[Federal Register Volume 76, Number 193 (Wednesday, October 5, 2011)]
[Proposed Rules]
[Pages 61626-61632]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-25767]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121 and 125
RIN 3245-AG22
Small Business Subcontracting
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is
proposing to amend its regulations to implement provisions of the Small
Business Jobs Act of 2010, which pertain to small business
subcontracting. SBA is proposing to amend its regulations to provide
for a ``covered contract'' (a contract for which a small business
subcontracting plan is required, currently valued above $1.5 million
for construction and $650,000 for all other contracts), a prime
contractor must notify the contracting officer in writing whenever the
prime contractor does not utilize a subcontractor used in preparing its
bid or proposal during contract performance. SBA is also proposing to
amend its regulations to require a prime contractor to notify a
contracting officer in writing whenever the prime contractor reduces
payments to a subcontractor or when payments to a subcontractor are 90
days or more past due. In addition, SBA is proposing to clarify that
the contracting officer is responsible for monitoring and evaluating
small business subcontracting plan performance. SBA is also proposing
to clarify which subcontracts must be included in subcontracting data
reporting, which subcontracts should be excluded, and the way
subcontracting data is reported.
SBA is also proposing to make other changes to update its
subcontracting regulations, including changing subcontracting plan
thresholds and referencing the electronic subcontracting reporting
system (eSRS). Some of the SBA's proposed changes would require the
contracting officer to review subcontracting plan reports within 60
days of the report ending date.
Finally, SBA is also proposing to address how subcontracting plan
requirements and credit towards subcontracting goals can be implemented
in connection with Multi-agency, Federal Supply Schedule, Multiple
Award Schedule and Government-wide Acquisition indefinite delivery,
indefinite quantity (IDIQ) contracts.
DATES: Comments must be received on or before December 5, 2011.
[[Page 61627]]
ADDRESSES: You may submit comments, identified by RIN: 3245-AG23, by
any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail, for paper, disk, or CD/ROM submissions: Dean Koppel,
U.S. Small Business Administration, Office of Government Contracting,
409 Third Street, SW., 8th Floor, Washington, DC 20416.
Hand Delivery/Courier: Dean Koppel, U.S. Small Business
Administration, Office of Government Contracting, 409 Third Street,
SW., 8th Floor, Washington, DC 20416.
SBA will post all comments on http://www.regulations.gov. If you
wish to submit confidential business information (CBI) as defined in
the User Notice at http://www.Regulations.gov, please submit the
information to Dean Koppel, U.S. Small Business Administration, Office
of Government Contracting, 409 Third Street, SW., 8th Floor,
Washington, DC 20416, or send an e-mail to Dean.Koppel@sba.gov.
Highlight the information that you consider to be CBI and explain why
you believe SBA should hold this information as confidential. SBA will
review the information and make the final determination on whether it
will publish the information or not.
FOR FURTHER INFORMATION CONTACT: Dean Koppel, Office of Government
Contracting, 409 Third Street, SW., Washington, DC 20416; (202) 205-
9751; Dean.Koppel@sba.gov.
SUPPLEMENTARY INFORMATION: Section 1321 of the Jobs Act requires the
SBA Administrator, in consultation with the Administrator of the Office
of Federal Procurement Policy, to publish regulations establishing
policies for subcontracting compliance, including assignment of
compliance responsibilities between contracting offices, small business
offices, and program offices. A 2010 Senate Report to a bill (S. 2989)
that contained many of the same or similar provisions to the
subcontracting provisions in the Jobs Act cites a 2005 Government
Accountability Office (GAO) report concerning the Department of Energy,
where GAO found that large business prime contractors had overstated
their small business subcontracting achievements by excluding certain
subcontracts from the base, such as electricity and utilities, thereby
making it appear that the prime contractor awarded a much higher
percentage of its subcontracts to small business concerns than the
prime contractors actually awarded. S. Rep. No. 111-343, ``Small
Business Contracting Revitalization Act of 2010,'' September 29, 2010;
``Department of Energy, Improved Oversight Could Better Ensure
Opportunities for Small Business Subcontracting,'' GAO Report No. 05-
459 (May 2005).
While SBA recognizes the valuable insight provided by GAO in the
above-referenced report, it does not concur with all of GAO's findings.
For example, SBA does not believe that electricity and utilities (e.g.,
water, sewer, and refuse collection purchased from a municipality)
belong in the subcontracting base. Including electricity and other
utilities in the base creates the illusion that there are more
subcontracting opportunities for small business than are actually
available. SBA is proposing to define subcontract so that prime
contractors and contracting officers will no longer be confused about
which subcontracts must be included when reporting on small business
subcontracting performance. For example, when preparing its individual
subcontracting plan, a prime contractor must decide whether or not to
include indirect costs in the subcontracting base, for both goaling and
reporting purposes. Indirect costs must be included in a commercial
plan to ensure comparability between goals and achievements because
companies with commercial plans file only a summary report, not an
individual report. All contractors must include indirect costs in their
summary subcontracting reports.
In addition, GAO recommended that prime contractors report
subcontracting to small businesses as a percentage of total contract
dollars. Under current reporting requirements, prime contractors report
subcontracting achievement in whole dollars and as a percentage of
eligible subcontracts. SBA believes that subcontracting should be
reported as a percentage of total subcontracting dollars rather than as
a percentage of total contract dollars. The Small Business Act
establishes government goals for socioeconomic groups based on a
percentage of total subcontracted dollars, not total contract dollars.
15 U.S.C. 644(g)(1). However, SBA is proposing to explicitly authorize
contracting officers to establish additional goals in terms of total
contract dollars. Contracting officers are already doing this, and when
a prime contractor enters its subcontracting achievements (i.e.,
dollars) into eSRS, the system automatically calculates the percentage
by both methods--i.e., as a percentage of total subcontracting and as a
percentage of total contract dollars. Thus, the contracting officer has
the ability to compare achievements against the total contract dollars
if desired.
GAO also found that there was confusion within the procuring agency
about who was responsible for monitoring small business subcontracting
plan performance. SBA is proposing to amend its regulations to make it
clear that contracting officers (or administrative contracting officers
if applicable) are responsible for monitoring and evaluating the prime
contractor's small business subcontracting plan compliance and
reporting. SBA is proposing to require the cognizant contracting
officer to review every prime contractor's Individual Subcontract
Report (ISR) or Subcontracting Report for Individual Contracts, SF 294,
if authorized, or when applicable, the Summary Subcontract Report (SSR)
for a commercial plan, within 60 days of the report ending date (e.g.,
by November 30th for a report submitted for the fiscal year ended
September 30th) and accept or reject the report in accordance with the
Federal Acquisition Regulation (FAR) provisions set forth in subpart
19.7 and the eSRS instructions (http://www.esrs.gov).
All contractors whose reports are rejected, including those with
individual contract plans and commercial plans as defined in FAR
19.701, will be required to make the necessary corrections and resubmit
their reports within 30 days of receiving the notice of rejection.
SBA is also proposing to address subcontracting plans in connection
with Multi-Agency, Federal Supply Schedule, Multiple Award Schedule and
Government-wide Acquisition IDIQ contracts. Funding agencies have
expressed interest in receiving credit towards their subcontracting
goals for orders placed against another agency's task or delivery order
contract. SBA is proposing that the contracting officer for the IDIQ
contract will establish subcontracting plans for contractors without
commercial plans. The contractor will report small business
subcontracting achievement on an order-by-order basis to the
contracting officer for the contracting agency. Contractors are
currently reporting information on all orders collectively on a semi-
annual or annual basis. Reporting on an order-by-order basis will allow
the funding agency to receive credit towards its small business
subcontracting goals. SBA is requesting comments on whether the
reporting requirement should apply to all orders, or only apply to
orders above a certain threshold. SBA is also proposing to allow the
funding agency contracting
[[Page 61628]]
officer the discretion to establish goals in connection with individual
orders.
SBA is proposing that contracting officers require prime
contractors to update subcontracting plans whenever an option is
exercised, as currently required by FAR 19.705-2(e). SBA is also
proposing to require subcontracting plans whenever a modification
causes a contract to exceed the subcontracting plan threshold. As
currently written the FAR only requires a subcontracting plan if the
value of the modification exceeds the subcontracting threshold. SBA is
also proposing to allow the contracting officer to request a
subcontracting plan when a firm's status changes from small to other
than small as a result of a size recertification.
Section 1322 of the Jobs Act established a requirement that a prime
contractor on a covered contract must notify the contracting officer in
writing if the prime contractor fails to utilize a small business
concern used in preparing and submitting the prime contractor's bid or
proposal. Defining when a prime used a subcontractor in preparing a bid
or proposal is very difficult. For example, providing a quote, or
discussing availability, does not rise to the level of collaboration
that would require notice to the Government. Consequently, we are
proposing that the notice required by the statute will be triggered
when: (1) The offeror specifically references a small business concern
in a bid or proposal, (2) the offeror has entered into a written
agreement with the small business concern for purposes of performing
the specific contract as a subcontractor, or (3) the small business
concern drafted portions of the proposal or submitted pricing or
technical information that appears in the bid or proposal, with the
intent or understanding that the small business concern will perform
that related work if the offeror is awarded a contract.
Section 1334 of the Jobs Act established a requirement that a prime
contractor notify the contracting officer in writing whenever a payment
to a subcontractor is reduced or is 90 days or more past due for goods
and services provided for the contract and for which the Federal agency
has paid the contractor. The prime contractor shall include the reason
for the reduction in payment to or failure to pay a subcontractor in
the written notice. The contracting officer must consider the prime
contractor's unjustified untimely or reduced price payments to
subcontractors when evaluating the prime contractor's performance.
In addition, we are proposing that the contracting officer should
consider whether to require a prime contractor to enter into a funds
control agreement with a neutral third party if the prime contractor
fails to pay subcontractors in a timely manner or fails to pay the
agreed upon contractual price without justification. S. Rep. No. 111-
343, p. 15. SBA is specifically requesting comments on how these
arrangements work in the commercial sector, and specific language which
can be used to guide contracting officers on the use of such an
arrangement.
As required by the statute, SBA is also proposing that the
contracting officer must record the identity of a prime contractor with
a history of unjustified, untimely payments to subcontractors in the
Federal Awardee Performance and Integrity System or any successor
system. SBA is proposing to define a history of unjustified untimely or
reduced payments as three incidents within a 12 month period. SBA
invites comments on the proposed definition or alternatives with
supporting rationales, or comments on whether such judgments should be
left to the discretion of the contracting officer.
SBA is proposing to update its regulations to increase the
subcontracting plan thresholds which were increased pursuant to the
government-wide procurement program inflationary adjustments required
by Section 807 of the Ronald W. Reagan National Defense Authorization
Act for Fiscal Year 2005, Public Law 108-375, see also 75 FR 53129
(Aug. 30, 2010). SBA proposes to reference eSRS instead of SF-294 and
SF-295 (where appropriate). SBA proposes to clarify that compliance
reviews include reviews to determine whether the prime has assigned the
subcontract the correct NAICS code and corresponding size standard, and
whether the subcontractor qualifies under the size or socioeconomic
status claimed. In addition, SBA is proposing to update its regulations
to specify that a compliance review includes analysis of whether the
prime contractor is monitoring its subcontractors with respect to their
subcontracting plans, achievement of their subcontracting goals and
reviewing their ISRs or other reports.
Compliance With Executive Orders 12866, 13563, 12988, 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5. U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a significant regulatory action for purposes of
Executive Order 12866. Accordingly, the next section contains SBA's
Regulatory Impact Analysis. This is not a major rule, however, under
the Congressional Review Act, 5 U.S.C. 801, et. seq.
Regulatory Impact Analysis
1. Is there a need for the regulatory action? The proposed
regulations implement Sections 1321, 1322 and 1334 of the Small
Business Jobs Act of 2010, Public Law 111-240, 124 Stat. 2504,
September 27, 2010 (Jobs Act); 15 U.S.C. 637(d)(6)(G), (d)(12). Section
1321 of the Jobs Act requires the Administrator to establish a policy
on subcontracting compliance within one year of enactment.
2. What are the potential benefits and costs of this regulatory
action?
The proposed regulations will benefit small business subcontractors
by encouraging large business prime contractors to pay small business
subcontractors in a timely manner and the agreed upon contractual
price. The proposed regulations will benefit small business
subcontractors by encouraging large business contractors to utilize
small business concerns in contract performance where the prime
contractor used the small business concern to prepare the bid or
proposal. The proposed regulations will benefit small business
subcontractors by clarifying the responsibilities of the contracting
officer in monitoring small business subcontracting plan compliance.
The proposed regulations will benefit small business subcontractors by
specifically authorizing procuring agencies to consider proposed small
business subcontracting when evaluating offers.
The proposed regulations will benefit small business subcontractors
by requiring large business concerns to report subcontracting results
on an order-by-order basis, thereby enabling the funding agency to more
closely monitor small business subcontracting in connection with the
order and enabling the funding agency to receive credit towards its
small business subcontracting goals. The proposed rule benefits funding
agencies by allowing them to receive credit towards their
subcontracting goals. The proposed rule benefits small business
subcontractors by providing transparency with respect to small
subcontracting on an order-by-order basis, thereby allowing the funding
agency to monitor performance, and in its discretion, establish
subcontracting goals for particular orders.
eSRS will have to be altered to allow large business prime
contractors to report subcontracting results on an order-by-order
basis. Other systems may
[[Page 61629]]
have to be altered to allow funding agencies to receive credit towards
their small business subcontracting goals. Large business prime
contractors will have to submit subcontracting reports more frequently.
Large businesses will have to report to the contracting officer in
writing when they fail to utilize a small business concern in contract
performance when the prime contractor utilized the small business
concern in preparing the bid or proposal. Large businesses will have to
report to the contracting officer in writing when they fail to pay a
subcontractor within 90 days or when they pay a subcontractor a reduced
price. The contracting officer will have to consider these written
explanations when evaluating contract performance. The Federal Awardee
Performance and Integrity System will have to be modified to allow
contracting officers to identify large business prime contractors with
a history of unjustified untimely payments.
3. What are the alternatives to this final rule?
Many of the proposed regulations are required to implement
statutory provisions, and the Jobs Act requires promulgation of a
policy on subcontracting compliance with within one year of enactment.
The alternative to the proposed regulation concerning orders would be
to maintain the current environment, where subcontracting results are
not reported on an order-by-order basis, and agencies funding orders do
not receive credit towards their small business subcontracting goals.
Executive Order 13563
As part of its ongoing efforts to engage stakeholders in the
development of its regulations, SBA has solicited comments and
suggestions from procuring agencies on how to best implement the Jobs
Act. SBA held public forums around the country to discuss
implementation of the Jobs Act. SBA has incorporated, where feasible,
public input into the proposed rule. The proposed regulations
concerning evaluation factors provide contracting officers with the
discretion to utilize various methods to improve small business
subcontracting, without requiring their use in all cases. The proposed
rule concerning orders will provide contracting agencies with
transparency by providing data concerning small business subcontracting
for particular orders. Overall, these regulations would minimize the
burden resulting from these proposed amendments. SBA is proposing to
amend its regulations to remove outmoded thresholds that have increased
and remove references to paper based forms that have been replaced by
electronic reporting through eSRS.
As part of its implementation of this executive order and
consistent with its commitment to public participation in the
rulemaking process, SBA held public meetings in 13 locations around the
country to discuss implementation of the Jobs Act, and received public
input from thousands of small business owners, contracting officials
and large business representatives. Although most of these amendments
are new, SBA expects that public participation will help to form the
Agency's retrospective analysis of related contracting regulations that
are not being amended at this time.
Executive Order 12988
For purposes of Executive Order 12988, SBA has drafted this
proposed rule, to the extent practicable, in accordance with the
standards set forth in section 3(a) and 3(b)(2) of that Order, to
minimize litigation, eliminate ambiguity, and reduce burden. This rule
has no preemptive or retroactive effect.
Executive Order 13132
This rule does not have federalism implications as defined in
Executive Order 13132. It 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 layers of government, as specified in the order. As such it
does not warrant the preparation of a Federalism Assessment.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
For the purpose of the Paperwork Reduction Act, SBA has determined
that this rule, if adopted in final form, would impose new government-
wide reporting requirements on large prime contractors. The Jobs Act
requires such contractors to notify contracting officers, at the
applicable procuring agency, in writing whenever a prime contractor
fails to utilize a small business subcontractor used in preparing and
submitting a bid or proposal; when the prime contractor pays a
subcontractor a reduced price without justification; or when payments
to a subcontractor are 90 days or more past due. These requirements
will also be incorporated in the Federal Acquisition Regulations.
Regulatory Flexibility Act, 5 U.S.C. 601-612
SBA has determined that this proposed rule, if adopted in final
form, may have a significant economic impact on a substantial number of
small entities within the meaning of the Regulatory Flexibility Act
(RFA), 5 U.S.C. 601-612. Therefore, SBA has prepared an Initial
Regulatory Flexibility Act (IRFA) analysis addressing the proposed
regulation.
IRFA
When preparing a Regulatory Flexibility Analysis, an agency shall
address all of the following: a description of why the action by the
agency is being considered; the objectives and legal basis of the rule;
the estimated number of small entities to which the rule may apply; a
description of the projected reporting, recordkeeping and other
compliance requirements; identification of all Federal rules which may
duplicate, overlap or conflict with the proposed rule; and a
description of significant alternatives which minimize any significant
economic impact on small entities. This IRFA considers these points and
the impact the proposed regulation concerning subcontracting may have
on small entities.
(a) Need for, Objectives, and Legal Basis of the Rule
The majority of the proposed regulatory amendments are required to
implement Sections 1321, 1322 and 1334 of the Small Business Jobs Act
of 2010, Public Law 111-240, 124 Stat. 2504, September 27, 2010 (Jobs
Act); 15 U.S.C. 637(d)(6)(G), (d)(12). The proposed regulations that
are not required by the Jobs Act are intended to help small business
subcontractors by explicitly authorizing procuring agencies to consider
proposed small business participation when evaluating offers from other
than small business concerns, and to require other than small prime
contractors to report data on small business subcontracting in
connection with certain orders.
(b) Estimate of the Number of Small Entities to Which the Rule May
Apply
The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of entities that may be affected by
the proposed rules, if adopted. The RFA defines ``small entity'' to
include ``small businesses,'' ``small organizations,'' and ``small
governmental jurisdictions.'' SBA's programs generally do not apply to
``small organizations'' or ``small governmental jurisdictions'' because
they are non-profit or governmental entities and do not generally
qualify as ``business concerns'' within the meaning of SBA's
regulations. SBA's
[[Page 61630]]
programs generally apply only to for-profit business concerns. However,
to the extent this rule will impact small organizations or small
governmental jurisdictions that receive prime contracts from the
Federal government with values that exceed the threshold, the numbers
would be minimal, and the major provisions would only apply if the
entity fails to pay or utilize small business subcontractors.
The proposed rule will not directly negatively affect any small
business concern, because it applies to other than small concerns and
contracting officers. The proposed rule will indirectly benefit small
business concerns, by requiring other than small prime contractors to
report to the contracting officer when the prime contractor has failed
to utilize a small business subcontractor used in preparing the bid or
proposal. The proposed rule will also indirectly benefit small business
concerns, by requiring large business prime contractors to report to
the contracting officer when the prime contractor has failed to pay a
small business subcontractor in a timely manner or pays a subcontractor
a reduced rate without justification.
There are in approximately 348,000 concerns listed as small
business concerns in the Dynamic Small Business Search (DSBS) database.
We do not know how many of these concerns participate in small business
subcontracting. Firms do not need to register in the DSBS database to
participate in subcontracting. The DSBS database is primarily used for
prime contracting purposes. Thus, the number of firms participating in
subcontracting may be greater than or lower than the number of firms
registered in the DSBS database.
(c) Projected Reporting, Recordkeeping and Other Compliance
Requirements
To the extent the proposed rule imposes new information collection,
recordkeeping or compliance requirements, they are imposed on other
than small business concerns, not on small business concerns.
(d) Federal Rules Which May Duplicate, Overlap or Conflict With the
Proposed Rule
SBA is not aware of any rules which duplicate, overlap or conflict
with the proposed rule. The proposed rule primarily implements
statutory provisions.
(e) Significant Alternatives to the Rule Which Could Minimize Impact on
Small Entities
Section 1321 of the Jobs Act requires SBA to promulgate regulations
implementing it. Section 1321 of the Jobs Act and its proposed
implementing regulations primarily apply to contracting officers.
Sections 1322 and 1334 of the Jobs Act amend portions of the Small
Business Act, which SBA is responsible for administering and
implementing through its regulations. The proposed rules implementing
Sections 1322 and 1334 of the Jobs Act primarily apply to other than
small concerns. As discussed above, the proposed rule indirectly
benefits small business concerns, without requiring small business
concerns to report, keep records or take other compliance actions.
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 125
Government contracting programs; Small business subcontracting
program.
For the reasons stated in the preamble, SBA proposes to amend parts
121 and 125 of title 13 of the Code of Federal Regulations as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
1. The authority citation for 13 CFR part 121 continues to read as
follows:
Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 637(a), 644, and
662(5); and Public Law 105- 135, sec. 401 et seq., 111 Stat. 2592.
2. Amend Sec. 121.404(g)(3)(ii) by adding the following sentence
at the end of the paragraph:
Sec. 121.404 When does SBA determine the size status of a business
concern?
* * * * *
(g) * * *
(3) * * *
(ii) * * * However, a contracting officer may require a
subcontracting plan if a firm's size status changes from small to other
than small as a result of a size recertification.
* * * * *
PART 125--GOVERNMENT CONTRACTING PROGRAMS
3. 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 and
657(f); Pub. L. 111-240, Sec. 1321.
4. Amend Sec. 125.3 as follows:
a. Revise paragraph (a);
b. Revise paragraph (b)(1);
c. Revise paragraph (c)(1) introductory text;
d. Revise paragraph (c)(1)(iii);
e. Redesignate paragraphs (c)(1)(iv), (v), and (vi) as (c)(1)(vii),
(viii) and (ix) and add new paragraphs (c)(1)(iv), (v), and (vi);
f. Revise newly redesignated paragraphs (c)(1)(viii) and (ix);
g. Redesignate paragraph (c)(3) as (c)(6) and add new paragraphs
(c)(3), (c)(4) and (c)(5);
h. Revise paragraph (d);
i. Revise paragraph (f)(2);
j. Revise paragraph (g); and
k. Add paragraph (h).
The additions and revisions read as follows:
Sec. 125.3 Subcontracting assistance.
(a) General. The purpose of the subcontracting assistance program
is to provide the maximum practicable subcontracting opportunities for
small business concerns, including small business concerns owned and
controlled by veterans, small business concerns owned and controlled by
service-disabled veterans, certified HUBZone small business concerns,
certified small business concerns owned and controlled by socially and
economically disadvantaged individuals, and small business concerns
owned and controlled by women. The subcontracting assistance program
implements section 8(d) of the Small Business Act, which includes the
requirement that, unless otherwise exempt, other-than-small business
concerns awarded contracts that offer subcontracting possibilities by
the Federal Government in excess of $650,000, or in excess of
$1,500,000 for construction of a public facility, must submit a
subcontracting plan to the appropriate contracting agency. The Federal
Acquisition Regulation sets forth the requirements for subcontracting
plans in 48 CFR 19.7, and the clause at 48 CFR 52.219-9.
(1) Subcontract under this section means any agreement (other than
one involving an employer-employee relationship) entered into by a
Government prime contractor or subcontractor calling for supplies and/
or services required for performance of the contract or subcontract
(including modifications). Purchases from a corporation, company, or
subdivision that is an affiliate of the prime contractor or
subcontractor are not included. Subcontract award data
[[Page 61631]]
reported by prime contractors and subcontractors shall be limited to
awards made to their immediate next-tier subcontractors. Credit cannot
be taken for awards made beyond the immediate next-tier, unless the
contractor or subcontractor has been designated to receive a small
business or small disadvantaged business credit from an ANC or Indian
Tribe. Only subcontracts involving performance in the United States or
its outlying areas should be included, with the exception of
subcontracts under a contract awarded by the State Department or any
other agency that has statutory or regulatory authority to require
subcontracting plans for subcontracts performed outside the United
States and its outlying areas and subcontracts for foreign military
sales unless waived in accordance with agency regulations. The
following should not be included in the subcontracting base: Internally
generated costs such as salaries and wages, employee insurance; other
employee benefits; payments for petty cash; depreciation; interest;
income taxes; property taxes; lease payments; bank fees; fines, claims,
and dues; Original Equipment Manufacturer relationships during warranty
periods (negotiated up front with product); electricity; utilities such
as water, sewer, and other services purchased from a municipality; and
philanthropic contributions. Utility companies may be eligible for
additional exclusions unique to their industry, which may be approved
by the contracting officer on a case-by-case basis.
(2) Subcontracting goals required under paragraph (c) must be
established in terms of the total dollars subcontracted and as a
percentage of total subcontract dollars. However, a contracting officer
may establish additional goals as a percentage of total contract
dollars.
(3) A prime contractor has a history of unjustified untimely or
reduced payments to subcontractors if the prime contractor has reported
itself to a contracting officer in accordance with paragraph (c)(5) on
three occasions within a 12 month period.
(b) Responsibilities of prime contractors. (1) Prime contractors
(including small business prime contractors) selected to receive a
Federal contract that exceeds the simplified acquisition threshold,
that will not be performed entirely outside of any state, territory, or
possession of the United States, the District of Columbia, or the
Commonwealth of Puerto Rico, and that is not for services which are
personal in nature, are responsible for ensuring that small business
concerns have the maximum practicable opportunity to participate in the
performance of the contract, including subcontracts for subsystems,
assemblies, components, and related services for major systems,
consistent with the efficient performance of the contract.
* * * * *
(c) Additional responsibilities of large prime contractors. (1) In
addition to the responsibilities provided in paragraph (b) of this
section, a prime contractor selected for award of a contract or
contract modification that exceeds $650,000, or $1,500,000 in the case
of construction of a public facility, is responsible for:
* * * * *
(iii) A prime contractor may not prohibit a subcontractor from
discussing any material matter pertaining to payment or utilization as
set forth in paragraph (c) with the contracting officer;
(iv) When developing an individual subcontracting plan (also called
individual contract plan), the contractor must decide whether to
include indirect costs in its subcontracting goals. If indirect costs
are included in the goals, these costs must be included in the
Individual Subcontract Report (ISR) in http://www.esrs.gov (eSRS) or
Subcontract Reports for Individual Contracts (the paper SF-294 (if
authorized). If indirect costs are excluded from the goals, these costs
must be excluded from the ISRs (or SF-294 if authorized); however,
these costs must be included on a prorated basis in the Summary
Subcontracting Report (SSR) in the eSRS system. A contractor authorized
to use a commercial subcontracting plan must include all indirect costs
in its SSR;
(v) Assigning each subcontract the NAICS code and corresponding
size standard that best describes the principal purpose of the
subcontract (see 121.410);
(vi) Submitting timely and accurate ISRs and SSRs in eSRS, or if
information for a particular procurement cannot be entered into eSRS,
submit a timely SF-294, Subcontracting Report for Individual Contract.
When a report is rejected by the contracting officer, the contractor
must make the necessary corrections and resubmit the report within 30
days of receiving the notice of rejection;
* * * * *
(viii) Providing pre-award written notification to unsuccessful
small business offerors on all subcontracts over $150,000 for which a
small business concern received a preference. The written notification
must include the name and location of the apparent successful offeror
and if the successful offeror is a small business, veteran-owned small
business, service-disabled veteran-owned small business, HUBZone small
business, small disadvantaged business, or women-owned small business;
and
(ix) As a best practice, providing the pre-award written
notification cited in paragraph (c)(1)(viii) of this section to
unsuccessful and small business offerors on subcontracts at or below
$150,000 whenever it is practical to do so.
* * * * *
(3) An offeror must represent to the contracting officer that it
will make a good faith effort to acquire articles, equipment, supplies,
services, or materials, or obtain the performance of construction work
from the small business concerns that it used in preparing the bid or
proposal, in the same amount and quality used in preparing and
submitting the bid or proposal. An offeror used a small business
concern in preparing the bid or proposal if:
(i) The offeror references the small business concern as a
subcontractor in the bid or proposal;
(ii) The offeror has a subcontract or agreement in principle to
subcontract with the small business concern to perform a portion of the
specific contract; or
(iii) The small business concern drafted any portion of the bid or
proposal or the offeror used the small business concern's pricing or
cost information or technical expertise in preparing the bid or
proposal, where there is an intent or understanding that the small
business concern will be awarded a subcontract for the related work if
the offeror is awarded the contract.
(4) If an offeror fails to acquire articles, equipment, supplies,
services or materials or obtain the performance of construction work as
described in paragraph (c)(3) of this section, the offeror must provide
the contracting officer with a written explanation.
(5) A prime contractor shall notify the contracting officer in
writing if the prime contractor pays a reduced price to a subcontractor
for goods and services upon completion of the responsibilities of the
subcontractor or the payment to a subcontractor is more than 90 days
past due for goods and services provided for the contract and for which
the Federal agency has paid the prime contractor. The prime contractor
shall include the reason for the reduction in payment to or failure to
pay a subcontractor in any written notice.
[[Page 61632]]
(d) Contracting officer responsibilities. The contracting officer
(or administrative contracting officer if specifically delegated in
writing to accomplish this task) is responsible for evaluating the
prime contractor's compliance with its subcontracting plan, including:
(1) Ensuring that all contractors submit their subcontracting
reports into the eSRS or, if applicable, the SF-294, Subcontracting
Report for Individual Contracts, within 30 days after the report ending
date (e.g., by October 30th for the fiscal year ended September 30th);
(2) Reviewing all reports in eSRS within 60 days of the report
ending date (e.g., by November 30th for a report submitted for the
fiscal year ended September 30th);
(3) Evaluating whether the prime contractor made a good faith
effort to comply with its small business subcontracting plan. 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:
(i) The contractor performed one or more of the actions described
in paragraph (b) of this section, as appropriate for the procurement;
(ii) Although the contractor may have failed to achieve its goal in
one socioeconomic category, it overachieved its goal by an equal or
greater amount in one or more of the other categories; or
(iii) The contractor fulfilled all of the requirements of its
subcontracting plan.
(4) Evaluating the prime contractor's written explanation
concerning the prime contractor's failure to use a small business
concern in performance when the prime contractor used the small
business concern to prepare the bid or proposal.
(5) Evaluating the prime contractor's written explanation
concerning its payment of a reduced price to a subcontractor for goods
and services upon completion of the responsibilities of the
subcontractor or its payment to a subcontractor more than 90 days late
for goods and services provided for the contract and for which the
Federal agency has paid the prime contractor.
(6) Evaluating whether a prime contractor that has failed to pay
subcontractors in a timely manner or failed to pay subcontractors an
agreed upon contractual price without justification should be required
to enter into a funds control agreement with a neutral third party for
the purpose of paying subcontractors the contractual amount in a timely
manner.
(7) Evaluating whether the prime contractor has a history of
unjustified untimely or reduced payments to subcontractors, and if so,
recording the identity of the prime contractor in the Federal Awardee
Performance and Integrity Information System (FAPIIS), or any successor
database.
(8) A contracting officer must require the prime contractor (other
than a prime contractor with a commercial plan) to update its
subcontracting plan when an option is exercised.
(9) A contracting officer must require the prime contractor (other
than a contractor with a commercial plan) to submit a subcontracting
plan if the value of a modification causes the value of the contract to
exceed the subcontracting plan threshold.
(10) A contracting officer may require a subcontracting plan if a
firm's size status changes from small to other than small as a result
of a size recertification.
* * * * *
(f) * * *
(2) All compliance reviews begin with a validation of the
contractor's most recent ISR (or SF-294, if applicable) or SSR.
(i) A compliance review includes an evaluation of whether the prime
contractor assigned the proper NAICS code and corresponding size
standard to a subcontract, and a review of whether small business
subcontractors qualify for the size or socioeconomic status claimed.
(ii) A compliance review includes validation of the contractor's
methodology for completing its subcontracting reports.
(iii) A compliance review includes consideration of whether the
contractor is monitoring its subcontractors with regard to their
subcontracting plans, achievement of their proposed subcontracting
goals, and reviewing their subcontractors' ISRs (or SF-294s, if
applicable).
* * * * *
(g) Subcontracting consideration in source selection. (1) A
solicitation requiring a subcontracting plan may contain an evaluation
factor or subfactor for small business subcontracting participation in
the subject procurement. A small business concern submitting an offer
must receive the maximum score or credit under the evaluation factor or
subfactor, without having to submit any information in connection with
this factor or subfactor.
(2) When an ordering agency anticipates placing an order against a
Federal Supply Schedule, government-wide acquisition contract (GWAC),
or multi-agency contract (MAC), the ordering agency may evaluate
subcontracting as a significant factor in its source selection process.
In addition, the ordering agency may also evaluate subcontracting as a
significant factor in source selection when entering into a blanket
purchase agreement. At the time of contract award, the contracting
officer must disclose to all competitors which one (or more) of these
three elements will be evaluated as an important source selection
evaluation factor in any subsequent procurement action. A small
business offeror automatically receives the maximum possible score or
credit on this evaluation factor without having to submit a
subcontracting plan and without having to demonstrate subcontracting
past performance. The factors that may be evaluated, individually or in
combination, are:
(i) The subcontracting to be performed on the specific requirement;
(ii) The goals negotiated in previous subcontracting plans; and
(iii) The contractor's past performance in meeting the
subcontracting goals contained in previous subcontracting plans.
(h) Multi-agency, Federal Supply Schedule, Multiple Award Schedule
and Government-wide Acquisition Contracts. Except where a prime
contractor has a commercial plan, the contracting officer shall require
subcontracting plans for Multi-agency, Federal Supply Schedule,
Multiple Award Schedule and Government-wide Acquisition indefinite
delivery, indefinite quantity (IDIQ) contracts with estimated values
above the subcontracting plan thresholds and that have subcontracting
possibilities.
(1) Contractors shall submit small business subcontracting reports
for individual orders to the contracting agency on an annual basis.
(2) The agency funding the order shall receive credit towards its
small business subcontracting goals.
(3) The agency funding the order may in its discretion establish
small business subcontracting goals for individual orders.
Dated: September 26, 2011.
Karen G. Mills,
Administrator.
[FR Doc. 2011-25767 Filed 10-4-11; 8:45 am]
BILLING CODE 8025-01-P