain
employee-owned businesses.
DATES: Comments on the proposed rule should be submitted in writing to
the address shown below on or before July 29, 2024, to be considered in
the formation of a final rule.
ADDRESSES: Submit comments identified by DFARS Case 2024-D004, using
either of the following methods:
[cir] Federal eRulemaking Portal: https://www.regulations.gov.
Search for DFARS Case 2024-D004. Select ``Comment'' and follow the
instructions to submit a comment. Please include ``DFARS Case
[[Page 46832]]
2024-D004'' on any attached documents.
[cir] Email: [email protected]. Include DFARS Case 2024-D004 in
the subject line of the message.
Comments received generally will be posted without change to
https://www.regulations.gov, including any personal information
provided. To confirm receipt of your comment(s), please check https://www.regulations.gov, approximately two to three days after submission
to verify posting.
FOR FURTHER INFORMATION CONTACT: Ms. Jeanette Snyder, telephone 703-
508-7524.
SUPPLEMENTARY INFORMATION:
I. Background
DoD is proposing to revise the DFARS to implement section 874 of
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022
(Pub. L. 117-81; 10 U.S.C. 3204 note) as amended by section 872 of the
NDAA for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note). Sections 874
and 872 authorize DoD to establish a pilot program that allows for the
noncompetitive award of certain follow-on contracts to employee-owned
businesses that meet the definition of a qualified business. The Office
of the Under Secretary of Defense (Acquisition and Sustainment),
Defense Pricing and Contracting implemented section 874 via a contract
policy memorandum dated November 8, 2022.
II. Discussion and Analysis
This rule proposes to add new DFARS part 270, Defense Contracting
Programs, to include new subpart 270.X, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses, to implement section 874 of
the NDAA for FY 2022 and section 872 of the NDAA for FY 2024. This
proposed new part 270 will contain contracting programs that are unique
to DoD but are not socioeconomic programs such as those located in
DFARS part 226, Other Socioeconomic Programs. The proposed subpart
270.X provides the scope, definition, policy, limitations, procedures,
solicitation provisions, and contract clause associated with the pilot
program. This proposed rule, at DFARS 270.X02, Policy, authorizes
contracting officers to award one sole-source, follow-on contract for
the continued development, production, or provision of products or
services that are the same or substantially similar to those procured
under previous contracts awarded by or for DoD to contractors that meet
the definition of a qualified business. Although section 874 allows for
noncompetitive awards, the proposed rule requires such awards to be
supported by written justifications and approvals as required at
Federal Acquisition Regulation (FAR) 6.303 and FAR 6.304.
Under the pilot program, contracts are awarded to qualified
businesses. Therefore, a definition of ``qualified business'' is added
to DFARS 270.X01, Definition, as follows: An S corporation as defined
in 26 U.S.C. 1361(a)(1) for which 100 percent of the outstanding stock
is held through an employee stock ownership plan as defined in 26
U.S.C. 4975(e)(7).
The proposed rule, at 270.X03, Limitations, specifies that--
Only a contracting officer may submit an application to
participate in the pilot program;
Contracting officers may only award contracts to
contractors that meet the definition of a qualified business;
Contracting officers may only award one sole-source,
follow-on contract to a qualified business for each predecessor
contract, unless a waiver is obtained; and
Unless waived, a qualified business shall not pay more
than 50 percent of the amount paid by the Government for contract
performance to subcontractors that are not qualified businesses, except
when the contract is for a product and subcontracts for materials are
not available from another qualified business.
Proposed section 270.X00, Scope of subpart, provides references to
the NDAA sections implemented by the subpart. In addition, this section
also advises contracting officers the authority to award contracts
under the pilot program expires on December 27, 2029.
The proposed solicitation provision, 252.270-70WW, Pilot Program to
Incentivize Contracting with Employee-Owned Businesses--Representation,
requires offerors to represent that they are a qualified business. The
proposed solicitation provision, 252.270-70XX, Pilot Program to
Incentivize Contracting with Employee-Owned Businesses--Subcontracting
Certification, requires offerors to certify that they will comply with
the limitations on subcontracting.
The proposed contract clause, 252.270-70YY, Pilot Program to
Incentivize Contracting with Employee-Owned Businesses, requires
contractors to comply with the limitations on subcontracting. In
addition, the clause specifies the information contractors are required
to report to contracting officers not later than 30 days after the end
of the period of performance of the contract.
Changes are proposed at DFARS 206.302-5 to add the pilot program to
the list of authorities agencies may utilize to justify the use of
other than full and open competitive procedures. Changes are also
proposed at DFARS 212.301 to add the proposed solicitation provisions
and contract clause to the list of provisions and clauses that apply to
DoD solicitations and contracts using FAR part 12 procedures for the
acquisition of commercial products and commercial services.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT), for Commercial Products (Including Commercially
Available Off-the-Shelf (COTS) Items), and for Commercial Services
This proposed rule proposes two new provisions and a new clause to
implement the requirements of section 874 of the NDAA for FY 2022 (Pub.
L. 117-81; 10 U.S.C. 3204 note) as amended by section 872 of the NDAA
for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note): (1) DFARS clause
252.270-70WW, Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Representation; (2) DFARS 252.270-70XX, Pilot Program
to Incentivize Contracting with Employee-Owned Businesses--
Certification; and (3) DFARS 252.270-70YY, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses. The provisions and clause
at DFARS 252.270-70WW, 252.270-70XX and 252.270-70YY are prescribed at
DFARS 270.X05 for use in solicitations and contracts for approved
acquisitions under the Pilot Program to Incentivize Contracting with
Employee-Owned Businesses. DoD does not intend to apply the proposed
rule to contracts at or below the SAT. DoD does intend to apply the
proposed rule to contracts for the acquisition of commercial products,
excluding COTS items, and commercial services.
A. Applicability to Contracts at or Below the Simplified Acquisition
Threshold
41 U.S.C. 1905 governs the applicability of laws to contracts or
subcontracts in amounts not greater than the simplified acquisition
threshold. It is intended to limit the applicability of laws to such
contracts or subcontracts. 41 U.S.C. 1905 provides that if a provision
of law contains criminal or civil penalties, or if the Federal
Acquisition Regulatory Council makes a written determination that it is
not in the best interest of the Federal Government to exempt contracts
or
[[Page 46833]]
subcontracts at or below the SAT, the law will apply to them. The
Principal Director, Defense Pricing and Contracting (DPC), is the
appropriate authority to make comparable determinations for regulations
to be published in the DFARS, which is part of the Federal Acquisition
Regulation system of regulations. DoD does not intend to make that
determination. Therefore, this proposed rule will not apply at or below
the simplified acquisition threshold.
B. Applicability to Contracts for the Acquisition of Commercial
Products Including COTS Items and for the Acquisition of Commercial
Services
10 U.S.C. 3452 exempts contracts and subcontracts for the
acquisition of commercial products, including COTS items, and
commercial services from provisions of law enacted after October 13,
1994, unless the Under Secretary of Defense (Acquisition and
Sustainment) (USD(A&S)) makes a written determination that it would not
be in the best interest of DoD to exempt contracts for the procurement
of commercial products and commercial services from the applicability
of the provision or contract requirement, except for a provision of law
that--
Provides for criminal or civil penalties;
Requires that certain articles be bought from American
sources pursuant to 10 U.S.C. 4862, or that strategic materials
critical to national security be bought from American sources pursuant
to 10 U.S.C. 4863; or
Specifically refers to 10 U.S.C. 3452 and states that it
shall apply to contracts and subcontracts for the acquisition of
commercial products (including COTS items) and commercial services.
The statutes implemented in this proposed rule do not impose
criminal or civil penalties, do not require purchase pursuant to 10
U.S.C. 4862 or 4863, and do not refer to 10 U.S.C. 3452. Therefore,
section 874 of the NDAA for FY 2022, as amended by section 872 of the
NDAA for FY 2024, will not apply to the acquisition of commercial
products, including COTS items, or commercial services unless a written
determination is made. Due to delegations of authority, the Principal
Director, DPC is the appropriate authority to make this determination.
DoD intends to make that determination to apply the statutes to the
acquisition of commercial products, excluding COTS items, and to the
acquisition of commercial services. Therefore, this proposed rule will
apply to the acquisition of commercial products, excluding COTS items,
and to the acquisition of commercial services.
C. Determination
Given that the requirements of section 874 of the NDAA for FY 2022
and section 872 of the NDAA for FY 2024 were enacted to authorize DoD
to establish a pilot program to incentivize contracting with employee-
owned businesses for the continued development, production, or
provision of products or services, and since the pilot program, thus
far, has been utilized for commercial products and commercial services,
it is in the best interest of the Government to apply the statutes to
contracts for the acquisition of commercial products, excluding COTS
items, and commercial services, as defined at Federal Acquisition
Regulation 2.101. An exception for contracts for the acquisition of
commercial products, excluding COTS items, and commercial services
would exclude the contracts intended to be covered by the law, thereby
undermining the overarching public policy purpose of the law.
IV. Expected Impact of the Rule
This proposed rule implements section 874 of the NDAA for FY 2022,
as amended by section 872 of the NDAA for FY 2024, which authorizes DoD
to establish a pilot program to incentivize contracting with employee-
owned businesses that meet the proposed definition of ``qualified
business.'' This proposed rule, when finalized, is expected to impact
the Government and contractors that participate in the pilot program.
This proposed rule is expected to incentivize and expedite the award of
follow-on contracts to qualified businesses for the continued
development, production, or provision of products or services
previously procured by or for DoD. As a result, employee-owned
businesses may benefit from more opportunities to contract with DoD,
which may benefit DoD by expanding the defense industrial base.
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 review under section 6(b) of E.O. 12866, Regulatory Planning
and Review, as amended.
VI. Regulatory Flexibility Act
DoD does not expect this proposed rule, when finalized, to have a
significant economic impact on a substantial number of small entities
within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et
seq., because it only allows for the award of sole-source, follow-on
contracts to qualified businesses under certain circumstances. However,
an initial regulatory flexibility analysis has been performed and is
summarized as follows:
This proposed rule is necessary to implement section 874 of the
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022
(Pub. L. 117-81; 10 U.S.C. 3204 note) and section 872 of the NDAA for
FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note). Sections 874 and 872
authorize DoD to establish a pilot program to incentivize contracting
with employee-owned businesses. The pilot program provides for the use
of noncompetitive procedures for certain follow-on contracts to
qualified businesses wholly-owned through an employee stock ownership
plan. A ``qualified business'' is defined as an S corporation (as
defined in 26 U.S.C. 1361(a)(1)) for which 100 percent of the
outstanding stock is held through an employee stock ownership plan as
defined in 26 U.S.C. 4975(e)(7).
The objective of this proposed rule is to implement section 874 of
the NDAA for FY 2022 and section 872 of the NDAA for FY 2024 to
establish a pilot program to incentivize contracting with employee-
owned businesses. The legal basis for the rule is section 874 of the
NDAA for FY 2022 and section 872 of the NDAA for FY 2024.
Data from the System for Award Management (SAM) revealed there were
330,704 small entities registered in SAM as of June 2023. Data on the
number of small entities that are a qualified business, as defined in
the proposed rule, is not available.
The pilot program was implemented on November 8, 2022. To date,
eight businesses are participating in the pilot, six of which are small
entities. DoD cannot estimate the number of contracting officers who
will submit applications for participation in the pilot program, how
many applications will be approved for participation, or how many of
the subsequent awards will be made to small entities. However, based on
current participation, DoD
[[Page 46834]]
expects that the pilot program will grow to approximately 16
contractors per year, of which approximately 12 may be small entities.
This proposed rule imposes a new reporting requirement. Not later
than 30 days after the end of the period of performance of the
contract, contractors participating in the pilot program will be
required to submit to the contracting officer the following
information: (1) the number of years the contractor has been wholly-
owned by its employee stock ownership plan; (2) the contractor's
challenges in attracting and retaining a talented workforce; (3)
challenges the contractor experienced due to its corporate ownership
structure that hinder its ability to contract with DoD in order to
scale its technologies and capabilities due to its corporate ownership
structure; and (4) challenges the contractor experienced due to its
corporate ownership structure in obtaining capital necessary to bridge
funding gaps, for example, between prototype demonstration and full-
scale development. The annual reporting burden is estimated as follows:
16 respondents, with 16 total annual responses (1 response per
respondent), and a total annual burden of 16 hours.
The proposed rule does not duplicate, overlap, or conflict with any
other Federal rules.
There are no known alternatives that would accomplish the stated
objectives of the applicable statutes.
DoD invites comments from small business concerns and other
interested parties on the expected impact of this proposed rule on
small entities.
DoD will also consider comments from small entities concerning the
existing regulations in subparts affected by this proposed rule in
accordance with 5 U.S.C. 610. Interested parties must submit such
comments separately and should cite 5 U.S.C. 610 (DFARS Case 2024-
D004), in correspondence.
VII. Paperwork Reduction Act
This proposed rule contains information collection requirements
that require the approval of the Office of Management and Budget under
the Paperwork Reduction Act (44 U.S.C. chapter 35). Accordingly, DoD
has submitted a request for approval of a new information collection
requirement concerning DFARS case 2024-D004, Pilot Program to
Incentivize Contracting with Employee-Owned Businesses, to the Office
of Management and Budget.
A. Estimate of Public Burden
Public reporting burden for this collection of information is
estimated to average 1 hour per response, including the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
The annual reporting burden is estimated as follows:
Respondents: 16.
Total annual responses: 16.
Total annual burden hours: 16.
B. Request for Comments Regarding Paperwork Burden
Written comments and recommendations on the proposed information
collection, including suggestions for reducing this burden, should be
submitted using the Federal eRulemaking Portal at https://www.regulations.gov or by email to [email protected]. Comments can be
received up to 60 days after the date of this notice.
Public comments are particularly invited on: whether this
collection of information is necessary for the proper performance of
the functions of DoD, including whether the information will have
practical utility; the accuracy of DoD's estimate of the burden of this
information collection; ways to enhance the quality, utility, and
clarity of the information to be collected; and ways to minimize the
burden of the information collection on respondents, including through
the use of automated collection techniques or other forms of
information technology.
To obtain a copy of the supporting statement and associated
collection instruments, please email [email protected]. Include DFARS
Case 2024-D004 in the subject line of the message.
List of Subjects in 48 CFR Parts 206, 212, 252, and 270
Government procurement.
Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.
Therefore, Defense Acquisition Regulations System proposes to amend
48 CFR parts 206, 212, and 252, and add 270 as follows:
PART 206--COMPETITION REQUIREMENTS
0
1. The authority citation for part 206 continues to read as follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
0
2. Revise and republish section 206.302-5 to read as follows:
206.302-5 Authorized or required by statute.
(b) Application. Agencies may use this authority to--
(i) Acquire supplies and services from military exchange stores
outside the United States for use by the armed forces outside the
United States in accordance with 10 U.S.C. 2424(a) and subject to the
limitations of 10 U.S.C. 2424(b). The limitations of 10 U.S.C.
2424(b)(1) and (2) do not apply to the purchase of soft drinks that are
manufactured in the United States. For the purposes of 10 U.S.C. 2424,
soft drinks manufactured in the United States are brand name carbonated
sodas, manufactured in the United States, as evidenced by product
markings.
(ii) Acquire police, fire protection, airfield operation, or other
community services from local governments at military installations to
be closed under the circumstances in 237.7401 (section 2907 of Fiscal
Year 1994 Defense Authorization Act (Pub. L. 103-160)).
(iii) Acquire products and services under the Pilot Program to
Incentivize Contracting with Employee-Owned Businesses (see subpart
270.X).
(c) Limitations.
(i) 10 U.S.C. 4141 precludes use of this exception for awards to
colleges or universities for the performance of research and
development, or for the construction of any research or other facility,
unless--
(A) The statute authorizing or requiring award specifically--
(1) States that the statute modifies or supersedes the provisions
of 10 U.S.C. 4141;
(2) Identifies the particular college or university involved; and
(3) States that award is being made in contravention of 10 U.S.C.
4141(a); and
(B) The Secretary of Defense provides Congress written notice of
intent to award. The contract cannot be awarded until 180 days have
elapsed since the date Congress received the notice of intent to award.
Contracting activities must submit a draft notice of intent with
supporting documentation through channels to the Principal Director,
Defense Pricing and Contracting, Office of the Under Secretary of
Defense (Acquisition and Sustainment).
(ii) The limitation in paragraph (c)(i) of this subsection applies
only if the statute authorizing or requiring award was enacted after
September 30, 1989.
(iii) Subsequent statutes may provide different or additional
constraints on the award of contracts to specified colleges and
universities. Contracting officers should consult legal counsel on a
case-by-case basis.
0
Part 212--Acquisition of Commercial Products and Commercial Services
0
3. The authority citation for part 212 continues to read as follows:
[[Page 46835]]
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
0
4. Amend section 212.301 by adding paragraph (f)(xxii) to read as
follows:
212.301 Solicitation provisions and contract clauses for the
acquisition of commercial products and commercial services.
* * * * *
(f) * * *
(xxii) Part 270--Defense Contracting Programs.
(A) Use the provision at 252.270-70WW, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses--Representation, as
prescribed at 270.X05(a) to comply with section 874 of the National
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L.
117-81; 10 U.S.C. 3204 note) and section 872 of the NDAA for FY 2024
(Pub. L. 118-31; 10 U.S.C. 3204 note).
(B) Use the provision at 252.270-70XX, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses--Subcontracting
Certification, as prescribed at 270.X05(b), to comply with section 874
of the NDAA for FY 2022 (Pub. L. 117-81; 10 U.S.C. 3204 note) and
section 872 of the NDAA for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204
note).
(C) Use the clause at 252.270-70YY, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses, as prescribed at
270.X05(c), to comply with section 874 of the NDAA for FY 2022 (Pub. L.
117-81; 10 U.S.C. 3204 note) and section 872 of the NDAA for FY 2024
(Pub. L. 118-31; 10 U.S.C. 3204 note).
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
5. The authority citation for part 252 continues to read as follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
0
6. Add section 252.270-70WW to read as follows:
252.270-70WW Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Representation.
As prescribed in 270.X05(a), use the following provision:
Pilot Program To Incentivize Contracting With Employee-Owned
Businesses--Representation (Date)
(a) Definition. As used in this provision, qualified business
has the meaning given in the Defense Federal Acquisition Regulation
Supplement 252.270-70YY, Pilot Program to Incentivize Contracting
with Employee-Owned Businesses, clause of this solicitation.
(b) Representation. The Offeror represents that it is a
qualified business.
(End of provision)
0
7. Add section 252.270-70XX to read as follows:
252.270-70XX Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Subcontracting Certification.
As prescribed in 270.X05(b), use the following provision:
Pilot Program To Incentivize Contracting With Employee-Owned
Businesses--Subcontracting Certification (Date)
(a) Definition. As used in this provision, qualified business
has the meaning given in the Defense Federal Acquisition Regulation
Supplement 252.270-70YY, Pilot Program to Incentivize Contracting
with Employee-Owned Businesses, clause of this solicitation.
(b) Limitations on subcontracting. The Offeror certifies that in
performance of the contract it will not expend more than 50 percent
of the amount paid under the contract on subcontracts unless--
(1) The subcontract is awarded to a qualified business;
(2) The contract is for products and the subcontract is for
materials not available from another qualified business; or
(3) A waiver is granted.
(End of provision)
0
8. Add section 252.270-70YY to read as follows:
252.270-70YY Pilot Program to Incentivize Contracting with Employee-
Owned Businesses.
As prescribed in 270.X05(b), use the following clause:
Pilot Program To Incentivize Contracting With Employee-Owned Businesses
(Date)
(a) Definition. As used in this clause--
Qualified business means an S corporation as defined in 26
U.S.C. 1361(a)(1) for which 100 percent of the outstanding stock is
held through an employee stock ownership plan as defined in 26
U.S.C. 4975(e)(7).
(b) Limitations on subcontracting. In performance of the
contract, the Contractor shall not expend more than 50 percent of
the amount paid under the contract on subcontracts, unless--
(1) The subcontract is awarded to a qualified business;
(2) The contract is for products and the subcontract is for
materials not available from another qualified business; or
(3) A waiver is granted.
(c) Reporting requirement. Not later than 30 days after the end
of the contract period of performance, the Contractor shall submit
to the Contracting Officer the following information in writing:
(1) The number of years the Contractor has been wholly-owned by
its employee stock ownership plan.
(2) Challenges the Contractor experienced in attracting and
retaining a talented workforce in a competitive market.
(3) Challenges the Contractor experienced that hinder its
ability to contract with DoD to scale its technologies and
capabilities due to the Contractor's corporate ownership structure.
(4) Challenges the Contractor experienced due to its corporate
ownership structure in obtaining capital necessary to bridge funding
gaps, for example, between prototype demonstration and full-scale
development.
(End of clause)
0
9. Add part 270 to read as follows:
PART 270--DEFENSE CONTRACTING PROGRAMS
Sec.
270.000 Scope of part.
Subpart 270.X--Pilot Program to Incentivize Contracting With Employee-
Owned Businesses
270.X00 Scope of subpart.
270.X01 Definition.
270.X02 Policy.
270.X03 Limitations.
270.X04 Procedures.
270.X05 Solicitation provision and contract clause.
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
270.000 Scope of part.
This part has been created to facilitate promulgation of additional
DFARS coverage of defense-specific contracting programs that do not
properly fall under DFARS subchapter D, Socioeconomic Programs, and
neither implement nor supplement existing FAR part 19 or parts 22
through 25.
Subpart 270.X--Pilot Program To Incentivize Contracting With
Employee-Owned Businesses
270.X00 Scope of subpart.
(a) This subpart implements section 874 of the National Defense
Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L. 117-81; 10
U.S.C. 3204 note) and section 872 of the NDAA for FY 2024 (Pub. L. 118-
31; 10 U.S.C. 3204 note). Sections 874 and 872 authorize the
establishment of a pilot program that allows for the noncompetitive
award of certain follow-on contracts to contractors that meet the
definition of a qualified business (see 270.X01).
(b) The authority to award contracts under this subpart expires on
December 27, 2029.
270.X01 Definition.
As used in this subpart--
Qualified business means an S corporation as defined in 26 U.S.C.
1361(a)(1) for which 100 percent of the outstanding stock is held
through an employee stock ownership plan as defined in 26 U.S.C.
4975(e)(7).
[[Page 46836]]
270.X02 Policy.
(a) The contracting officer may only award one sole-source, follow-
on contract to the incumbent contractor if--
(1) The contractor has represented that it is a qualified business;
and
(2) The contract is for the continued development, production, or
provision of products or services that are the same or substantially
similar to those procured under the prior contract awarded to the
contractor by or for DoD.
(b) The contracting officer shall not begin negotiations for a
sole-source, follow-on contract unless the contracting officer
justifies the use of a sole-source contract in accordance with FAR
6.303 and 6.304, citing FAR 6.302-5, Authorized or required by statute,
as the exception to full and open competition.
270.X03 Limitations.
(a) Participation in the pilot program is subject to approval by
the Under Secretary of Defense (Acquisition and Sustainment), Office of
the Principal Director, Defense Pricing and Contracting (Contract
Policy). Only a contracting officer may submit an application to
participate in the pilot program. See PGI 270.7X04(a).
(b) Contracting officers shall only award--
(1) One sole-source, follow-on contract per predecessor contract to
the incumbent contractor unless waived by the head of the contracting
activity, delegable to a level no lower than one level above the
contracting officer;
(2) Contracts to qualified businesses that have a minimum
performance rating of satisfactory for the predecessor contract in the
Contractor Performance Assessment Reporting System (see FAR subpart
42.15); and
(3) Contracts to qualified businesses that have certified they will
not pay more than 50 percent of the amount paid by the Government for
contract performance to subcontractors that are not qualified
businesses, except for subcontracts for materials not available from
another qualified business when the contract is for products, unless
waived by the head of the contracting activity, delegable to a level no
lower than one level above the contracting officer.
270.X04 Procedures.
See PGI 270.X04 for procedures and information concerning the pilot
program.
270.X05 Solicitation provision and contract clause.
(a) Use the provision at 252.270-70WW, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses--Representation, in
solicitations, including solicitations using FAR part 12 procedures for
the acquisition of commercial products and commercial services, that
include the clause at 252.270-70YY, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses.
(b) Unless waived in accordance with 270.7X03(b)(3), use the
provision at 252.270-70XX, Pilot Program to Incentivize Contracting
with Employee-Owned Businesses--Subcontracting Certification, in
solicitations, including solicitations using FAR part 12 procedures for
the acquisition of commercial products and commercial services that
include the clause at 252.270-70YY, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses.
(c) Use the clause at 252.270-70YY, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses, in solicitations and
contracts, including solicitations and contracts using FAR part 12
procedures for the acquisition of commercial products and commercial
services, for approved pilot program acquisitions.
[FR Doc. 2024-11517 Filed 5-29-24; 8:45 am]
BILLING CODE 6001-FR-P