Rule2021-16366
Federal Acquisition Regulation: Good Faith in Small Business Subcontracting
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 11, 2021
Effective
September 10, 2021
Issuing agencies
Defense DepartmentGeneral Services AdministrationNational Aeronautics and Space Administration
Abstract
DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation to implement a section of the National Defense Authorization Act for Fiscal Year 2017, which requires examples of failure to make good faith efforts to comply with a small business subcontracting plan.
Full Text
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<title>Federal Register, Volume 86 Issue 152 (Wednesday, August 11, 2021)</title>
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[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Rules and Regulations]
[Pages 44249-44255]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-16366]
[[Page 44249]]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 19, 42, and 52
[FAC 2021-07; FAR Case 2019-004; Item IV; Docket No. FAR-2019-0030,
Sequence No. 1]
RIN 9000-AN87
Federal Acquisition Regulation: Good Faith in Small Business
Subcontracting
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 to implement a section of the National
Defense Authorization Act for Fiscal Year 2017, which requires examples
of failure to make good faith efforts to comply with a small business
subcontracting plan.
DATES: Effective September 10, 2021.
FOR FURTHER INFORMATION CONTACT: Ms. Dana Bowman, Procurement Analyst,
at 202-803-3188, or by email at <a href="/cdn-cgi/l/email-protection#1773767976397578607a76795770647639707861"><span class="__cf_email__" data-cfemail="d8bcb9b6b9f6bab7afb5b9b698bfabb9f6bfb7ae">[email protected]</span></a>, for clarification
of content. For information pertaining to status or publication
schedules, contact the Regulatory Secretariat at 202-501-4755 or
<a href="/cdn-cgi/l/email-protection#33746072615654605650735440521d545c45"><span class="__cf_email__" data-cfemail="54130715063133073137143327357a333b22">[email protected]</span></a>. Please cite FAC 2021-07, FAR Case 2019-004.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule on June 3, 2020, at 85
FR 34155, to implement section 1821 of the National Defense
Authorization Act (NDAA) for Fiscal Year (FY) 2017 (section 1821(c) of
Pub. L. 114-328; 15 U.S.C. 637 note). Section 1821 requires the Small
Business Administration (SBA) to amend its regulations to provide
examples of activities that would be considered a failure to make a
good faith effort to comply with a small business subcontracting plan.
SBA issued a final rule at 84 FR 65647, dated November 29, 2019, to
implement section 1821 of the NDAA for FY 2017. In its final rule, SBA
amended 13 CFR 125.3(d)(3) to provide guidance on evaluating whether
the prime contractor made a good faith effort to comply with its small
business subcontracting plan and a list of examples of activities
reflective of a failure to make a good faith effort.
Additionally, SBA revised 13 CFR 125.3(c)(1)(iv) to require that
prime contractors with commercial subcontracting plans include indirect
costs in their subcontracting goals. Other than small business concerns
that have a commercial subcontracting plan report on performance
through a summary subcontract report (SSR). Prior to the publication of
its final rule, SBA's regulations required that contractors using a
commercial subcontracting plan must include all indirect costs in their
SSRs, but did not require these contractors to include indirect costs
in their subcontracting goals, which led to inconsistencies when
comparing the data reported in the SSR to the goals in the commercial
subcontracting plan.
Small business subcontracting plans are required from large prime
contractors when a contract is expected to exceed $750,000 ($1.5
million for construction) and has subcontracting possibilities. FAR
19.704 lists the elements of the plan, which include the contractor's
goals for subcontracting to small business concerns and a description
of the efforts the contractor will make to ensure that small business,
veteran-owned small business, service-disabled veteran-owned small
business, HUBZone small business, small disadvantaged business, and
women-owned small business concerns have an equitable opportunity to
compete for subcontracts. Failure to make a good faith effort to comply
with the plan may result in the assessment of liquidated damages per
FAR 52.219-16, Liquidated Damages--Subcontracting Plan.
This final FAR rule requires that all indirect costs, with certain
exceptions, are included in commercial plans and SSRs.
FAR 19.705-7 contains examples of a good faith effort, and examples
of a failure to make a good faith effort.
Four respondents submitted public comments in response to 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
There are no changes made to the final rule.
B. Analysis of Public Comments
1. Clarify Applicability to Subcontracts for Commercial Items and
Commercially Available Off-the-Shelf (COTS) Items
Comment: One respondent commented that the rule should clarify that
the ``good faith'' requirement is not applicable to subcontracts for
commercial and COTS items under prime contracts. The respondent
commented that the proposed rule does not address FAR 52.219-9(j),
which states that subcontracting plans are not required from
subcontractors when the prime contract contains the clause at 52.212-5,
Contract Terms and Conditions Required to Implement Statutes or
Executive Orders--Commercial Items, or when the subcontractor provides
a commercial item subject to the clause at 52.244-6, Subcontracts for
Commercial Items, under a prime contract.
Response: This rule does not revise the conditions for when a
subcontracting plan is required. If a subcontracting plan is not
required, then the examples of activities that would be considered a
failure to make a good faith effort to comply with a small business
subcontracting plan are not applicable. No changes were made to the
final rule as a result of this comment.
2. Material Breach
a. FAR Language Broader Than SBA Language
Comment: One respondent stated that the proposed FAR language at
19.705-7(d) is much broader than the SBA final rule and is unclear on
whether ``material breach'' refers to the subcontracting plan or a
breach of the contract itself.
Response: FAR 19.705-5(a)(5) requires that the subcontracting plan
become a ``material part of the contract upon award.'' The final rule
text at FAR 19.705-7(d), similar to the SBA final rule, cites FAR
52.219-16, Liquidated Damages--Subcontracting Plan, which provides the
corrective actions available to all Federal Government contracting
officers when a contractor fails to make a good faith effort to comply
with the subcontracting plan, while also giving consideration to other
Federal contracting regulations. In this context, a failure to make a
good faith effort to comply with a subcontracting plan is a material
breach, sufficient for the assessment of liquidated damages, and also
for other remedies the Government may have. No changes were made to the
final rule as a result of this comment.
[[Page 44250]]
b. Recommended Language To Be Added to Final Rule
Comment: One respondent requested the proposed FAR language at
19.705-7(d) include language to indicate that the contractor has an
opportunity to rebut and appeal before a determination of noncompliance
is rendered and provided recommended text.
Response: The clause at FAR 52.219-16, Liquidated Damages--
Subcontracting Plan, which is cited in proposed FAR text 19.705-7(d),
specifically 52.219-16(c), allows the contractor an opportunity to
demonstrate what good faith efforts have been made and to discuss the
matter, before the contracting officer's final decision. No changes
were made to the final rule as a result of this comment.
3. Clarifications
a. Ensure Consistency Between FAR 52.219-16 and Proposed FAR 19.705-
7(b)(2)
Comment: One respondent recommended that to remain consistent, the
proposed language at FAR 19.705-7(b)(2) should either include the
language contained in 52.219-16 or include references to the intent of
52.219-16, as the examples provided at FAR 19.705-7(b)(2) may occur
without willful or intentional behavior. The respondent also
recommended that intent and examples should be read together providing
that an occurrence of the examples without intent would not constitute
a violation. Specifically, failure to make a good faith effort must
meet the ``willful or intentional'' standard. The respondent also
provided various reasons why the FAR should make it clear that an
occurrence of the examples without intent would not constitute a
violation.
Response: This final rule is implementing current SBA regulation.
SBA's language at 13 CFR 125.3(d)(3) provides guidance on evaluating
whether the prime contractor made a good faith effort to comply with
its small business subcontracting plan. This language parallels the
language in SBA's rule providing contracting officers with examples to
consider, in the context of the contractor's total effort, as possible
indicators of a failure to make a good faith effort. SBA's rule does
not reference the ``willful and intentional'' language. The FAR text
will not be revised to incorporate the requested language as the
``willful and intentional'' language already appears in the definition
of ``failure to make a good faith effort to comply with the
subcontracting plan'' at both FAR 19.701 and in the clause at FAR
52.219-16. No changes were made to the final rule as a result of this
comment.
b. Clarify the Intent of the Proposed Language at FAR 19.705-
7(b)(2)(vi)
Comment: One respondent stated FAR 19.705-7(b)(2)(vi), as written,
could be misinterpreted to hold a lower-tier contractor to the terms of
a prime contractor's contract with the Government and recommended a
revision to provide the intent of the text is to ensure a contractor
pays its small business subcontractors in accordance with the terms of
their contract with the small business.
Response: The current text states, ``Failure to pay small business
subcontractors in accordance with the terms of the contract with the
prime contractor;'' and provides that the intent pertains to the
subcontractor's contract with the prime contractor. The final rule FAR
text will not be revised to include the recommended text.
c. Clarify Intent of FAR 19.705-7(b)(2)(vii)
Comment: One respondent stated that the language at FAR 19.705-
7(b)(2)(vii) should be revised to expressly require prime contractors
to attend training as a remedy to any performance review findings. The
respondent further stated that this is necessary given that a failure
to attend the training offered by the Government could be perceived as
a failure to make a good faith effort. The respondent provided
recommended revisions to 19.705-7(b)(2)(vii).
Response: The respondent's interpretation of the language at FAR
19.705-7(b)(2)(vii) is correct. If a contractor does not either correct
substantiated findings or participate in subcontracting plan management
training offered by the Government, it could be perceived by the
contracting officer as a failure to make a good faith effort. This is
not all inclusive of failure to make a good faith effort, but is one of
many instances and examples used to show a lack of good faith effort on
behalf of the prime contractor. Additionally, the contracting officer
has the choice of requiring or recommending other corrective remedies
as deemed necessary. The respondent's recommended language is more
restrictive by suggesting ``and'' instead of ``or'' as written in the
SBA rule. The final rule FAR text will not be revised to include the
recommended text.
d. Clarify Applicability to Contracts at or Below the Simplified
Acquisition Threshold
Comment: One respondent stated that the preamble to the proposed
rule indicates that the FAR Council is considering expanding the scope
of the rule to include contracts at or below the simplified acquisition
threshold (SAT) and recommended that the final FAR rule under this case
should specify that it does not apply to contracts at or below the SAT.
The respondent further stated that contracts at or below the SAT must
be exempt from any policy or regulatory requirements pertaining to
Small Business Plans.
Response: Section 8(d) of the Small Business Act (15 U.S.C. 637(d))
requires subcontracting plans only for acquisitions valued above
$750,000 ($1.5 million for construction contracts). As stated in
section III of this preamble, the requirements of section 1821 of the
NDAA for FY 2017 (Pub. L. 114-328; 15 U.S.C 637 note) do not apply to
contracts at or below the SAT.
e. Clarify Intent of FAR 19.705-7(b)(1)(v)
Comment: One respondent stated that the language at FAR 19.705-
7(b)(1)(v) does not make clear how a contracting officer would make a
determination that a contractor has ``negotiated in good faith with
interested small business.'' The respondent also states that it is not
clear how a contractor would negotiate with a small business that is
merely interested in participating as a subcontractor.
Response: The language at FAR 19.705-7(b)(1)(v) is broadly written,
as the intent is not to restrict or limit the contracting officer's
authority or ability to determine the prime contractor's effort to
negotiate in good faith. No changes were made to the FAR final rule as
a result of this comment.
4. Outside the Scope of This Rule
Comment: One respondent had no issue with the proposed changes and
clarifications in the language (FAR text) and agreed that the
requirements should be consistent. However, the respondent disagreed
with commercial subcontracting plans allowing large businesses to
``capture and be credited for small dollars spent'' that have nothing
to do with the specific awarded Federal contract. The respondent
recommended a maximum cap proposed at 0.5 percent to the large business
and that any remaining credit or subcontracting expenditure allowed be
with the small business directly involved and subcontracted to the
[[Page 44251]]
specific awarded Federal contract. The respondent further reiterated
the original intent of the subcontracting law was to encourage large
business primes to work and subcontract with small businesses in
support of the Federal contract awarded and not to receive credit for
unrelated work. Another respondent acknowledged the importance of prime
contractors making a good faith effort to comply with SBA's small
business subcontracting plan. The respondent further stated that the
country is in the midst of a deadly pandemic and offered additional
political commentary irrelevant to the subject FAR case.
Response: The comments are outside the scope of this rule. The
intent of this rule is to provide guidance on evaluating whether a
prime contractor made a good faith effort to comply with its small
business subcontracting plan and to provide a list of examples of
activities reflective of a failure to make a good faith effort.
Additionally, this rule is amending the FAR to require that all
indirect costs, minus certain exceptions, are included in both
commercial plans and summary subcontract reports.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT) and for Commercial Items, Including Commercially
Available Off-the-Shelf (COTS) Items
This rule implements a statutory requirement to provide examples of
activities that would be considered a failure to make a good faith
effort to comply with a small business subcontracting plan. The Federal
Acquisition Regulatory Council (FAR Council) does not intend to apply
the requirements of section 1821 of the NDAA for FY 2017 (Pub. L. 114-
328; 15 U.S.C 637 note) to contracts at or below the SAT, but intends
to apply those requirements to contracts for the acquisition of
commercial items, including COTS items. The clauses at FAR 52.219-9 and
52.219-16 are revised by this rule.
A. Applicability to Contracts at or Below the SAT
Pursuant to 41 U.S.C. 1905, a provision of law is not applicable to
acquisitions at or below the SAT unless the law (i) contains criminal
or civil penalties; (ii) specifically refers to 41 U.S.C. 1905 and
states that the law applies to acquisitions at or below the SAT; or
(iii) the FAR Council makes a written determination that it is not in
the best interest of the Federal Government to exempt contracts or
subcontracts at or below the SAT. If none of these conditions are met,
the FAR is required to include the statutory requirement(s) on a list
of provisions of law that are inapplicable to acquisitions at or below
the SAT.
The purpose of this rule is to implement section 1821 of the NDAA
for FY 2017. Section 1821 requires SBA to provide examples of
activities that would be considered a failure to make a good faith
effort to comply with a small business subcontracting plan.
The FAR Council does not intend to apply this rule to acquisitions
at or below the SAT.
B. Applicability to Contracts for the Acquisition of Commercial Items
Pursuant to 41 U.S.C. 1906, acquisitions of commercial items (other
than acquisitions of COTS items, which are addressed in 41 U.S.C. 1907)
are exempt from a provision of law unless the law (i) contains criminal
or civil penalties; (ii) specifically refers to 41 U.S.C. 1906 and
states that the law applies to acquisitions of commercial items; or
(iii) the FAR Council makes a written determination and finding that it
would not be in the best interest of the Federal Government to exempt
contracts for the procurement of commercial items from the provision of
law. If none of these conditions are met, the FAR is required to
include the statutory requirement(s) on a list of provisions of law
that are inapplicable to the acquisition of commercial items.
The purpose of this rule is to implement section 1821 of the NDAA
for FY 2017 and SBA's implementing regulations. Section 1821 requires
SBA to provide examples of activities that would be considered a
failure to make a good faith effort to comply with a small business
subcontracting plan. Both the FAR and SBA's regulations require
contractors with small business subcontracting plans--including
commercial plans--to make a good faith effort to comply with the plans.
SBA's final rule did not exempt the acquisition of commercial items.
Section 1821 furthers the Administration's goal of supporting small
business. It advances the interests of small business subcontractors by
promoting good faith efforts by large prime contractors to find and use
small business concerns as subcontractors, thereby providing valuable
opportunities for small business concerns.
For these reasons, it is in the best interest of the Federal
Government to apply the requirements of this rule to the acquisition of
commercial items.
C. Applicability to Contracts for the Acquisition of COTS Items
Pursuant to 41 U.S.C. 1907, acquisitions of COTS items will be
exempt from a provision of law unless the law (i) contains criminal or
civil penalties; (ii) specifically refers to 41 U.S.C. 1907 and states
that the law applies to acquisitions of COTS items; (iii) concerns
authorities or responsibilities under the Small Business Act (15 U.S.C.
644) or bid protest procedures developed under the authority of 31
U.S.C. 3551 et seq., 10 U.S.C. 2305(e) and (f), or 41 U.S.C. 3706 and
3707; or (iv) the Administrator for Federal Procurement Policy makes a
written determination and finding that it would not be in the best
interest of the Federal Government to exempt contracts for the
procurement of COTS items from the provision of law. If none of these
conditions are met, the FAR is required to include the statutory
requirement(s) on a list of provisions of law that are inapplicable to
the acquisition of COTS items.
The purpose of this rule is to implement section 1821 of the NDAA
for FY 2017 and SBA's implementing regulations. Section 1821 requires
SBA to provide examples of activities that would be considered a
failure to make a good faith effort to comply with a small business
subcontracting plan. Both the FAR and SBA's regulations require
contractors with small business subcontracting plans--including
commercial plans--to make a good faith effort to comply with the plans.
SBA's final rule did not exempt the acquisition of COTS items.
Section 1821 furthers the Administration's goal of supporting small
business. It advances the interests of small business subcontractors by
promoting good faith efforts by large prime contractors to find and use
small business concerns as subcontractors, thereby providing valuable
opportunities for small business concerns.
For these reasons, it is in the best interest of the Federal
Government to apply the requirements of this rule to the acquisition of
COTS items.
IV. Expected Impact of the Rule
This rule provides examples of activities that contracting officers
may consider when evaluating whether the prime contractor made a good
faith effort to comply with its small business subcontracting plan. The
contracting officers also have consistent and uniform examples to
identify and hold large prime contractors accountable for failing to
make a good faith effort to
[[Page 44252]]
comply with their subcontracting plans. Encouraging large prime
contractors to meet their subcontracting goals may have a positive
economic impact on any small business entity that wishes to participate
in Federal procurement as a subcontractor.
The final rule also requires prime contractors with commercial
subcontracting plans to include indirect costs, with certain
exceptions, in their subcontracting goals. This will ensure that the
data reported in the summary subcontract report is consistent with the
goals in the commercial subcontracting plan.
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, 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. 601-612. The FRFA is summarized as follows:
The objective of this final rule is to implement section 1821 of
the NDAA for FY 2017 and SBA's implementing regulations, which
provide examples of activities that would be considered a failure to
make a good faith effort to comply with a small business
subcontracting plan. SBA amended 13 CFR 125.3(d)(3) to provide
guidance on evaluating whether the prime contractor made a good
faith effort to comply with its small business subcontracting plan
and a list of examples of activities reflective of a failure to make
a good faith effort.
Additionally, SBA amended 13 CFR 125.3(c)(1)(iv) to require that
large prime contractors with commercial subcontracting plans include
indirect costs in the commercial subcontracting plan goals. Large
prime contractors that have a commercial subcontracting plan report
on performance through a Summary Subcontract Report (SSR) in the
Electronic Subcontracting Reporting System (eSRS). The FAR currently
requires--as SBA's regulations required prior to publication of
SBA's final rule--that a contractor using a commercial
subcontracting plan include all indirect costs in its SSR. However,
these regulations did not require contractors to include indirect
costs in their commercial subcontracting plan goals, which leads to
inconsistencies when comparing the data reported in the SSR to the
goals in the commercial subcontracting plan.
There were no significant issues raised by the public comments
in response to the initial regulatory flexibility analysis.
This rule may have a positive economic impact on any small
entity that wishes to participate in Federal procurement as a
subcontractor.
DoD, GSA, and NASA do not expect this rule to have a significant
economic impact on a substantial number of small entities. This rule
provides guidance to the contracting officer on evaluating whether
the prime contractor made a good faith effort to comply with its
small business subcontracting plan and a list of examples of
activities reflective of a failure to make a good faith effort.
By providing examples of a failure to make a good faith effort
to comply with small business subcontracting plans, the FAR will
enable contracting officers to determine more easily whether large
prime contractors have made a good faith effort to comply with their
subcontracting plans and to hold large prime contractors accountable
for failing to make a good faith effort to comply with their
subcontracting plans. More diligence in developing and meeting
subcontracting goals on the part of large prime contractors could
have a positive impact of giving small business concerns more
opportunities to subcontract on Federal contracts.
Data from the Federal Procurement Data System for fiscal years
2018 through 2020 indicate that there were 7,656 entities with
30,414 new awards that required subcontracting plans. Of the 30,414
new awards, 18 percent or 5,399 required commercial subcontracting
plans. Additionally, 31 percent or 2,318 of the 7,656 unique
awardees required commercial subcontracting plans. According to the
Federal Funding Accountability and Transparency Act Subaward
Reporting System (FSRS), there are 19,596 unique entities who are
subcontractors. Approximately 80 percent of the entities registered
in the System for Award Management are small entities. Therefore, we
estimate that 80 percent (15,677) of the subcontractors in FSRS are
small entities. These small entities may benefit from this rule.
This final rule requires a large prime contractor with a
commercial subcontracting plan to include indirect costs in its
subcontracting goals. The benefit of requiring that indirect costs
be included in subcontracting goals in commercial subcontracting
plans is that it will increase the small business subcontracting
goal and thus, increase the amount of funds the prime contractor
will subcontract to small business concerns, providing more
opportunities for subcontract awards to small business concerns.
This final rule does not include any new reporting,
recordkeeping, or other compliance requirements for small entities.
There are no known significant alternative approaches that would
accomplish the stated objectives of the applicable statute.
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
the Small Business Administration.
VIII. Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. 3501-3521) applies to this
rule; however, these changes to the FAR do not impose additional
information collection requirements to the paperwork burden previously
approved under OMB Control Number 9000-0007, Subcontracting Plans.
List of Subjects in 48 CFR Parts 19, 42, 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 19, 42, and 52 as
set forth below:
0
1. The authority citation for 48 CFR parts 19, 42, 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 19--SMALL BUSINESS PROGRAMS
0
2. Amend section 19.704 by--
0
a. In paragraph (a)(6) removing the phrase ``subcontracting goals'' and
adding the phrase ``subcontracting goals (for commercial plans, see
paragraph (d) of this section)'' in its place;
0
b. Revising paragraph (d) introductory text; and
0
c. In paragraph (d)(4) removing the phrase ``one SSR'' and adding the
phrase ``one SSR that includes all indirect costs, except as described
in paragraph (d) of this section,'' in its place.
[[Page 44253]]
The revision reads as follows:
19.704 Subcontracting plan requirements.
* * * * *
(d) A commercial plan (as defined in 19.701) is the preferred type
of subcontracting plan for contractors furnishing commercial items. The
subcontracting goals established for a commercial plan shall include
all indirect costs with the exception of those such as the following:
Employee salaries and 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 the product);
utilities and other services purchased from a municipality or an entity
solely authorized by the municipality to provide those services in a
particular geographical region; and philanthropic contributions. Once a
contractor's commercial plan has been approved, the Government shall
not require another subcontracting plan from the same contractor while
the plan remains in effect, as long as the product or service being
provided by the contractor continues to meet the definition of a
commercial item. The contractor shall--
* * * * *
19.705-4 [Amended]
0
3. In section 19.705-4 amend paragraph (c), in the fourth sentence, by
removing the phrase ``faith effort'' and adding the phrase ``faith
effort (see 19.705-7)'' in its place.
0
4. Amend section 19.705-6 by revising paragraphs (g)(1), (h), and (i)
to read as follows:
19.705-6 Postaward responsibilities of the contracting officer.
* * * * *
(g) * * *
(1) Assess whether the prime contractor made a good faith effort to
comply with its small business subcontracting plan. See 19.705-7(b) for
more information on the determination of good faith effort.
* * * * *
(h) Initiate action to assess liquidated damages in accordance with
19.705-7 upon a recommendation by the administrative contracting
officer, if one is assigned, or receipt of other reliable evidence to
indicate that assessing liquidated damages is warranted.
(i) Take action to enforce the terms of the contract upon receipt
of a notice from the contract administration office under 19.706(f).
* * * * *
0
5. Amend section 19.705-7 by--
0
a. Revising the section heading;
0
b. In paragraph (a)--
0
i. Adding a paragraph heading;
0
ii. Removing the phrase ``small disadvantaged business'' and adding the
phrase ``small disadvantaged business,'' in its place;
0
c. Revising paragraphs (b), (c), (d), and (e);
0
d. Adding a paragraph heading to the introductory text of paragraph
(f);
0
e. Removing paragraph (g); and
0
f. Redesignating paragraph (h) as paragraph (f)(5).
The revisions and additions read as follows:
19.705-7 Compliance with the subcontracting plan.
(a) General. * * *
(b) Determination of good faith effort. (1) In determining whether
a contractor failed to make a good faith effort to comply with its
subcontracting plan, a contracting officer must look to the totality of
the contractor's actions, consistent with the information and
assurances provided in its plan. The fact that the contractor failed to
meet its subcontracting goals does not, in and of itself, constitute a
failure to make a good faith effort (see 19.701). For example,
notwithstanding a contractor's diligent effort to identify and solicit
offers from any of the small business, veteran-owned small business,
service-disabled veteran-owned small business, HUBZone small business,
small disadvantaged business, and women-owned small business concerns,
factors such as unavailability of anticipated sources or unreasonable
prices may frustrate achievement of the contractor's subcontracting
goals. The contracting officer may consider any of the following,
though not all inclusive, to be indicators of a good faith effort:
(i) Breaking out work to be subcontracted into economically
feasible units, as appropriate, to facilitate small business
participation.
(ii) Conducting market research to identify potential small
business subcontractors through all reasonable means, such as searching
SAM, posting notices or solicitations on SBA's SUBNet, participating in
business matchmaking events, and attending preproposal conferences.
(iii) Soliciting small business concerns as early in the
acquisition process as practicable to allow them sufficient time to
submit a timely offer for the subcontract.
(iv) Providing interested small businesses with adequate and timely
information about plans, specifications, and requirements for
performance of the prime contract to assist them in submitting a timely
offer for the subcontract.
(v) Negotiating in good faith with interested small businesses.
(vi) Directing small businesses that need additional assistance to
SBA.
(vii) Assisting interested small businesses in obtaining bonding,
lines of credit, required insurance, necessary equipment, supplies,
materials, or services.
(viii) Utilizing the available services of small business
associations; local, state, and Federal small business assistance
offices; and other organizations.
(ix) Participating in a formal mentor-prot[eacute]g[eacute] program
with one or more small business prot[eacute]g[eacute]s that results in
developmental assistance to the prot[eacute]g[eacute]s.
(x) Although failing to meet the subcontracting goal in one
socioeconomic category, exceeding the goal by an equal or greater
amount in one or more of the other categories.
(xi) Fulfilling all of the requirements of the subcontracting plan.
(2) When considered in the context of the contractor's total effort
in accordance with its plan, the contracting officer may consider any
of the following, though not all inclusive, to be indicators of a
failure to make a good faith effort:
(i) Failure to attempt through market research to identify,
contact, solicit, or consider for contract award small business,
veteran-owned small business, service-disabled veteran-owned small
business, HUBZone small business, small disadvantaged business, or
women-owned small business concerns, through all reasonable means
including outreach, industry days, or the use of Federal systems such
as SBA's Dynamic Small Business Search or SUBNet systems.
(ii) Failure to designate and maintain a company official to
administer the subcontracting program and monitor and enforce
compliance with the plan.
(iii) Failure to submit an acceptable ISR, or the SSR, using the
eSRS, or as provided in agency regulations, by the report due dates
specified in 52.219-9, Small Business Subcontracting Plan.
(iv) Failure to maintain records or otherwise demonstrate
procedures adopted to comply with the plan including subcontracting
flowdown requirements.
(v) Adoption of company policies or documented procedures that have
as their objectives the frustration of the objectives of the plan.
(vi) Failure to pay small business subcontractors in accordance
with the
[[Page 44254]]
terms of the contract with the prime contractor.
(vii) Failure to correct substantiated findings from Federal
subcontracting compliance reviews or participate in subcontracting plan
management training offered by the Government.
(viii) Failure to provide the contracting officer with a written
explanation if the contractor fails to acquire articles, equipment,
supplies, services, or materials or obtain the performance of
construction work as described in 19.704(a)(12).
(ix) Falsifying records of subcontract awards to small business
concerns.
(c) Documentation of good faith effort. If, at completion of the
basic contract or any option, or in the case of a commercial plan, at
the close of the fiscal year for which the plan is applicable, a
contractor has failed to comply with the requirements of its
subcontracting plan, which includes meeting its subcontracting goals,
the contracting officer shall review all available information for an
indication that the contractor has not made a good faith effort to
comply with the plan. If no such indication is found, the contracting
officer shall document the file accordingly.
(d) Notice of failure to make a good faith effort. If the
contracting officer decides in accordance with paragraph (b) of this
section that the contractor failed to make a good faith effort to
comply with its subcontracting plan, the contracting officer shall give
the contractor written notice in accordance with 52.219-16, Liquidated
Damages--Subcontracting Plan, specifying the material breach, which may
be included in the contractor's past performance information, advising
the contractor of the possibility that the contractor may have to pay
to the Government liquidated damages, and providing a period of 15
working days (or longer period as necessary) within which to respond.
The notice shall give the contractor an opportunity to demonstrate what
good faith efforts have been made before the contracting officer issues
the final decision and shall further state that failure of the
contractor to respond may be taken as an admission that no valid
explanation exists.
(e) Payment of liquidated damages. (1) If, after consideration of
all the pertinent data, the contracting officer finds that the
contractor failed to make a good faith effort to comply with its
subcontracting plan, the contracting officer shall issue a final
decision to the contractor to that effect and require the payment of
liquidated damages in an amount stated. The contracting officer's final
decision shall state that the contractor has the right to appeal under
the clause in the contract entitled Disputes. Calculations and
procedures shall be in accordance with 52.219-16, Liquidated Damages--
Subcontracting Plan.
(2) The amount of damages attributable to the contractor's failure
to comply shall be an amount equal to the actual dollar amount by which
the contractor failed to achieve each subcontracting goal. For
calculations for commercial plans see paragraph (f) of this section.
(3) Liquidated damages shall be in addition to any other remedies
that the Government may have.
(f) Commercial plans. * * *
19.706 [Amended]
0
6. In section 19.706 amend paragraph (f) by removing the phrase
``subcontracting plan'' and adding the phrase ``subcontracting plan
(see 19.705-7(b) for more information on the determination of good
faith effort)'' in its place.
PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES
0
7. Amend section 42.1501 by redesignating paragraphs (a)(5) thru (a)(7)
as paragraphs (a)(6) thru (a)(8) and adding a new paragraph (a)(5) to
read as follows:
42.1501 General.
(a) * * *
(5) Complying with the requirements of the small business
subcontracting plan (see 19.705-7(b));
* * * * *
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
8. Amend section 52.212-5 by revising the date of the clause and
paragraphs (b)(17)(i), (b)(17)(v), and (b)(20) to read as follows:
52.212-5 Contract Terms and Conditions Required to Implement Statutes
or Executive Orders--Commercial Items.
* * * * *
Contract Terms and Conditions Required to Implement Statutes or
Executive Orders--Commercial Items (SEP 2021)
* * * * *
(b) * * *
__(17)(i) 52.219-9, Small Business Subcontracting Plan (SEP 2021)
(15 U.S.C. 637(d)(4)).
* * * * *
__(v) Alternate IV (SEP 2021) of 52.219-9.
* * * * *
__(20) 52.219-16, Liquidated Damages--Subcontracting Plan (SEP
2021) (15 U.S.C. 637(d)(4)(F)(i)).
* * * * *
0
9. Amend section 52.219-9 by--
0
a. Revising the date of the clause;
0
b. In paragraph (d)(2)(i) removing the word ``subcontracts'' and adding
the phrase ``subcontracts, including all indirect costs except as
described in paragraph (g) of this clause,'' in its place;
0
c. Adding a new fifth sentence to paragraph (g);
0
d. Revising the date of Alternate IV, and paragraph (d)(2)(i) of
Alternate IV.
The revised and added text reads as follows:
52.219-9 Small Business Subcontracting Plan.
* * * * *
Small Business Subcontracting Plan (SEP 2021)
* * * * *
(g) * * * A Contractor authorized to use a commercial
subcontracting plan shall include in its subcontracting goals and in
its SSR all indirect costs, with the exception of those such as the
following: Employee salaries and 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 the
product); utilities and other services purchased from a municipality or
an entity solely authorized by the municipality to provide those
services in a particular geographical region; and philanthropic
contributions. * * *
* * * * *
Alternate IV (SEP 2021). * * *
(d) * * *
(2) * * *
(i) Total dollars planned to be subcontracted for an individual
subcontracting plan; or the Contractor's total projected sales,
expressed in dollars, and the total value of projected subcontracts to
support the sales for a commercial plan, including all indirect costs,
with the exception of those such as the following: Employee salaries
and 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 the product); utilities and
[[Page 44255]]
other services purchased from a municipality or an entity solely
authorized by the municipality to provide those services in a
particular geographical region; and philanthropic contributions;
* * * * *
0
10. Amend 52.219-16 by--
0
a. Revising the date of the clause; and
0
b. In paragraph (b) in the second sentence removing the phrase ``plan,
established'' and adding ``plan (see 19.705-7), established'' in its
place.
The revision reads as follows:
52.219-16 Liquidated Damages--Subcontracting Plan.
* * * * *
Liquidated Damages--Subcontracting Plan (SEP 2021)
* * * * *
[FR Doc. 2021-16366 Filed 8-10-21; 8:45 am]
BILLING CODE P
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</html>Indexed from Federal Register on August 11, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.