Proposed Rule2022-27213
National Defense Authorization Act of 2020, Credit for Lower Tier Subcontracting and Other Amendments
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Published
December 19, 2022
Issuing agencies
Small Business Administration
Abstract
The U.S. Small Business Administration (SBA or Agency) is proposing to amend its regulations to implement provisions of the National Defense Authorization Act for Fiscal Year 2020. The proposal would permit a prime contractor with an individual subcontracting plan to apply credit for subcontracts to small businesses at lower tiers toward its subcontracting goals. To do so, the prime contractor would incorporate the lower-tier subcontracting performance into its subcontracting-plan goals.
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<title>Federal Register, Volume 87 Issue 242 (Monday, December 19, 2022)</title>
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[Federal Register Volume 87, Number 242 (Monday, December 19, 2022)]
[Proposed Rules]
[Pages 77529-77532]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27213]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 125
RIN 3245-AH28
National Defense Authorization Act of 2020, Credit for Lower Tier
Subcontracting and Other Amendments
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency) is
proposing to amend its regulations to implement provisions of the
National Defense Authorization Act for Fiscal Year 2020. The proposal
would permit a prime contractor with an individual subcontracting plan
to apply credit for subcontracts to small businesses at lower tiers
toward its subcontracting goals. To do so, the prime contractor would
incorporate the lower-tier subcontracting performance into its
subcontracting-plan goals.
DATES: Comments must be received on or before February 17, 2023.
ADDRESSES: You may submit comments, identified by RIN 3245-AH28, by any
of the following methods:
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Follow the instructions for submitting comments.
<bullet> Email: Roman Ivey, Program Analyst, Office of Policy
Planning and
[[Page 77530]]
Liaison, Small Business Administration, at <a href="/cdn-cgi/l/email-protection#55073a38343b7b1c23302c152637347b323a23"><span class="__cf_email__" data-cfemail="21734e4c404f0f68574458615243400f464e57">[email protected]</span></a>.
SBA will post all comments on <a href="https://www.regulations.gov">https://www.regulations.gov</a>. If you
wish to submit confidential business information (CBI), as defined in
the User Notice at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, please submit the
information to Roman Ivey, Small Business Administration at
<a href="/cdn-cgi/l/email-protection#d684b9bbb7b8f89fa0b3af96a5b4b7f8b1b9a0"><span class="__cf_email__" data-cfemail="97c5f8faf6f9b9dee1f2eed7e4f5f6b9f0f8e1">[email protected]</span></a>. Highlight the information that you consider to be
CBI and explain why you believe SBA should hold this information as
confidential. SBA will review the information and make the final
determination on whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: Roman Ivey, Program Analyst, Office of
Policy Planning and Liaison, Small Business Administration, at
<a href="/cdn-cgi/l/email-protection#bae8d5d7dbd494f3ccdfc3fac9d8db94ddd5cc"><span class="__cf_email__" data-cfemail="adffc2c0ccc383e4dbc8d4eddecfcc83cac2db">[email protected]</span></a>, (202) 401-1420. If you are deaf, hard of hearing,
or have a speech disability, please dial 7-1-1 to access
telecommunications relay services.
SUPPLEMENTARY INFORMATION:
Background
The SBA proposes to revise its Small Business Subcontracting Plan
regulations in 13 CFR 125.3 in response to changes made in section 870
of the National Defense Authorization Act (NDAA) of 2020, Public Law
116-92. Specifically, section 870 made changes to section 8(d) of the
Small Business Act, 15 U.S.C. 637(d), regarding the requirements that
apply to a Federal contractor seeking to obtain subcontracting credit
on certain types of Federal contracts.
Most Federal contracts require the awardee to enter into a
subcontracting plan that includes percentage goals for using small
businesses and subcategories of small businesses. Subcontracting plans
apply to Federal contracts exceeding $750,000 ($1.5 million for
construction), unless the awardee is a small business, the contract
does not offer subcontracting opportunities, or the contract will be
performed entirely outside the United States and its outlying areas.
Prior to SBA's Final Rule published on December 23, 2016, 81 FR 94246,
SBA's regulations permitted a prime contractor to count only its first-
tier subcontracts toward the goals in its subcontracting plan. The
December 2016 Final Rule, however, mandated that prime contractors
receive credit for lower-tier subcontracts under certain circumstances.
Section 870 changed the criteria for receiving credit for lower-tier
subcontracting, and this proposed rule implements those statutory
changes.
Section 870 made three changes to subcontracting plan requirements.
First, a prime contractor may elect, in some instances, to receive
credit toward its subcontracting plan for lower-tier subcontracts to
small businesses. Second, agencies are prohibited from setting tier-
specific goals for prime contractors that use lower-tier credit. Third,
subcontracting plans are required to recite the records that
contractors will maintain to substantiate lower-tier credit.
These changes require SBA to change some of the provisions set
forth in the December 2016 Final Rule. Most importantly, relying on
statutory language, the December 2016 Final Rule made it mandatory for
contractors with individual subcontracting plans to take credit for
lower-tier subcontract. Section 870, by contrast, removes the mandate
and states that prime contractors ``may elect to receive credit'' for
either first-tier subcontracts on their own, or subcontracts at any
tier. Accordingly, SBA proposes to change the prior mandate to an
election.
Additionally, the December 2016 Final Rule allowed for contractors
to receive credit for subcontracts awarded to small businesses below
the first tier, but only where the contractor had two sets of
subcontracting goals. A contractor was required to have a goal for
small-business subcontracting at the first tier, and an additional goal
for small business subcontracting at lower tiers. Section 870 prohibits
agencies from setting tier-specific goals for prime contractors that
use lower-tier credit. To address that statutory change, SBA proposes
that prime contractors will only have one set of subcontracting goals.
Prime contractors may elect under certain circumstances to have
subcontracts awarded to small businesses at lower tiers counted toward
this goal.
This proposed rule also implements the requirement from section 870
that contractors include in their subcontracting plans a statement of
the types of records they will maintain to substantiate subcontracting
credit.
Section 870 further created a new subparagraph 8(d)(16)(B) in the
Small Business Act, 15 U.S.C. 637(d)(16)(B), to require agencies to
collect, report, and review data on compliance with subcontracting
plans. The new subparagraph duplicates existing statutory language in
section 8(d)(7) of the Small Business Act, 15 U.S.C. 637(d)(7), and has
already been implemented in SBA's regulations at 13 CFR 125.6(f)(8).
Therefore, no regulatory changes are necessary to implement new
subparagraph 8(d)(16)(B).
Section-By-Section Analysis
13 CFR 125.3(a)
SBA proposes to change the threshold for a required subcontracting
plan to $750,000. This would make the threshold consistent with the
Federal Acquisition Regulation (FAR) subpart 19.7 and with other
references to the threshold in section 125.3.
13 CFR 125.3(a)(1)(i)(C)
SBA proposes to revise the language of 13 CFR 125.3(a)(1)(i)(C) to
incorporate the two statutory changes from section 870 that differ from
SBA's December 2016 rule: creating an election for using lower-tier
subcontracting credit and prohibiting more than one set of goals.
First, the proposed language makes lower-tier subcontracting credit
discretionary, in some circumstances. A prime contractor may elect to
take credit for lower-tier subcontractors only when the subcontracting
plan applies to a single contract with one Federal agency. In other
situations--i.e., where the plan applies to more than one contract or
to a single contract with more than one agency--section 870 prohibits
the prime contractor from receiving credit for lower-tier
subcontracting. Commercial plans and comprehensive subcontracting plans
therefore are not eligible to use lower-tier subcontracting credit.
They must instead rely solely on first-tier subcontracts. Additionally,
governmentwide contracts and multi-agency contracts are not permitted
to use lower-tier subcontracting credit.
Where a prime contractor elects to include lower-tier subcontracts
towards its goal, the prime contractor would be credited with lower-
tier subcontracts that are reported under lower-tier subcontracting
plans. This proposed rule does not require prime contractors to submit
additional reports. Prime contractors would be required to report only
their first-tier awards. Lower-tier subcontracting awards are required
to be reported by the prime contractor's lower-tier subcontractors in
accordance with their subcontracting plans and SBA's regulations. SBA
believes that only having each subcontract at any tier reported once
will help prevent duplicative counting of the same awards.
Second, the proposed rule eliminates the prior provision that a
prime contractor would have two sets of subcontracting goals--one for
the first tier and one for lower tiers. Instead, SBA proposes that the
prime contractor would incorporate the subcontracting-plan goals of its
lower-tier
[[Page 77531]]
subcontractors into its individual-subcontracting-plan goals.
13 CFR 125.3(c)
SBA proposes to create a new 13 CFR 125.3(c)(1)(xii) to incorporate
the new recordkeeping requirements on contractors with subcontracting
plans. Specifically, prime contractors are required to maintain records
of the procedures used to substantiate the credit they elect to receive
for lower-tier subcontracting under 13 CFR 125.3(a)(1)(i)(C).
Compliance with Executive Orders 12866, 13563, 12988, 13175, and
13132, the Paperwork Reduction Act (44 U.S.C. Ch. 35), the Regulatory
Flexibility Act (5 U.S.C. 601-612), and the Congressional Review Act (5
U.S.C. 801-808).
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is not a significant regulatory action for the purposes
of Executive Order 12866.
Executive Order 13563
SBA previously solicited comments from the public on a proposal to
provide credit for lower-tier subcontracting. 80 FR 60300. Those
comments were considered for this rulemaking. Additionally, as part of
its ongoing efforts to engage stakeholders in the development of its
regulations, SBA has solicited comments and suggestions from procuring
agencies on how to best implement section 870. SBA has incorporated
those comments and suggestions to the extent feasible. SBA intends to
incorporate, where feasible, public input into the final rule.
Executive Order 12988
For purposes of Executive Order 12988, SBA has drafted this
proposed rule, to the extent practicable, in accordance with the
standards set forth in section 3(a) and 3(b)(2) of that Executive
Order, to minimize litigation, eliminate ambiguity, and reduce burden.
This rule has no preemptive or retroactive effect.
Executive Order 13175
This proposed rule does not have tribal implications under
Executive Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it would not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.
Executive Order 13132
For the purpose of Executive Order 13132, SBA has determined that
this proposed rule will not have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various layers of government. Therefore, SBA has determined that this
proposed rule has no federalism implications warranting preparation of
a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
This rule, if adopted in final form, would update the requirements
for small business subcontracting plans to add a requirement for prime
contractors to include in their subcontracting plans a statement of the
types of records they will maintain to substantiate subcontracting
credit. The FAR rule implementing this requirement will account for
this information collection, and clearance for the information
collection will be obtained by the FAR Council.
Regulatory Flexibility Act, 5 U.S.C. 601-612
According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601,
when an agency issues a rulemaking, it must prepare a regulatory
flexibility analysis to address the impact of the rule on small
entities. However, section 605 of the RFA allows an agency to certify a
rule, in lieu of preparing an analysis, if the rulemaking is not
expected to have a significant economic impact on a substantial number
of small entities. The RFA defines ``small entity'' to include ``small
businesses,'' ``small organizations,'' and ``small governmental
jurisdictions.'' This proposed rule concerns various aspects of SBA's
contracting programs. As such, the rule relates to small business
concerns, but would not affect ``small organizations'' or ``small
governmental jurisdictions'' because those programs generally apply
only to ``business concerns'' as defined by SBA regulations, in other
words, to small businesses organized for profit. ``Small
organizations'' or ``small governmental jurisdictions'' are non-profits
or governmental entities and do not generally qualify as ``business
concerns'' within the meaning of SBA's regulations.
There are approximately 350,000 concerns registered as small
business concerns in the System for Award Management (SAM) that could
potentially be impacted by the implementation of section 870. However,
SBA cannot say with any certainty how many will be impacted because we
do not know how many of these concerns participate in government
contracting as subcontractors. A firm is required to register in SAM in
order to participate in Federal contracting as a prime contractor, but
not for purposes of subcontracting. Therefore, there are no known
compliance or other costs imposed by the proposed rule on small
business concerns.
In sum, the proposed amendments would not have a disparate impact
on small businesses and would increase their opportunities to
participate in Federal Government contracting as subcontractors without
imposing any additional costs. For the reasons discussed, SBA certifies
that this proposed rule would not have a significant economic impact on
a substantial number of small business concerns.
Congressional Review Act (5 U.S.C. 801-808)
The Congressional Review Act, 5 U.S.C. 801 et seq., as amended by
the Small Business Regulatory Enforcement Fairness Act of 1996,
generally provides that before a ``major rule'' may take effect, the
agency promulgating the rule must submit a rule report, which includes
a copy of the rule, to each House of the Congress and to the
Comptroller General of the United States. SBA will submit a report
containing this rulemaking and other required information to the U.S.
Senate, the U.S. House of Representatives, and the Comptroller General
of the United States. A major rule cannot take effect until 60 days
after it is published in the Federal Register. This rulemaking has been
reviewed and determined by OMB not to be a ``major rule'' under 5
U.S.C. 804(2).
List of Subjects in 13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Small business
subcontracting.
For the reasons stated in the preamble, SBA proposes to amend 13
CFR part 125 as follows:
PART 125--GOVERNMENT CONTRACTING PROGRAMS
0
1. The authority citation for 13 CFR part 125 is revised to read as
follows:
[[Page 77532]]
Authority: 15 U.S.C. 632(p), (q), 634(b)(6), 637, 644, 657f,
657q, 657r, and 657s; 38 U.S.C. 501 and 8127.
0
2. Amend Sec. 125.3 by:
0
a. Removing the number ``$650,000'' in paragraph (a) introductory text
and adding in its place the number ``$750,000'';
0
b. Revising paragraph (a)(1)(i)(C);
0
c. Removing the word ``and'' after the semicolon at the end of
paragraph (c)(1)(xi);
0
d. Redesignating paragraph (c)(1)(xii) as paragraph (c)(1)(xiii); and
0
e. Adding a new paragraph (c)(1)(xii).
The revision and addition read as follows:
Sec. 125.3 What types of subcontracting assistance are available to
small businesses?
(a) * * *
(1) * * *
(i) * * *
(C) Where the subcontracting goals pertain only to a single
contract with one Federal agency, the contractor may elect to receive
credit for small business concerns performing as first-tier
subcontractors or subcontractors at any tier pursuant to the
subcontracting plans required under paragraph (c) of this section in an
amount equal to the dollar value of work awarded to such small business
concerns. The election must be recorded in the subcontracting plan. If
the contractor elects to receive credit for subcontractors at any tier,
the following requirements apply:
(1) The prime contractor must incorporate the subcontracting-plan
goals of their lower-tier subcontractors in its individual-
subcontracting-plan goals.
(2) To receive credit for their subcontracting, lower-tier
subcontractors must have their own individual subcontracting plans.
(3) The prime contractor and any subcontractor with a
subcontracting plan are responsible for reporting on subcontracting
performance under their contracts or subcontracts at their first tier.
This reporting method applies to both individual subcontracting reports
and summary subcontracting reports.
(4) The prime contractor's performance under its individual
subcontracting plan will be calculated by aggregating the prime
contractor's first-tier subcontracting achievements with the
achievements of the prime contractor's lower-tier subcontractors that
have flow-down subcontracting plans.
(5) If the subcontracting goals pertain to more than one contract
with one or more Federal agencies, or to one contract with more than
one Federal agency, the prime contractor shall only receive credit for
first tier subcontractors that are small business concerns. This
restriction applies to all commercial plans, all comprehensive
subcontracting plans with the Department of Defense, governmentwide
contracts, and multi-agency contracts.
* * * * *
(c) * * *
(1) * * *
(xii) The prime contractor must provide a written statement of the
types of records it will maintain to demonstrate that procedures have
been adopted to substantiate the subcontracting credit that the prime
contractor elects under paragraph (a)(1)(i)(C) of this section; and
* * * * *
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2022-27213 Filed 12-16-22; 8:45 am]
BILLING CODE 8026-09-P
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