Proposed Rule2024-00728
Federal Acquisition Regulation: Limitations on Subcontracting Revisions
Primary source
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Published
January 17, 2024
Issuing agencies
Defense DepartmentGeneral Services AdministrationNational Aeronautics and Space Administration
Abstract
DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulation (FAR) to implement regulatory changes made by the Small Business Administration to update and clarify requirements associated with the limitations on subcontracting and the nonmanufacturer rule.
Full Text
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<title>Federal Register, Volume 89 Issue 11 (Wednesday, January 17, 2024)</title>
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[Federal Register Volume 89, Number 11 (Wednesday, January 17, 2024)]
[Proposed Rules]
[Pages 2910-2913]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-00728]
[[Page 2910]]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 19 and 52
[FAR Case 2021-020; Docket No. FAR-2021-0020; Sequence No. 1]
RIN 9000-AO36
Federal Acquisition Regulation: Limitations on Subcontracting
Revisions
AGENCY: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Proposed rule.
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SUMMARY: DoD, GSA, and NASA are proposing to amend the Federal
Acquisition Regulation (FAR) to implement regulatory changes made by
the Small Business Administration to update and clarify requirements
associated with the limitations on subcontracting and the
nonmanufacturer rule.
DATES: Interested parties should submit written comments to the
Regulatory Secretariat Division at the address shown below on or before
March 18, 2024 to be considered in the formation of the final rule.
ADDRESSES: Submit comments in response to FAR Case 2021-020 to the
Federal eRulemaking portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> by searching
for ``FAR Case 2021-020''. Select the link ``Comment Now'' that
corresponds with ``FAR Case 2021-020''. Follow the instructions
provided on the ``Comment Now'' screen. Please include your name,
company name (if any), and ``FAR Case 2021-020'' on your attached
document. If your comment cannot be submitted using <a href="https://www.regulations.gov">https://www.regulations.gov</a>, call or email the points of contact in the FOR
FURTHER INFORMATION CONTACT section of this document for alternate
instructions.
Instructions: Please submit comments only and cite ``FAR Case 2021-
020'' in all correspondence related to this case. Comments received
generally will be posted without change to <a href="https://www.regulations.gov">https://www.regulations.gov</a>,
including any personal and/or business confidential information
provided. Public comments may be submitted as an individual, as an
organization, or anonymously (see frequently asked questions at <a href="https://www.regulations.gov/faq">https://www.regulations.gov/faq</a>). To confirm receipt of your comment(s),
please check <a href="https://www.regulations.gov">https://www.regulations.gov</a>, approximately two to three
days after submission to verify posting.
FOR FURTHER INFORMATION CONTACT: Ms. Carrie Moore, Procurement Analyst,
at 571-300-5917 or by email at <a href="/cdn-cgi/l/email-protection#187b796a6a717d367577776a7d587f6b79367f776e"><span class="__cf_email__" data-cfemail="8feceefdfde6eaa1e2e0e0fdeacfe8fceea1e8e0f9">[email protected]</span></a>, for clarification
of content. For information pertaining to status, publication
schedules, or alternate instructions for submitting comments if <a href="https://www.regulations.gov">https://www.regulations.gov</a> cannot be used, contact the Regulatory Secretariat
Division at 202-501-4755 or <a href="/cdn-cgi/l/email-protection#41061200132426122422012632206f262e37"><span class="__cf_email__" data-cfemail="92d5c1d3c0f7f5c1f7f1d2f5e1f3bcf5fde4">[email protected]</span></a>. Please cite FAR Case
2021-020.
SUPPLEMENTARY INFORMATION:
I. Background
DoD, GSA, and NASA are proposing to amend the FAR to implement
regulatory changes made by the Small Business Administration (SBA) in
its final rules published on May 31, 2016, at 81 FR 34243; on November
29, 2019, at 84 FR 65647; and on October 16, 2020, at 85 FR 66146.
SBA's final rule published on May 31, 2016, which implements
section 1651 of the National Defense Authorization Act for Fiscal Year
2013 (Pub. L. 112-239) as codified at 15 U.S.C. 657s, standardized the
limitations on subcontracting and nonmanufacturer rule across the small
business socioeconomic programs, and modified its regulations to
specify that a similarly situated entity subcontractor must perform the
work with its own employees. SBA's final rule was implemented via the
final rule for FAR case 2016-011 published on August 11, 2021, at 86 FR
44233. However, the FAR final rule did not modify FAR 19.8, Contracting
with the Small Business Administration (The 8(a) Program), to align it
with the changes made to the socioeconomic programs at FAR subparts
19.13, 19.14, and 19.15.
In addition, this proposed rule implements regulatory changes made
by SBA in its final rules published on November 29, 2019, and on
October 16, 2020, to clarify requirements on the application of the
limitations on subcontracting, provide exclusions of certain costs from
the limitations on subcontracting calculation for services, and remove
specific rules related to kit assemblers from the nonmanufacturer rule.
The explanation for these changes is in the preamble of SBA's final
rules.
II. Discussion and Analysis
The proposed changes to the FAR and the rationale are summarized as
follows:
--Modify FAR 19.505(b)(1) introductory text to implement SBA's
regulations at 13 CFR 125.6(b) to make clear that only one of the
limitations of subcontracting apply to a contract;
--Modify FAR 19.505(b)(1)(i) and paragraph (e)(1) of FAR clause 52.219-
14 to implement SBA's regulations at 13 CFR 125.6(a)(1) to permit the
exclusion of other direct costs that are not the principal purpose of
the contract, and are not performed by small businesses, from the
limitations on subcontracting requirements for a service contract, and
to exclude work performed outside the United States on a contract
approved or financed under the Foreign Assistance Act of 1961 (Pub. L.
87-195, 22 U.S.C. 2151 et seq.), and work required to be performed by a
foreign contractor, from the limitations on subcontracting requirements
for service contracts;
--Modify FAR 19.505(b)(1)(iii) and (iv) and paragraphs (e)(3) and
(e)(4) of FAR clause 52.219-14 to implement SBA's regulations at 13 CFR
125.6(b) to clarify that the limitation on subcontracting applies to
contracts for general construction or for construction by special trade
contractors when the contract also includes supplies and/or services;
--Modify FAR 19.505(b)(1)(i) through (iv) and paragraphs (e)(1) through
(4) of FAR clause 52.219-14, Limitations on Subcontracting, to clarify
that any work that a similarly situated entity further subcontracts out
will count towards the prime contract's limitation on subcontracting;
--Modify FAR 19.505(c) to remove paragraph (c)(2), renumber the
remaining paragraphs, and remove the text and references to the unique
standard for kit assemblers when applying the nonmanufacturer rule to
implement SBA's regulations at 13 CFR 121.406(c) and 13 CFR 121.406(e).
Upon removal of the standard for kit assemblers, agencies should apply
the policy now at FAR 19.505(c)(4) to multiple item acquisitions;
--Remove and reserve FAR 19.809-2, Limitations on subcontracting and
nonmanufacturer rule, to implement SBA's regulations at 13 CFR 124.510
to eliminate the unique requirements of the limitations on
subcontracting and nonmanufacturer rule for 8(a) contractors; and
--Modify paragraph (c)(1)(i), remove paragraph (c)(2), and renumber the
paragraphs of FAR clause 52.219-33, Nonmanufacturer Rule, to implement
SBA's regulations at 13 CFR 121.406(c) and 13 CFR 121.406(e)) to remove
text and references to the unique standard for kit assemblers
[[Page 2911]]
when applying the nonmanufacturer rule.
III. Applicability to Contracts at or Below the Simplified Acquisition
Threshold (SAT), for Commercial Products (Including Commercially
Available Off-the-Shelf (COTS) Items), or for Commercial Services
This rule amends the clauses at FAR 52.212-5, 52.219-14, and
52.219-33. The clauses continue to apply to acquisitions at or below
the SAT and to acquisitions for commercial products, including COTS
items, and commercial services, as they did prior to this rule.
IV. Expected Impact of the Rule
This proposed rule simplifies and clarifies the limitations on
subcontracting requirements and the nonmanufacturer rule; therefore,
this rule is expected to make it easier for offerors, contractors, and
contracting officers to implement the regulations. This proposed rule
is expected to benefit small businesses and the Government by allowing
concerns to exclude certain costs from the calculation of the
limitations on subcontracting and excluding certain costs for the
calculation of the limitations on subcontracting, which may increase
small business participation and ensure that the benefits of set-aside
contracts flow to the intended beneficiaries.
V. Executive Orders 12866 and 13563
Executive Orders (E.O.s) 12866 (as amended by E.O. 14094) and 13563
direct agencies to assess the 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. Regulatory Flexibility Act
DoD, GSA, and NASA do not expect this proposed rule to have a
significant economic impact on a substantial number of small entities
within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612,
because this rule merely standardizes, clarifies, and simplifies the
requirements for compliance with the limitations on subcontracting and
the nonmanufacturer rule. However, an Initial Regulatory Flexibility
Analysis (IRFA) has been performed and is summarized as follows:
DoD, GSA, and NASA are proposing to amend the Federal
Acquisition Regulation (FAR) to implement regulatory changes made by
the Small Business Administration (SBA) in its final rule published
on May 31, 2016, at 81 FR 34243, to implement section 1651 of the
National Defense Authorization Act for Fiscal Year 2013 (Pub. L.
112-239) which amended 15 U.S.C. 657s to standardize the limitations
on subcontracting and nonmanufacturer rule across the small business
programs. This proposed rule also implements SBA's final rules
published on November 29, 2019, at 84 FR 65647, and on October 16,
2020, at 85 FR 66146. This rule proposes to standardize the
limitations on subcontracting and nonmanufacturer rule among the
small business programs and update and clarify requirements
associated with the limitations on subcontracting and
nonmanufacturer rule.
The objective of this rule is to implement SBA's regulatory
changes that provide exclusions of certain costs from the
limitations on subcontracting calculation for services, and remove
specific rules related to kit assemblers from the nonmanufacturer
rule. The proposed rule clarifies that a similarly situated entity,
first-tier subcontractor must perform the work with its own
employees or the work will be counted towards the prime contractor's
limitation on subcontracting; permits the exclusion of other direct
costs that are not the principal purpose of the acquisition and not
performed by small businesses from the limitations on subcontracting
calculation; for service contracts, excludes from the limitations on
subcontracting calculation work performed outside the United States
on contracts or orders approved or financed under the Foreign
Assistance Act of 1961 (Pub. L. 87-195, 22 U.S.C. 2151 et seq.) and
work required to be performed by a foreign contractor; removes
specific nonmanufacturer regulations applicable to kit assemblers;
clarifies which limitation on subcontracting applies for contracts
for general construction and construction by special trade
contractors when the contract includes construction and supplies
and/or services; and removes the separate limitations on
subcontracting regulations for 8(a) contractors. The legal basis for
this rule is as stated in the preceding paragraph. Promulgation of
the FAR is authorized by 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and
10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51
U.S.C. 20113.
This proposed rule will impact small businesses that enter into
contracts with the Government that are set-aside for any of the
small business concerns identified at FAR 19.000(a)(3). This
proposed rule may have a positive economic impact on small
businesses because it will make the application of the limitations
on subcontracting and nonmanufacturer rule consistent across all of
the small business socioeconomic programs, will exclude certain
costs from the limitations on subcontracting calculation, and will
simplify the nonmanufacturer rule. The ability to exclude certain
costs from the limitations on subcontracting calculation will make
it possible for small businesses to compete for higher dollar value
service contracts.
According to the System for Award Management (SAM), there are
355,208 active registrants that are considered small for at least
one North American Industry Classification System code. Small
business entities seeking to be prime contractors for Government
contracts are required to register in SAM; however, those seeking to
be subcontractors are not required to register in SAM. Therefore,
the number of small business entities impacted by this rule may be
greater than the number of entities registered in SAM.
The proposed rule does not impose any new reporting,
recordkeeping, or other compliance requirements for small entities.
The proposed rule does not duplicate, overlap, or conflict with
any other Federal rules.
There are no known significant alternative approaches to the
proposed rule.
The Regulatory Secretariat Division has submitted a copy of the
IRFA to the Chief Counsel for Advocacy of the Small Business
Administration. A copy of the IRFA may be obtained from the Regulatory
Secretariat Division. DoD, GSA, and NASA invite comments from small
business concerns and other interested parties on the expected impact
of this proposed rule on small entities.
DoD, GSA, and NASA will also consider comments from small entities
concerning the existing regulations in subparts affected by the rule in
accordance with 5 U.S.C. 610. Interested parties must submit such
comments separately and should cite 5 U.S.C. 610 (FAR Case 2021-020) in
correspondence.
VII. 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 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 propose amending 48 CFR parts 19 and
52 as set forth below:
0
1. The authority citation for 48 CFR parts 19 and 52 continues to read
as follows:
[[Page 2912]]
Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C.
chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C.
20113.
PART 19--SMALL BUSINESS PROGRAMS
0
2. Amend section 19.505 by--
0
a. Revising paragraph (b)(1);
0
b. Revising the introductory text of paragraph (c);
0
c. Removing from paragraph (c)(1)(i) ``paragraph (c)(3)'' and adding
``paragraph (c)(2)'' in its place;
0
d. Removing paragraph (c)(2);
0
e. Redesignating paragraphs (c)(3) through (c)(5) as paragraphs (c)(2)
through (c)(4); and
0
f. Removing from paragraphs (c)(3)(i)(A) and (B) ``or (c)(2)(ii)''.
The revisions read as follows:
19.505 Limitations on subcontracting and nonmanufacturer rule.
* * * * *
(b)(1) Limitations on subcontracting. A small business concern
subject to the limitations on subcontracting is required to comply with
one of the following:
(i) For a contract or order assigned a North American Industry
Classification System (NAICS) code for services (except construction),
the concern will not pay more than 50 percent of the amount paid by the
Government for contract performance to subcontractors that are not
similarly situated entities. Any work that a similarly situated entity
does not perform with its own employees or further subcontracts will
count towards the concern's 50 percent subcontract amount that cannot
be exceeded. Other direct costs may be excluded from the 50 percent
limitation when they are not the principal purpose of the contract or
order, and small business concerns do not provide the service (e.g.,
airline travel, work performed by a transportation or disposal entity
under a contract assigned the environmental remediation NAICS code
562910, cloud computing services, or mass media purchases). Work
performed outside the United States on a contract or order approved or
financed under the Foreign Assistance Act of 1961 (Pub. L. 87-195, 22
U.S.C. 2151 et seq.) and work required to be performed by a foreign
contractor are excluded from the 50 percent limitation. When a contract
includes both services and supplies, the 50 percent limitation shall
apply only to the service portion of the contract.
(ii) For a contract or order assigned a NAICS code for supplies or
products (other than a procurement from a nonmanufacturer of such
supplies or products), the concern will not pay more than 50 percent of
the amount paid by the Government for contract performance, excluding
the cost of materials, to subcontractors that are not similarly
situated entities. Any work that a similarly situated entity does not
perform with its own employees or further subcontracts will count
towards the concern's 50 percent subcontract amount that cannot be
exceeded. When a contract includes both supplies and services, the 50
percent limitation shall apply only to the supply portion of the
contract.
(iii) For a contract or order assigned a NAICS code for general
construction, the concern will not pay more than 85 percent of the
amount paid by the Government for contract performance, excluding the
cost of materials, to subcontractors that are not similarly situated
entities. Any work that a similarly situated entity does not perform
with its own employees or further subcontracts will count towards the
concern's 85 percent subcontract amount that cannot be exceeded. When a
contract includes general construction and supplies and/or services,
the 85 percent limitation shall apply only to the general-construction
portion of the contract.
(iv) For a contract or order assigned a NAICS code for construction
by special trade contractors, the concern will not pay more than 75
percent of the amount paid by the Government for contract performance,
excluding the cost of materials, to subcontractors that are not
similarly situated entities. Any work that a similarly situated entity
does not perform with its own employees or further subcontracts will
count towards the concern's 75 percent subcontract amount that cannot
be exceeded. When a contract includes construction by special trade
contractors and supplies and/or services, the 75 percent limitation
shall apply only to the construction-by-special-trade-contractors
portion of the contract.
* * * * *
(c) Nonmanufacturer rule. The nonmanufacturer rule applies to
nonmanufacturers in accordance with paragraph (c)(1) of this section.
* * * * *
19.809-2 Removed and Reserved.
0
3. Amend section 19.809-2 by removing and reserving it.
0
4. Amend section 19.811-3 by--
0
a. Revising paragraph (e); and
0
b. Adding paragraph (f).
The revision and addition reads as follows:
19.811-3 Contract clauses.
* * * * *
(e) For use of clause 52.219-14, Limitations on Subcontracting, see
the prescription at 19.507(e).
(f) For use of clause 52.219-33, Nonmanufacturer Rule, see the
prescription at 19.507(h).
PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
5. Amend section 52.212-5 by--
0
a. Revising the date of the clause; and
0
b. Revising the date of paragraphs (b)(23) and (30).
52.212-5 Contract Terms and Conditions Required To Implement Statutes
or Executive Orders--Commercial Products and Commercial Services.
* * * * *
Contract Terms and Conditions Required To Implement Statutes or
Executive Orders--Commercial Products and Commercial Services (Date)
* * * * *
(b) * * *
__(23) 52.219-14, Limitations on Subcontracting (DATE) (15
U.S.C. 657s).
* * * * *
__(30) 52.219-33, Nonmanufacturer Rule (DATE) (15 U.S.C. 657s).
* * * * *
0
6. Amend section 52.219-14 by--
0
a. Revising the date of the clause; and
0
b. Revising the paragraphs (e)(1) through (4).
The revisions read as follows:
52.219-14 Limitations on Subcontracting.
* * * * *
Limitations on Subcontracting (Date)
* * * * *
(e) * * *
(1) Services (except construction), it will not pay more than 50
percent of the amount paid by the Government for contract
performance to subcontractors that are not similarly situated
entities. Any work that a similarly situated entity does not perform
with its own employees or further subcontracts will count towards
the prime contractor's 50 percent subcontract amount that cannot be
exceeded. Other direct costs may be excluded from the 50 percent
limitation when they are not the principal purpose of the contract
or order, and small business concerns do not provide the service
(e.g., airline travel, work performed by a transportation or
disposal entity under a contract assigned the environmental
remediation NAICS code 562910, cloud computing services, or mass
media purchases). Work performed outside the United States on a
contract or order approved or financed under the Foreign Assistance
Act of 1961 (Pub. L. 87-195, 22 U.S.C. 2151 et seq.) and work
required to be performed by a foreign contractor are excluded from
the 50 percent limitation. When a contract includes both services
and supplies, the 50 percent
[[Page 2913]]
limitation shall apply only to the service portion of the contract;
(2) Supplies (other than procurement from a nonmanufacturer of
such supplies), it will not pay more than 50 percent of the amount
paid by the Government for contract performance, excluding the cost
of materials, to subcontractors that are not similarly situated
entities. Any work that a similarly situated entity does not perform
with its own employees or further subcontracts will count towards
the prime contractor's 50 percent subcontract amount that cannot be
exceeded. When a contract includes both supplies and services, the
50 percent limitation shall apply only to the supply portion of the
contract;
(3) General construction, it will not pay more than 85 percent
of the amount paid by the Government for contract performance,
excluding the cost of materials, to subcontractors that are not
similarly situated entities. Any work that a similarly situated
entity does not perform with its own employees or further
subcontracts will count towards the prime contractor's 85 percent
subcontract amount that cannot be exceeded. When a contract includes
general construction and supplies and/or services, the 85 percent
limitation shall apply only to the general-construction portion of
the contract; or
(4) Construction by special trade contractors, it will not pay
more than 75 percent of the amount paid by the Government for
contract performance, excluding the cost of materials, to
subcontractors that are not similarly situated entities. Any work
that a similarly situated entity does not perform with its own
employees or further subcontracts will count towards the prime
contractor's 75 percent subcontract amount that cannot be exceeded.
When a contract includes construction by special trade contractors
and supplies and/or services, the 75 percent limitation shall apply
only to the construction-by-special-trade-contractors portion of the
contract.
* * * * *
0
7. Amend section 52.219-33 by--
0
a. Revising the date of clause; and
0
b. Revising paragraph (c).
The revisions read as follows:
52.219-33 Nonmanufacturer Rule.
* * * * *
Nonmanufacturer Rule (Date)
* * * * *
(c) Requirements. The Contractor shall--
(1) Provide an end item that a small business has manufactured,
processed, or produced in the United States or its outlying areas;
(2) Be primarily engaged in the retail or wholesale trade and
normally sell the type of item being supplied; and
(3) Take ownership or possession of the item(s) with its
personnel, equipment, or facilities in a manner consistent with
industry practice; for example, providing storage, transportation,
or delivery.
* * * * *
[FR Doc. 2024-00728 Filed 1-16-24; 8:45 am]
BILLING CODE 6820-EP-P
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