Rule2022-08577
Federal Acquisition Regulation: Applicability of Small Business Regulations Outside the United States
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
April 26, 2022
Effective
May 26, 2022
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 (FAR) to support the Small Business Administration (SBA) policy of including overseas contracts in agency small business contracting goals. This final rule allows small business contracting procedures, e.g., set-asides, to apply to overseas procurements.
Full Text
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[Federal Register Volume 87, Number 80 (Tuesday, April 26, 2022)]
[Rules and Regulations]
[Pages 24836-24843]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08577]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 2, 19, and 52
[FAC 2022-06; FAR Case 2016-002; Item I; Docket No. 2016-0002, Sequence
No. 1]
RIN 9000-AN34
Federal Acquisition Regulation: Applicability of Small Business
Regulations Outside the United States
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Final rule.
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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the
Federal Acquisition Regulation (FAR) to support the Small Business
Administration (SBA) policy of including overseas contracts in agency
small business contracting goals. This final rule allows small business
contracting procedures, e.g., set-asides, to apply to overseas
procurements.
DATES: Effective: May 26, 2022.
FOR FURTHER INFORMATION CONTACT: Ms. Mahruba Uddowla, Procurement
Analyst, at 703-605-2868, or by email at <a href="/cdn-cgi/l/email-protection#7419151c060116155a0110101b031815341307155a131b02"><span class="__cf_email__" data-cfemail="284549405a5d4a49065d4c4c475f4449684f5b49064f475e">[email protected]</span></a>, for
clarification of content. For information
[[Page 24837]]
pertaining to status or publication schedules, contact the Regulatory
Secretariat Division at 202-501-4755 or <a href="/cdn-cgi/l/email-protection#2b6c786a794e4c784e486b4c584a054c445d"><span class="__cf_email__" data-cfemail="84c3d7c5d6e1e3d7e1e7c4e3f7e5aae3ebf2">[email protected]</span></a>. Please cite
FAC 2022-06, FAR Case 2016-002.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA published a proposed rule at 84 FR 39793 on
August 12, 2019, to support SBA's policy of including overseas
contracts in agency small business contracting goals by allowing small
business contracting procedures, e.g., set-asides, to apply to overseas
procurements (i.e., procurements outside the United States and its
outlying areas), which is expected to expand overseas opportunities for
small business concerns. Twenty-six respondents submitted comments on
the proposed rule.
II. Discussion and Analysis
The Civilian Agency Acquisition Council and the Defense Acquisition
Regulations Council (the Councils) reviewed the public comments in the
development of the final rule. A discussion of the comments received
and any changes made to the rule as a result of the public comments are
provided as follows:
A. Summary of Significant Changes From the Proposed Rule
This final rule makes conforming changes to FAR solicitation
provisions 52.204-8, Annual Representations and Certifications, and
52.212-3, Offeror Representations and Certifications--Commercial
Products and Commercial Services. These changes are required to resolve
conflicts between these provisions and the changes in the proposed rule
to the prescriptions at FAR 19.309.
B. Analysis of Public Comments
1. Support for the Rule
Comment: Multiple respondents expressed their support for the rule.
Response: The Councils acknowledge the respondents' support for the
rule.
2. Opposition to the Rule
Comment: A few respondents expressed their opposition to the rule.
Response: The Councils acknowledge the respondents' opposition to
the rule. The Councils have taken into consideration all of the public
comments in the development of this final rule.
3. Legal Concerns Regarding Overseas Application of the Small Business
Act
Comment: One respondent stated that the Small Business Act must
show an affirmative intent to apply overseas and reconcile conflicts of
law, otherwise the statute is meant to apply only within the
territorial jurisdiction of the United States. The respondent further
stated the Small Business Act is silent regarding its application
overseas and does not account for conflicts of law. A second respondent
stated that it has been the position of DoD that the Small Business Act
does not apply outside of the United States and its outlying areas.
According to the respondent, absent a statement of Congressional
intent, the Government Accountability Office (GAO) has deferred to
DoD's interpretation of the Small Business Act embodied in FAR
19.000(b) (Latvian Connection Gen. Trading & Constr. LLC, B-408633,
2013 CPD 224, September 8, 2013). The respondent described GAO's
deference to DoD's interpretation embodied in the FAR as an example of
``Chevron'' deference, which does not give agencies license to follow
statutes to the extent they deem desirable; instead, it is deference to
an agency's permissible interpretation of an ambiguous statute. A third
respondent noted that the Federal Acquisition Regulatory Council (FAR
Council) stated that the change in the proposed rule is being done to
be consistent with SBA's own rules. The respondent stated that by
revising FAR 19.000(b) to explicitly make application of FAR part 19
``discretionary'' for overseas contracts, the FAR Council is amending
the FAR to continue to conflict with SBA's regulations directly, or at
the very least conflict with SBA's stated interpretation of its
regulations. This respondent mentioned that SBA's interpretation of the
Small Business Act is that the application of the Act overseas is
mandatory, not discretionary. The respondent recommended that the FAR
Council consult with SBA to ensure the FAR rule, and FAR 19.000(b) in
particular, conform to SBA's regulations. Two respondents expressed
concern regarding conflicts between this FAR rule and treaties and
international agreements. One of the respondents stated the proposed
rule did not require the contracting officer to document how they
considered international agreements when exercising their discretion.
The other respondent indicated that overseas contracting officers will
not have the discretion to apply FAR part 19 when international
treaties or international agreements require solicitation or award to
host nation sources. According to this respondent, if the proposed rule
is adopted, it should be revised to reflect this lack of discretion.
Response: In its October 2, 2013, final rule, SBA applied the Small
Business Act to overseas acquisitions. The Councils note that, at the
time of the GAO's decision in the cited Latvian Connection case, SBA's
regulations were silent regarding the application of the Small Business
Act outside the United States and its outlying areas. SBA's final rule
amended 13 CFR 125.2, which SBA stated was issued in part to clarify
its position that the Small Business Act applies ``regardless of the
place of performance''.
The Councils proposed to amend the FAR to support SBA's changes to
the basis for the Governmentwide small business contracting goals. This
rule will allow for application of FAR part 19 overseas and thereby
expand opportunities for small business concerns overseas. The Councils
are aware that the SBA regulations at 13 CFR 125.2 do not make
application of small business set-aside and sole-source authorities
discretionary for overseas acquisitions. However, the Councils
recognize that overseas acquisitions are subject to international
agreements, treaties, local laws, diplomatic and other considerations
that are unique to the overseas environment and may limit the
Government's ability to apply the small business preferences in FAR
part 19 on a mandatory basis. In addition, the Councils believe that
policies issued subsequent to the promulgation of SBA's regulations,
such as those in Executive Order (E.O.) 14005, Ensuring the Future Is
Made in All of America by All of America's Workers, addressing steps to
increase reliance on domestic manufacturing, will operate more
effectively with a discretionary policy for use of set-asides overseas.
It is not practicable to list in the FAR everything that may affect
the decision to set aside an overseas acquisition. Therefore, the
Councils are amending the FAR to make the use of part 19 discretionary
outside the United States and its outlying areas, so agencies and their
contracting officers can consider these factors in the exercise of
their discretion. The Councils confirm that SBA representatives
participated in the development of both the proposed and final FAR
rules and concurred with both the proposed and final FAR rules.
4. Rule Creates Conflicts Within the FAR
Comment: Two respondents stated that the proposed rule created
conflicts
[[Page 24838]]
within the FAR. The respondents cited the following examples of
conflicts:
<bullet> The provisions at FAR 52.204-8, Annual Representations and
Certifications, and 52.212-3, Offeror Representations and
Certifications--Commercial Products and Commercial Services, explicitly
provide that small business representations only apply when the
resulting contract is to be performed in the United States or its
outlying areas. This conflict makes the rule unclear for offerors and
contracting officers.
<bullet> FAR 19.702(b)(3) and 19.708 do not explicitly require
small business subcontracting plans for any contract performed entirely
outside the United States or its outlying areas. The respondent
believes that it is illogical for an agency to set aside an overseas
contract for small business when it is prohibited from requiring small
business subcontracting for those same contracts. The respondent points
to Defense Federal Acquisition Regulation Supplement (DFARS) clause
252.225-7002(b), Qualifying Country Sources as Subcontractors, as a
further example that complements the FAR's prohibition on requiring a
small business subcontracting plan for overseas contract.
<bullet> FAR part 25, Foreign Acquisition, is problematic to
reconcile with the proposed rule. Specifically, the respondent points
to the requirements at FAR 25.802 and DFARS 225.7401 for contracting
officers to incorporate relevant requirements of international
agreements into solicitations and contracts, while the proposed rule is
silent on how contracting officers are to account for international
agreements in making their discretionary set-aside decisions.
<bullet> It is difficult for a small business to comply with the
requirements at FAR 52.219-14, Limitations on Subcontracting, and the
``Balance of Payments'' regulations at DFARS 225.75 (e.g., World Trade
Organization Government Procurement Agreement) because each requirement
specifies use of certain sources.
Response: With regard to the representation provisions, the
Councils concur that there is a conflict. Conforming edits have been
made to resolve the conflict at FAR 52.204-8(c)(1)(xii) and (xiii) as
well as FAR 52.212-3(c).
With regard to FAR subpart 19.7, the Councils note that FAR
19.702(b) states that small business subcontracting plans are not
required for contracts performed entirely overseas, but it does not
prohibit use of set-asides for prime contracts overseas. Therefore,
there is no conflict that needs to be resolved.
With regard to FAR 25.802, this final rule provides discretion to
contracting officers in making a set-aside decision for overseas
acquisitions so they can choose the appropriate acquisition strategy
for the location. The discretion provided in the rule will allow
contracting officers to avoid possible conflicts between FAR 52.219-14
and other regulations. For further discussion related to international
agreements, see the responses to comments under category 9. For further
discussion related to the limitations on subcontracting, see the
response to comments under category 11.
5. Application of Consolidation and Bundling to Overseas Contracts
Comment: Two respondents recommend not revising the definition of
``bundling'' in FAR subpart 2.1, Definitions, to make bundling
applicable to a contract that will be awarded and performed entirely
outside of the United States. The respondents believe that if the
requirements of FAR 7.107-2, Consolidation; 7.107-3, Bundling; and
7.107-4, Substantial bundling, are mandatory for overseas contracts,
then: (a) Contracting officers would be required to justify not
applying FAR part 19, and (b) this would cause overseas procurement
actions involving bundling to be extremely burdensome, time consuming,
and unlikely to occur. Therefore, contracting officers should not be
required to follow consolidation and bundling procedures for overseas
contracts. One of the respondents stated that making bundling
requirements applicable to overseas acquisitions is problematic for two
reasons. First, such requirements can be inconsistent with acquisition
approaches and source restrictions in international agreements, foreign
military sales (FMS) letters of offer and acceptance, and other
arrangements with foreign partners. Second, agencies regularly use the
bundling strategy to make overseas requirements attractive to capable
vendors to induce them to enter foreign markets.
Response: The Small Business Act does not exempt an agency from
justifying its consolidation and bundling of contract requirements
based on location of award, location of service performance, or
location of supply delivery. The Councils note that the FAR currently
applies the consolidation requirements to overseas contracts, which is
consistent with the Small Business Act. As such, this rule is not
making any changes to the FAR definition of ``consolidation or
consolidated requirement'' at FAR 2.101, Definitions, nor the
applicability of FAR 7.107-2, Consolidation. The bundling requirements
at FAR 7.107-3, Bundling, and 7.107-4, Substantial bundling, require an
agency to make a written determination that such action is necessary
and justified, allowing agencies to bundle in certain circumstances.
Applying the bundling requirements to overseas contracts requires
agencies to provide for maximum practicable participation by small
business concerns as contractors. Providing for maximum practicable
participation by small business concerns is not the same as mandating
the use of set-asides or creating a de facto justification requirement
for not applying FAR part 19 to overseas contracts. The respondent's
comments on the DoD FMS Program are outside the scope of this case.
6. Negative Impacts of the Rule
a. Higher Prices
Comment: Two respondents stated the changes in the proposed rule
would negatively impact the taxpayer by driving up prices. One of the
respondents believed that foreign-owned entities would almost always
have better pricing for contracts performed overseas than U.S.-owned
small businesses. The other respondent believed the changes would
result in higher liabilities, ignorance of the market and environment,
and less control over the work.
Response: The Councils recognize that overseas contracts are
subject to considerations that are unique to the overseas environment,
as described in the response to comments under category 3. In
acknowledgment of these considerations, this final rule retains the
proposed rule text to make the use of FAR part 19 discretionary outside
the United States and its outlying areas to allow contracting officers
to use the most appropriate acquisition strategy. When the contracting
officer is determining whether to set aside the procurement, fair
market price, quality, and delivery are some of the factors considered.
Any new entrants into overseas markets, whether small or other than
small business concerns, will experience the same challenges: Competing
with native businesses who know the market, economic conditions, and
applicable laws. However, each time U.S. small businesses go through
the solicitation process for overseas contracts, they will gain
experience and knowledge. By allowing discretionary use of small
business procurement rules
[[Page 24839]]
for overseas contracts, contracting officers can develop appropriate
acquisition strategies to encourage U.S. small businesses to
participate and become competitive. Small businesses will win contracts
when their proposal or bid demonstrates they can perform the work at
the lowest price or based on tradeoffs among price and non-price
evaluation factors.
b. Additional Acquisition Lead Time
Comment: One respondent stated that contracting officers must
already consider complex sourcing requirements for overseas
acquisitions, and adding small business goals and set-asides to the
process will add to acquisition lead time without adding corresponding
value. The respondent noted that nothing currently precludes small
businesses from competing for overseas acquisitions.
Response: The Councils recognize the complex sourcing requirements
for overseas acquisitions. Discretionary use of FAR part 19 for
overseas procurements will address an important public policy objective
of the Government to enhance the participation of small businesses in
overseas Federal acquisition as appropriate.
c. Improper Influence of Government Personnel
Comment: One respondent commented that allowing for discretionary
authority to set aside overseas procurements may lead to prospective
offerors trying to influence Government personnel in favor of set-
asides or full and open competition in corrupt ways, since there are
likely to be very few U.S. small businesses capable of fulfilling any
complicated Government requirement in many foreign countries.
Response: The FAR addresses improper business practices and
personal conflicts of interest in Government procurement at part 3,
which applies regardless of the location or situation. Part 3 states
that expenditure of public funds requires the highest degree of public
trust and an impeccable standard of conduct. Therefore, Government
personnel are required to act in good faith when making acquisition
decisions, which are subject to review as appropriate.
d. Contract Issues and Financial Hardship
Comment: One respondent believed that it is impossible for a
contracting officer to take into account all the possible unforeseen
impediments and costs that a U.S. small business could encounter when
performing in a foreign country. By making set-aside decisions, the
contracting officer would end up awarding contracts with higher rates
of default, delays, and claims than contracts awarded with unrestricted
competition or including participation by host nation firms. Two
respondents commented that U.S. small businesses are not suitable for
overseas acquisitions and may end up suffering substantial losses by
operating overseas. One of the respondents believed that small
businesses, unlike large businesses, are unlikely to have the
capability to make the necessary capital outlay, assign the necessary
personnel, or offer local partners sufficient expectation of future
work, to effectively prepare to perform in foreign countries, which may
lead to project delays and increased costs for which the contractor
could be liable. The other respondent used the cost of Value Added
Taxes (VAT) on materials and services purchased in foreign countries,
which the respondent calculates as averaging 20 percent, as an example
to highlight the unsuitability of a small business for overseas
acquisitions. According to the respondent, while some contractors are
exempt from paying VAT for work performed on behalf of the U.S.
Government, the contractors must still pay the VAT at initial point of
sale and then wait 6 months to a year for a refund of that VAT from the
foreign government. According to the respondent, this creates financial
hardship for small businesses.
Response: The Councils recognize overseas contracts are subject to
considerations that are unique to the overseas environment, as
described in the response to comments under category 3, for both small
business concerns and other than small business concerns. In
acknowledgment of these considerations, this final rule retains the
proposed rule text to make the use of FAR part 19 discretionary outside
the United States and its outlying areas to allow contracting officers
to utilize the most appropriate acquisition strategy. The Councils note
that prospective contractors are required to meet certain standards in
order to be determined responsible and therefore, eligible for award.
If there are questions regarding a prospective small business
contractor's responsibility, the matter would be referred to SBA in
accordance with FAR subpart 19.6. Offerors are expected to practice
sound business judgment in deciding which overseas opportunities to
pursue and be aware of potential financial risks.
7. Overseas Construction and Services Contracts
Comment: A few respondents noted that overseas construction
contracts are high risk and complex. The respondents pointed to
difficulties with supply chain management, meeting specified staffing
requirements, understanding local market conditions, and managing local
subcontractors and material suppliers as examples of the complexities
of overseas construction contracts. One of the respondents stated that
overseas construction and architect-engineer (A/E) contracts are
inherently local in nature and require detailed knowledge of host
nation laws and requirements related to construction, e.g., building
standards, permitting and licensing requirements, environmental
matters. As such, the respondents stated that overseas construction
contracts are not suitable for small businesses. Two respondents stated
FAR part 19 should exclude overseas construction and service contracts.
One of the respondents proposed a revision at FAR 19.000(b) to exclude
construction contracts.
Response: The Councils considered the recommended revision and
decided not to adopt it in the final rule since it does not reflect the
best course of action for every overseas construction acquisition. The
Councils recognize overseas construction and service contracts are
subject to considerations that are unique to the overseas environment,
as described in the response to comments under category 3, for both
small business concerns and other than small business concerns. In
acknowledgment of these considerations, this final rule retains the
proposed rule text to make the use of FAR part 19 discretionary outside
the United States and its outlying areas.
8. Clarification Needed
a. Change Not Clear
Comment: One respondent stated the proposed rule is not clear
regarding what is meant by ``applying'' FAR part 19 to overseas
acquisitions. The respondent requested the rule state whether
application referred to where the contracting officer is located or
where contract performance will take place.
Response: The final rule does not change the way FAR part 19
applies in the United States and its outlying areas. The rule is
written to provide maximum flexibility to contracting officers to apply
FAR part 19 outside the United States and its outlying areas.
[[Page 24840]]
b. Revisions Required to FAR 19.309
Comment: One respondent stated FAR 19.309 requires updating to
indicate when provisions and clauses must be added.
Response: The final rule retains the proposed rule text to make
changes to FAR 19.309, Solicitation provisions and contract clauses,
which allows the provisions and clauses to be added when the
contracting officer exercises their discretion and applies FAR part 19
to an overseas procurement.
9. Treaties and Other International Agreements
Comment: One respondent concluded that the Competition in
Contracting Act (CICA) explains how it applies when international
agreements and treaties apply for contracts awarded outside of the
United States. Two respondents pointed out that neither the Small
Business Act nor the proposed rule do the same to reconcile U.S.
obligations in applicable treaties and international agreements. One of
these respondents stated that the proposed rule is contrary to
international treaty obligations, other applicable international
agreement obligations, or local laws. Consequently, the contracting
officer may not have the discretion to apply FAR part 19 to most
construction and services contracts to be performed in a foreign
overseas location. Treaties and international agreements are treated as
paramount and are recognized as authorized restrictions on competition
outside the United States.
Response: The Councils agree that the Small Business Act does not
specifically address U.S. contracting obligations under applicable
treaties or international agreements. The Councils also agree that
contracting officers may not be able to apply FAR part 19 to overseas
acquisitions when treaties or international agreements require
solicitation or award to host nation sources or prohibit setting aside
awards for U.S. firms. This FAR rule clarifies that FAR part 19 may be
applied to procurements for supplies to be delivered or services to be
performed outside the United States and its outlying areas. The
proposed changes will encourage agencies to see if there are
opportunities to contract with small businesses for overseas
acquisitions and apply the Small Business Act to contracts awarded for
performance overseas.
10. Foreign Entities
a. Rule Is Supported by Inaccurate Data on Foreign Entities
Comment: One respondent stated that SBA cannot determine size
standards for foreign entities, and that the entities are not eligible
for socioeconomic categories. These entities are shown by default as
``other than small'' in the System for Award Management (SAM) and
Federal Procurement Data System (FPDS), even though the entities may be
small. The respondent noted that the proposed changes ignore that many
contracts awarded outside the United States, for performance outside
the United States, are awarded to foreign entities.
Response: SBA establishes size standards corresponding to North
American Industry Classification System (NAICS) codes, which apply to
all offerors for a specific procurement, regardless of whether the
offerors are foreign entities. SBA's regulations define ``business
concern'' as an entity that is ``organized for profit, with a place of
business located in the United States, and which operates primarily
within the United States or which makes a significant contribution to
the U.S. economy through payment of taxes or use of American products,
materials or labor'' (13 CFR 121.105). Such entities that meet the
definition of ``business concern'' may be considered small for FAR part
19 procurements if they meet the size standard for the NAICS code
assigned to a specific procurement. According to SBA, SAM and FPDS
function as intended.
b. Rule Excludes Small Foreign Entities
Comment: A respondent commented that, since non-U.S. businesses are
not considered ``small,'' applying small business size standards
outside the United States excludes foreign entities and limits
competition to U.S. companies only, contrary to CICA.
Response: As explained in the response to the comment under
category 10a, SBA's regulations allow ``non-U.S. businesses'' to be
considered small business concerns for the purposes of FAR part 19
procurements if they meet the criteria at 13 CFR 121.105. The Councils
note that CICA provides an exception that allows agencies to exclude
from competition other than small businesses in furtherance of sections
9 and 15 of the Small Business Act (see 10 U.S.C. 2304(b)(2) and 41
U.S.C. 3303(b)).
c. Rule Allows Foreign Entities To Benefit From Set-Asides
Comment: One respondent questioned why a small business that is
``foreign located, foreign owned, foreign controlled'' should be
allowed to benefit from Federal procurement regulations.
Response: This FAR rule is not changing which business concerns
qualify for part 19 procurements. See the response to the comment under
category 10a for discussion of SBA's definition of ``business
concern.''
11. Compliance With the Limitations on Subcontracting Requirements
Comment: Two respondents raised concerns that many small businesses
will likely have difficulties complying with the limitations on
subcontracting requirements. One respondent pointed out that unlike
large businesses, small businesses lack the necessary on-site personnel
to perform certain percentages of work that are required by the FAR.
The respondent further stated that in some countries labor laws mandate
the use of local labor, which creates the concern of how to apply and
administer the limitations on subcontracting requirements. The other
respondent stated that in certain countries, non-local entities would
need to be ``sponsored,'' which means a U.S. small business cannot
operate without contracting out all on-site performance to a local
subcontractor.
Response: The Councils recognize overseas contracts are subject to
considerations that are unique to the overseas environment. It is not
practicable to list in the FAR every factor that may affect an overseas
acquisition. In acknowledgment of these considerations, this final rule
retains the proposed rule text to make the use of FAR part 19
discretionary outside the United States and its outlying areas to allow
contracting officers to utilize the most appropriate acquisition
strategy. In addition, the Councils note that offerors should practice
sound business judgment in deciding which opportunities to pursue. The
Councils also note that FAR part 9 addresses certain standards every
prospective contractor is required to meet to be determined responsible
and therefore eligible for award.
12. Compliance With Existing Set-Aside and Subcontracting Regulations
Comment: One respondent recommended that effort be made in forcing
greater compliance with existing small business set-aside and
subcontracting regulations instead of pursuing the changes in the
proposed
[[Page 24841]]
rule. The respondent believes the proposed rule is expanding the
definition of small business to include ``foreign located, foreign
owned, foreign controlled'' businesses overseas.
Response: Agencies have procedures and processes in place to
monitor and ensure compliance with existing acquisition regulations.
For example, with respect to compliance with the acquisition
regulations in FAR part 19, the agencies' Office of Small and
Disadvantaged Business Utilization, or for DoD, Office of Small
Business Programs, along with the procurement center representatives at
SBA, have oversight of the use of FAR part 19 in the procurement
process. As a result of these roles and functions, the Government has
met its statutory small business goals since fiscal year 2013. This
rule is expected to expand opportunities for small businesses overseas.
For further discussion related to businesses that may qualify as
small for FAR part 19 procurements, see the response to comments under
category 10c.
13. Small Businesses as Subcontractors for Overseas Acquisitions
Comment: One respondent stated that U.S. small businesses in most
cases are better off supplying their expertise under overseas
acquisitions as subcontractors to prime contractors that are able to
undertake the necessary preparations to perform the Government's
overall requirements. The respondent believes that small businesses
incur excessive overhead charges compared to large businesses, which
will result in the Government being charged significantly more overhead
costs.
Response: The Councils do not concur with the assumption that small
businesses are not suitable as prime contractors for overseas
acquisitions. This FAR case clarifies that FAR part 19 may be applied
to overseas acquisitions. The changes will encourage agencies to seek
opportunities to contract to small businesses for overseas
acquisitions. The Councils note that market research and competition
will help to establish fair and reasonable prices, inclusive of
overhead, for overseas acquisitions, regardless of whether offerors are
small businesses or large businesses.
14. Exemption From Adjudication for Complaints About Noncompliance
Overseas
Comment: One respondent recommended that contracting officer
decisions to set aside, or not to set aside, procurements outside of
the United States and its outlying areas for small business be excluded
from available grounds for protest. Similarly, the respondent
recommended that advertisements of procurements alleged to represent
bundling of requirements for performance outside of the United States
and its outlying areas also be excluded from available grounds for
protest. The respondent believes that because the proposed change has
the effect of making compliance with the Small Business Act optional
for procurements outside of the United States and its outlying areas,
those procurements should be exempt from protests related to
noncompliance with the Small Business Act.
Response: The Councils do not have jurisdiction to exclude bundling
actions or set-aside decisions as an available ground for protest.
Agency level protests are governed by E.O. 12979, Agency Procurement
Protests (October 25, 1995). GAO protests are governed by 4 CFR part
21. Protests in Federal courts are governed by 28 U.S.C. 1491.
Therefore, the respondent's recommendation is not incorporated into the
final rule.
15. Outside the Scope of This Rule
Comment: One respondent asked how this rule would impact the DoD
requirement at DFARS 219.201 and if agencies outside of the United
States would have to use the DD Form 2579, Small Business Coordination
Record. A second respondent recommended that if the form 2579 was left
as ``fully open and competitive with no set aside,'' even if a small
business wins the award, there should be zero credit for the small
business winning the award because neither the agency nor the SBA had
anything to do with its award to a small business. This respondent
further asked why the agency or SBA should receive credit when not
making solicitations set aside for small business. A third respondent
noted that the proposed rule is contrary to the countless Defense
agreements that restrict competition to local contractors. This
respondent specifically referred to the input a host nation would
normally have regarding changes to an existing Status of Forces
Agreement (SOFA). The respondent further stated that any changes
without host nation input would not be well received by the host
nation. One respondent noted that there are several DoD statutory
exemptions for categories of contracts that should not be included by
SBA for goaling purposes. The respondent also stated that these same
contracting categories are exempt from SBA procurement center
representative oversight. Therefore, the respondent does not believe
the proposed rule is consistent with SBA's goaling guidelines. One
respondent noted that SBA had a regulation stating that, unless a small
business was owned and located in the United States, it was not a small
business that could benefit from Federal procurement regulations.
Response: These comments are outside the scope of this rule.
Although FAR 19.502-2 addresses small business set-asides, the use of
the DD Form 2579 is addressed in DFARS 219.201. The procedures
addressing credit for small business awards, small business procurement
goals, and how they are implemented, are established in Section 15(g)
of the Small Business Act and are not included in this FAR rule. DoD-
specific requirements related to review by procurement center
representatives are addressed in DFARS 219.402. Guidance specific to
compliance with Defense agreements and SOFAs, as well as the statutory
exemptions, are implemented by DoD and are DoD-specific. Past
definitions of ``business concern'' in SBA's regulations are not
relevant to this rule.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT) and for Commercial Products (Including Commercially
Available Off-the-Shelf (COTS) Items) or for Commercial Services
This rule amends the prescriptions at FAR 19.309, Solicitation
provisions and contract clauses, for provision 52.219-1, Small Business
Program Representations; provision 52.219-2, Equal Low Bids; and clause
52.219-28, Post-Award Small Business Program Rerepresentation. As a
result of those amendments, this rule makes conforming changes to FAR
provisions 52.204-8, Annual Representations and Certifications and
52.212-3, Offeror Representations and Certifications--Commercial
Products and Commercial Services. However, this rule does not impose
any new requirements on contracts at or below the SAT, for commercial
products including COTS items, or for commercial services. The
provisions and clause continue to apply to acquisitions at or below the
SAT, and apply or not apply to commercial products including COTS
items, and for commercial services.
IV. Expected Impact of the Rule
Currently, FAR 19.000(b) states that FAR part 19, except for FAR
subpart 19.6, applies only in the United States or its outlying areas.
Some contracting officers have interpreted the phrase ``applies only in
the United States'' to mean that they are not allowed to use
[[Page 24842]]
the set-aside and sole-source procedures of FAR part 19 for overseas
procurements. Other contracting officers have interpreted ``applies
only in the United States'' to mean that they are not required to use
FAR part 19 procedures for overseas procurements but may do so if they
choose. These conflicting interpretations have resulted in inconsistent
use of FAR part 19 procedures for overseas procurements across Federal
agencies. Conflicting interpretations may also contribute to low
numbers of overseas contract actions that are set aside for small
businesses.
This rule clarifies that contracting officers are allowed, but not
required, to use the set-aside and sole-source procedures of FAR part
19 for overseas procurements. While SBA's regulations do not make the
use of small business regulations discretionary for overseas
procurements, it is necessary for the FAR to make the use of the small
business preferences in FAR part 19 discretionary to resolve the
conflicts between, on the one hand, the Small Business Act and SBA's
regulations and, on the other hand, international treaties and
agreements, local laws, diplomatic and other factors that are unique to
the overseas environment. Depending on the location of contract
performance or delivery, these factors may limit the Government's
ability to apply the small business preferences in FAR part 19 on a
mandatory basis. To resolve these conflicts, this final rule makes the
use of FAR part 19 discretionary outside the United States and its
outlying areas.
As a result of the clarification provided in this rule, contracting
officers may set aside more overseas actions for small businesses in
the future. However, this rule does not impose additional costs or
reduce existing costs for small businesses who may compete. The rule
merely allows additional opportunities to be provided to small
businesses through set-asides and other tools in FAR part 19 for
overseas procurements.
Data are not available on the number of overseas procurements
contracting officers have not set aside for small business as a result
of the conflicting interpretations described in the first paragraph of
this section. According to data obtained from the Federal Procurement
Data System (FPDS) for fiscal years 2019, 2020, and 2021 combined,
there were 359,567 awards for performance overseas, including
contracts, task orders and delivery orders, and calls under FAR part 13
blanket purchase agreements. Of those awards, 344,720 were made to
approximately 12,002 unique large businesses, while 14,846 awards were
made to approximately 3,223 unique small businesses. These numbers
indicate that approximately 4 percent of actions awarded for
performance outside the United States are awarded to small businesses.
Contract awards to small businesses could increase if contracting
officers expand their use of set-asides and other tools in FAR part 19
for overseas procurements. FAR 19.502-2(b) states that the set-aside
authority can only be used where a contracting officer has a reasonable
expectation that offers will be received from two small businesses and
that award will be made at a fair market price. Similarly, sole-source
authority under any of the small business programs also requires
certain conditions to be met before being utilized. The conditions for
using the FAR part 19 sole-source authorities include, but are not
limited to, making award at a fair and reasonable price. It is not
possible to identify how many small businesses will have the
capability, capacity, or inclination to compete for contracts performed
outside the United States. In addition, it is not possible to predict
how many overseas procurements contracting officers will set aside for
small businesses as a result of the FAR changes.
V. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). E.O.
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This is not a significant regulatory action and therefore, was not
subject to the review under section 6(b) of E.O. 12866, Regulatory
Planning and Review, dated September 30, 1993.
VI. Congressional Review Act
As required by the Congressional Review Act (5 U.S.C. 801-808)
before an interim or final rule takes effect, DoD, GSA, and NASA will
send the rule and the ``Submission of Federal Rules Under the
Congressional Review Act'' form to each House of the Congress and to
the Comptroller General of the United States. A major rule cannot take
effect until 60 days after it is published in the Federal Register. The
Office of Information and Regulatory Affairs (OIRA) in the Office of
Management and Budget has determined that this is not a major rule
under 5 U.S.C. 804.
VII. Regulatory Flexibility Act
DoD, GSA, and NASA have prepared a Final Regulatory Flexibility
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5
U.S.C. 601, et seq. The FRFA is summarized as follows:
DoD, GSA, and NASA are amending the Federal Acquisition
Regulation (FAR) to give agencies the tools they need, especially
the ability to use set-asides, to maximize opportunities for small
businesses outside the United States. Currently, the FAR states that
the small business programs do not apply outside of the United
States and its outlying areas (FAR 19.000(b)). However, with the
changes to the Small Business Administration's (SBA's) guidelines
for establishment of small business goals in response to section
1631(c) of the National Defense Authorization Act for Fiscal Year
2013 (Pub. L. 112-239), contracts performed outside of the United
States are now included in the Government's small business
contracting goals. In addition, SBA has clarified that, as a general
matter, its small business contracting regulations apply regardless
of the place of performance.
This rule is seeking to increase opportunities for small
business overseas and to support SBA's changes by expanding the use
of set-asides and other tools to contracts performed outside of the
United States.
There were no significant issues raised by the public in
response to the Initial Regulatory Flexibility Analysis.
This rule may have a positive economic impact on small
businesses. The rule expands existing procurement mechanisms (e.g.,
set-asides) to contracts performed outside the United States.
Therefore, small businesses available to compete for Federal
contracts performed outside the United States are most directly
affected by this rule.
Analysis of the System for Award Management (SAM) as of January
2022 indicates there are over 420,000 small business registrants
that can potentially benefit from the implementation of this rule.
It is not possible to identify which of these small businesses will
have the capability, capacity, and/or inclination to compete for
contracts performed outside the United States. An analysis of the
Federal Procurement Data System (FPDS) for fiscal years 2019, 2020,
and 2021 revealed that for the combined three years, there were
approximately 359,567 awards for performance overseas, including
contracts, task orders and delivery orders, and calls under part 13
blanket purchase agreements (BPAs). Of those awards, 344,720 were
made to approximately 12,002 unique large businesses, while 14,846
awards were made to approximately 3,223 unique small businesses.
This number could increase if contracting officers expand their
use of set-asides and other tools in FAR part 19 for overseas
contracts.
Therefore, this rule could affect a smaller number of small
businesses than those found in SAM, but potentially more than those
[[Page 24843]]
revealed by FPDS. DoD, GSA, and NASA note that the set-aside
authority can only be used where a contracting officer has a
reasonable expectation that offers will be received from at least
two small businesses and that award will be made at a fair market
price. Similarly, sole-source authority under any of the small
business programs also requires certain conditions to be met before
being utilized.
Nonetheless, this rule may have a significant positive economic
impact on small business concerns competing for Federal contracting
opportunities since it will provide additional Federal contracting
opportunities.
This rule does not include any new reporting, recordkeeping, or
other compliance requirements for small businesses.
This final rule is not expected to have a negative impact on any
small entity.
Interested parties may obtain a copy of the FRFA from the
Regulatory Secretariat Division. The Regulatory Secretariat Division
has submitted a copy of the FRFA to the Chief Counsel for Advocacy of
SBA.
VIII. Paperwork Reduction Act
This rule does not contain any information collection requirements
that require the approval of the Office of Management and Budget under
the Paperwork Reduction Act (44 U.S.C. 3501-3521).
List of Subjects in 48 CFR Parts 2, 19, and 52
Government Procurement.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of
Acquisition Policy, Office of Government-wide Policy.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 19, and 52 as
set forth below:
0
1. The authority citation for 48 CFR parts 2, 19, and 52 continues to
read as follows:
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
U.S.C. 20113.
PART 2--DEFINITIONS OF WORDS AND TERMS
0
2.101 [Amended]
0
2. Amend section 2.101, in paragraph (b)(2), in the definition of
``Bundling'', by removing paragraph (3).
PART 19--SMALL BUSINESS PROGRAMS
0
3. Amend section 19.000 by revising paragraph (b) to read as follows:
19.000 Scope of part.
* * * * *
(b)(1) Unless otherwise specified in this part (see subparts 19.6
and 19.7)--
(i) Contracting officers shall apply this part in the United States
and its outlying areas; and
(ii) Contracting officers may apply this part outside the United
States and its outlying areas.
(2) Offerors that participate in any procurement under this part
are required to meet the definition of ``small business concern'' at
2.101 and the definition of ``concern'' at 19.001.
0
4. Amend section 19.309 by revising paragraphs (a)(1), (b), and (c)(1)
to read as follows:
19.309 Solicitation provisions and contract clauses.
(a)(1) Insert the provision at 52.219-1, Small Business Program
Representations, in solicitations exceeding the micro-purchase
threshold when the contract is for supplies to be delivered or services
to be performed in the United States or its outlying areas, or when the
contracting officer has applied this part in accordance with
19.000(b)(1)(ii).
* * * * *
(b) When contracting by sealed bidding, insert the provision at
52.219-2, Equal Low Bids, in solicitations when the contract is for
supplies to be delivered or services to be performed in the United
States or its outlying areas, or when the contracting officer has
applied this part in accordance with 19.000(b)(1)(ii).
(c)(1) Insert the clause at 52.219-28, Post-Award Small Business
Program Rerepresentation, in solicitations and contracts exceeding the
micro-purchase threshold when the contract is for supplies to be
delivered or services to be performed in the United States or its
outlying areas, or when the contracting officer has applied this part
in accordance with 19.000(b)(1)(ii).
* * * * *
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
5. Amend section 52.204-8 by revising the date of the provision and
paragraphs (c)(1)(xii) introductory text and (c)(1)(xiii) to read as
follows:
52.204-8 Annual Representations and Certifications.
* * * * *
Annual Representations and Certifications (May 2022)
* * * * *
(c)(1) * * *
(xii) 52.219-1, Small Business Program Representations (Basic,
Alternates I, and II). This provision applies to solicitations when the
contract is for supplies to be delivered or services to be performed in
the United States or its outlying areas, or when the contracting
officer has applied part 19 in accordance with 19.000(b)(1)(ii).
* * * * *
(xiii) 52.219-2, Equal Low Bids. This provision applies to
solicitations when contracting by sealed bidding and the contract is
for supplies to be delivered or services to be performed in the United
States or its outlying areas, or when the contracting officer has
applied part 19 in accordance with 19.000(b)(1)(ii).
* * * * *
0
6. Amend section 52.212-3 by revising the date of the provision and
paragraph (c) introductory text to read as follows:
52.212-3 Offeror Representations and Certifications--Commercial
Products and Commercial Services.
* * * * *
Offeror Representations and Certifications--Commercial Products and
Commercial Services (May 2022)
* * * * *
(c) Offerors must complete the following representations when the
resulting contract is for supplies to be delivered or services to be
performed in the United States or its outlying areas, or when the
contracting officer has applied part 19 in accordance with
19.000(b)(1)(ii). Check all that apply.
* * * * *
[FR Doc. 2022-08577 Filed 4-25-22; 8:45 am]
BILLING CODE 6820-EP-P
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