Proposed Rule2024-29267
Government Contracting: Subcontracting Program
Primary source
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Published
December 19, 2024
Issuing agencies
Small Business Administration
Abstract
The U.S. Small Business Administration (SBA) proposes to revise its Small Business Subcontracting Program regulations to encourage faster payments to small business subcontractors and streamline the reporting process for prime contracts. This proposed rule will require prime contractors notify contracting officers in writing when it fails to make full or timely payments to the subcontractor within 30 days past due; require prime contractors cooperate with contracting officers to correct/mitigate this failure until payment is made in full to the subcontractor; and allow contracting officers to modify a prime contractor's past performance for failure to make full or timely payments.
Full Text
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<title>Federal Register, Volume 89 Issue 244 (Thursday, December 19, 2024)</title>
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[Federal Register Volume 89, Number 244 (Thursday, December 19, 2024)]
[Proposed Rules]
[Pages 103709-103717]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-29267]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 125
RIN 3245-AI09
Government Contracting: Subcontracting Program
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA) proposes to
revise its Small Business Subcontracting Program regulations to
encourage faster payments to small business subcontractors and
streamline the reporting process for prime contracts. This proposed
rule will require prime contractors notify contracting officers in
writing when it fails to make full or timely payments to the
subcontractor within 30 days past due; require prime contractors
cooperate with contracting officers to correct/mitigate this failure
until payment is made in full to the subcontractor; and allow
contracting officers to modify a prime contractor's past performance
for failure to make full or timely payments.
DATES: Comments must be received on or before February 18, 2025.
ADDRESSES: You may submit comments, identified by RIN 3245-AI09, by any
of the following methods:
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>
and follow the instructions for submitting comments.
<bullet> Email: Kunmi Ageh, Procurement Policy Analyst (Attorney),
Office of Policy Planning and Liaison, Small Business Administration,
at <a href="/cdn-cgi/l/email-protection#7b300e151612553a1c1e133b08191a551c140d"><span class="__cf_email__" data-cfemail="2e655b404347006f494b466e5d4c4f00494158">[email protected]</span></a>.
SBA will post all comments on <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
rulemaking. All comments received will be posted 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 comments to Kunmi Ageh and
highlight the information that you consider to be CBI and explain why
you believe this information should be held confidential.
FOR FURTHER INFORMATION CONTACT: Kunmi Ageh, Procurement Policy Analyst
(Attorney), Office of Policy Planning and Liaison, Small Business
Administration, at <a href="/cdn-cgi/l/email-protection#460d33282b2f680721232e0635242768212930"><span class="__cf_email__" data-cfemail="e3a8968d8e8acda284868ba3908182cd848c95">[email protected]</span></a>, 202-374-8454.
Electronic copies of this Federal Register are available at <a href="https://www.regulations.gov">https://www.regulations.gov</a>. The docket is available at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, the Federal eRulemaking Portal. A ``100-word
summary'' is also available on <a href="https://www.regulations.gov">https://www.regulations.gov</a>. For
additional information on submitting items to, or accessing items in,
the docket, please refer to the ADDRESSES section of this NPRM.
SUPPLEMENTARY INFORMATION:
Background Information
The SBA proposes to revise its Small Business Subcontracting
Program regulations in 13 CFR 125.3 in response to changes made in
section 862 of the National Defense Authorization Act (NDAA) for Fiscal
Year 2024, Public Law 118-31. Section 862 made changes to section
8(d)(13) of the Small Business Act, 15 U.S.C. 637(d)(13)(B)(i), by
amending the time in which a prime contractor must notify the
contracting officer in writing if, upon completion of the
responsibilities of the small business subcontractor, payment to the
subcontractor is past due under the terms of the subcontract by 30
days. This means a prime contractor must notify a contracting officer
in writing when it failed to make fully or timely payments to a
subcontractor within 30 days past the payment due date. Section
[[Page 103710]]
862 also requires that the prime contractor cooperate (act or work
together) with the contracting officer to correct and mitigate the
failure to make a full or timely payment to a subcontractor. The prime
contractor has the duty to cooperate with the contracting officer until
the subcontractor receives full payment, is made whole or the
contracting officer's determination is no longer effective, regardless
of performance or status of the contract in question. Lastly, a
contracting officer has the option to include the failure to make full
and timely payments in the prime contractor's past performance rating
before or after close-out of the covered contract.
SBA intends to simplify the subcontracting reporting process by
proposing additional changes to the Subcontracting Program. This
proposed rule will allow contractors the option to base their
commercial subcontracting plans on the Federal Government's fiscal year
(FY), as well as allow prime contractors the option to base a
subcontractor's size status on its primary NAICS code for subcontracts,
but only limited to subcontracts under commercial subcontracting plans,
subcontracts under the Micro-Purchase Threshold (MPT), and for indirect
costs subcontracts in instances where the subcontract does not result
from a solicitation with a NAICS code. This proposed rule also intends
to explain how to calculate an agency's allocation on the Commercial
Summary Subcontract Reports (SSRs) and provide a clear due date for
when to submit Commercial SSRs. SBA proposes to clarify which agencies
should receive Individual Subcontract Reports (ISRs) or SSRs, provide
the deadline for submissions of ISRs or SSRs, and list the individuals
with the authority to sign SSRs.
With these revisions, SBA plans to simplify the subcontract
reporting process and address common concerns with subcontract
reporting.
Severability
SBA anticipates for the provisions of this proposed rule, if
finalized, to be severable from each other such that if a court were to
hold that any provision is invalid or unenforceable as to a particular
person or circumstance, the rule would remain in effect as to any other
person or circumstance.
Section-by-Section Analysis
Section 125.3(a)(1)(i)(B)
SBA proposes to add language to Sec. 125.3(a)(1)(i)(B) that the
subcontracting plan must be submitted by the entity awarded the
contract, which must reflect all subcontracting to be performed by
itself and its affiliates. With this amendment, SBA proposes to clarify
that this section also applies to prime contractors that are considered
a joint venture. SBA will eliminate the issue where two other than
small business concerns submit an offer as a joint venture and use
individual subcontracting plans to fulfill the subcontracting plan
requirement, whereas instead, the subcontracting plan should name the
joint venture offeror.
Section 125.3(a)(1)(iii)
SBA proposes to add text to Sec. 125.3(a)(1)(iii) to clarify that
utilities purchased from a municipality or solely authorized by that
municipality to provide services in a particular geographic region
should not be included in a subcontracting base.
Section 125.3(b)(3)(ii)
SBA proposes to add language to Sec. 125.3(b)(3)(ii) to include
the Dynamic Small Business Search (DSBS) to the list of tools for
conducting market research. DSBS is a research tool meant to help
contractors identify small business concerns capable of performing all
or part of the contract as a subcontractor. The addition of DSBS will
promote practicable subcontracting opportunities. Therefore, in
addition to System for Award Management (<a href="http://SAM.gov">SAM.gov</a>) and SBA's SUBNet, SBA
proposes to add DSBS to the list of tools for conducting market
research to assist contractors in locating small business concerns.
Section 125.3(c)(1)(v)
Currently, Sec. 125.3(c)(1)(v) requires the contractor to assign a
NAICS code that best describes the nature of the subcontract, and its
corresponding size standard, to each subcontract and to each
solicitation if a solicitation is utilized. Further, a contractor may
rely on a subcontractor's electronic representations and
certifications, if the solicitation for the subcontract contains a
clause that requires the subcontractor verify, by the submission of its
offer, that the size or socioeconomic representations and
certifications are current, accurate, and complete as of the date of
the offer for the subcontract.
SBA proposes to add language to Sec. 125.3(c)(1)(v) that a
subcontractor's primary NAICS code may be used as its size
classification for all subcontracts under commercial subcontracting
plans, for subcontracts under the Micro-Purchase Threshold (MPT), and
for the indirect costs of subcontracts. The prime can only use the
primary NAICS code for classifying the subcontractor where the
subcontract does not result from a solicitation with a NAICS code. If
the prime contractor issues a solicitation for a subcontract that has a
NAICS code, then that prime contractor must use the size representation
for the NAICS code in that solicitation, rather than the primary NAICS
code for the subcontractor. This will ensure all responses to the
solicitation for the subcontract are assessed against the same NAICS
code and corresponding size standard. SBA has noticed contractor
challenges to determine the size of subcontractors for indirect costs
and accurately counting all indirect costs in the ``other than small''
category. Thus, SBA intends to increase the correct size classification
for subcontractors by providing an alternate method to classify their
suppliers. This change simplifies prime contractor's ability to
identify the size status of a subcontractor for indirect costs (for
companies with all plan types), for subcontracts issued under
commercial subcontracting plans, and for subcontracts under the MPT.
A contractor cannot require a subcontractor to register in <a href="http://SAM.gov">SAM.gov</a>
to identify a potential subcontractor's size and socio-economic status;
however, Contractors can determine a subcontractor's size and
socioeconomic status for their primary NAICS code through written size
representations or electronic representations. For HUBZone small
businesses and service-disabled veteran-owned small businesses
(SDVOSBs), SBA requires the contractor or subcontractor be registered
in DSBS, <a href="http://SAM.gov">SAM.gov</a>, or successor system, prior to submitting a
certification application to SBA. For a contractor to verify the status
of a HUBZone or SDVOSB subcontractor, it must verify the status of the
concern in DSBS. Any contractor or subcontractor that does not submit a
certification application for SDVOSBs status to SBA by December 22,
2024, cannot self-certify for a Federal prime or subcontract that
counts towards SDVOSB goaling purposes or SDVOSB subcontracting goals
under 13 CFR 128.200(c)(2). If the contractor chooses to register in
<a href="http://SAM.gov">SAM.gov</a>, the contractor's primary NAICS is indicated in the Assertions,
Service Classifications, portion of a contractor's SAM profile.
Subcontracts are still required to include a clause in the solicitation
or subcontract that require subcontractors verify by submission of the
offer or acceptance that the subcontractor's size
[[Page 103711]]
and socioeconomic representations and certifications in SAM (or in the
contractor's electronic database) are current, accurate and complete as
of the date of the offer for the subcontract (or, if an offer is not a
part of the procurement process, as of the date of award).
Finally, SBA proposes to clarify that the size certification and
recertification requirements of 13 CFR 121.404(g) do not apply to
subcontracts. However, if there is a merger or acquisition that causes
the reissuance of the subcontract, this is considered a new
subcontract.
Section 125.3(c)(1)(vi)
SBA proposes four revisions to Sec. 125.3(c)(1)(vi). First, SBA
plans to amend this section to clarify what reports must be submitted
for orders against multi-agency indefinite delivery, indefinite
quantity (IDIQ) contracts. Unlike Commercial Plans under FAR 52-219-
9(l)(2)(i)(e), contractors cannot allocate a percentage of work in the
SSR to more than one executive agency when submitting reports. An
individual SSR is directed to a single agency. Thus, SBA proposes a
separate SSR should be submitted to the ordering agency when orders are
placed under multi-agency multiple award contracts. This will ensure a
separate SSR is submitted for each ordering agency to capture
subcontracts awarded during the fiscal year for that agency's order, so
the ordering agency receives credit in accordance with 13 CFR
125.3(h)(3). Further, this SSR need only reflect subcontract awards
that result from that agency's orders. Any dollar value subcontract
should be included in the ISR (or SF 294, if applicable) and SSR
reports. Contractors with individual subcontracting plans must submit
ISRs during contract performance as required under this provision.
Although uncommon, if the agency that issued the underlying contract
does not award any orders, then the contractor must still submit an SSR
with zero dollars. For example, XYZ Company has a contract with U.S.
General Services Administration (GSA), under the Federal Supply
Schedule (FSS), that contains an individual subcontracting plan. The
FSS allows other agencies to place an order under this contract. The
U.S. Department of Veterans Affairs (VA) places an order against the
FSS with XYZ Company. XYZ Company must submit two SSRs. One to VA,
reflecting a subcontracting that occurred during the reporting period
pertaining to its order; and the other to GSA, reflecting no
subcontracting because GSA did not place any orders itself. If the
contractor has another prime or subcontract with the VA, that
contractor would combine all its subcontracting under VA into one SSR.
Second, this rule proposes the contractor submit its SSR within 45
days after the end of the Government's fiscal year (e.g., by November
14th for the September 30th reporting period). This mirrors the
recently proposed change in 13 CFR 125.3(d)(2), which would extend the
due dates for subcontracting reports by 15 days, from 30 days to 45
days.
Third, SBA proposes to amend this section to clarify that SSRs
should be submitted to the executive agency level unless otherwise
directed by the agency. SBA proposes to define Executive agency as an
executive department, a military department, or any independent
establishment within the meaning of 5 U.S.C. 101, 102, and 104(1),
respectively, and any wholly owned Government corporation within the
meaning of 31 U.S.C. 9101 (as defined in FAR 2.101). For example, XYZ
Company submits SSRs to Centers for Disease Control and Prevention,
Centers for Medicare and Medicaid Services, and Food and Drug
Administration--all lower-level agencies that fall under the U.S.
Department of Health and Human Services (HHS). Here, XYZ Company should
have submitted only one SSR to HHS, the executive agency. Contractors
may continue to file commercial SSRs at the awarding level.
Lastly, SBA proposes to amend this section to increase individuals
who may sign the SSR. Specifically, the contractor's President (or
equivalent at education institutions), CEO, Vice President, General
Manager, or most Senior Executive for Government Procurement may sign
the SSR. Currently, the contractor's President is the only individual
that may sign the SSR. This is an issue because the contractor's
President may not be available for signature or may not have subject
matter knowledge. Thus, SBA intends to ease the SSRs process by
allowing signatures from individuals who have knowledge of the content
and are readily available to sign the reports in lieu of the CEO.
Section 125.3(c)(1)(xiii)(C)
SBA proposes to add a definition of contract completion in
accordance with physically completed contracts under FAR 4.804-4. More
specifically, under FAR 4.804-4, a contract is considered physically
complete when the contractor has performed all services and/or provided
all required deliveries, and the Government has accepted the services
and/or accepted the supplies. In the instance of rental, use, or
storage agreements, contract completion occurs when the Government has
provided the contractor a notice of complete contract termination or
the contract period has expired.
Under the past performance ratings program, the prime contractor
must rate the first-tier small business subcontractor using the five-
scale ratings system found in FAR 42.1503 (48 CFR 42.1503). The prime
contractor must provide an exceptional, very good, satisfactory,
marginal, or unsatisfactory rating to the first-tier small business
subcontractor. In turn, subcontractors who intend to provide this
rating when making an offer for a prime contract must include the
following evaluation factors: (1) technical; (2) cost control; (3)
schedule/timeliness; (4) management or business relations; and (5)
other (as applicable).
Thus, Sec. 125.3(c)(1)(xiii)(C) allows a first-tier subcontractor
to request a subcontractor's past performance rating from the prime
contractor within 30 calendar days of completion of the prime
contractor's contract with the Government. This clarifies the time a
contract is considered complete, which thereby starts the ``30 calendar
day'' window for a first-tier subcontractor to request a performance
rating from the prime contractor.
Section 125.3(c)(2)
SBA proposes to amend Sec. 125.3(c)(2) to set forth the rules for
commercial subcontracting plans. First, SBA proposes to provide
contractors the option to base their commercial subcontracting plans on
the Federal Government's fiscal year. Currently, Sec. 125.3(c)(2) only
permits subcontractors to base their commercial subcontracting plans on
their individual fiscal year. This revision permits contractors to base
their commercial subcontracting plans on the Federal Government's
fiscal year, if desired, so the subcontracting plan can match the SSR
reporting period.
Second, SBA proposes to amend Sec. 125.3(c)(2) to clarify how to
calculate an agency's allocation on the Commercial SSR and provide a
clear due date for submission of the Commercial SSR. The agency
allocation percentage on the SSR is the percentage of revenue during
the Government's fiscal year attributable to each Federal agency, when
compared to the contractor's total revenue earned during the Government
fiscal year. It should be noted that the contractor's total revenue,
including its Federal and non-Federal revenue, is used in the
denominator. All subcontracting with any Federal agency
[[Page 103712]]
should be included even if the contractor does not have a
subcontracting plan with the agency; and the executive level of the
agency should be selected unless otherwise directed by the agency.
Third, SBA proposes to amend Sec. 125.3(c)(2) to permit the use of
a subcontractor's primary NAICS as the size of the subcontractor under
a commercial subcontracting plan. This change also applies to indirect
costs subcontracts, and subcontracts below the Micro-Purchase Threshold
(MPT).
Section 125.3(c)(5)
Per the requirements of section 862 of the NDAA for FY2024, SBA
proposes to revise the timeframe in Sec. 125.3(c)(5) in which a prime
contractor must notify the contracting officer in writing, if upon
completion of the responsibilities of the small business subcontractor,
that payment to the subcontractor will be untimely under the terms of
the subcontract. Previously, a prime contractor was required to notify
the contracting officer in writing if payment was more than ``90'' days
past due. Under this revision, a prime contractor must notify the
contracting officer in writing when the payment to a small business
subcontractor is more than ``30'' days past due under the terms of the
subcontract.
Section 125.3(c)(6)
SBA proposes to add text to Sec. 125.3(c)(6) that states a
contractor has met its subcontracting goal when it has met or exceeded
its percentage goal in its subcontracting plan--whether the goals are
based on total contract value or total subcontracting. This change
clarifies how contracting officers look to a contractor's percentage
goal to determine whether that contractor has met its subcontracting
goal. Specifically, a prime contractor's subcontracting plan must
include a statement of total dollars planned to be subcontracted to
small and disadvantaged businesses under FAR 19.704(a)(2). This
allocated percentage of the total subcontract dollars is considered the
percentage goal for the subcontracting plan. Thus, if the contractor
fails to meet its percentage goal, the contractor is required to
provide the contracting officer a written explanation why it failed to
meet its planned small business subcontracting goals.
Section 125.3(d)(3)(i)
SBA proposes to revise the language in Sec. 125.3(d)(3)(i) by
replacing ``large'' with ``other than small'' with the intent to
clarify that application of this section includes, but is not limited
to, businesses, organizations, public utilities, and State and local
governments. The current language includes the term ``large'' business,
which could be interpreted to exclude municipalities; for example,
State and local governments, non-profit organizations, and public
utilities. Revising this rule will clarify the inclusion of all types
of concerns, such as State and local governments, and other
organizations that are not small business concerns.
Section 125.3(d)(5)
Consistent with the requirements of section 862 of the NDAA for
FY2024, SBA proposes to revise the timeframe of Sec. 125.3(d)(5) from
``90'' days to ``30'' days. Under this revision, a contracting officer
must evaluate a prime contractor's written explanation for an untimely
payment to a subcontractor that is more than ``30'' days past due under
the terms of the subcontract. The contracting officer may also consider
that information when rating the contractor for past performance
purposes. SBA proposes to mirror the mandatory statutory changes in
Sec. 125.3(c)(5) by amending the timeframe for the contracting
officer's evaluation from ``90'' to ``30'' days for consistency.
Section 125.3(d)(7) Through (8)
SBA proposes to add new paragraph Sec. 125.3(d)(7) to implement
the requirements of section 862 of the NDAA for FY 2024. Specifically,
this section allows the contracting officer to enter and modify the
prime contractor's past performance information when there is an
unjustified failure to make a full or timely payment to a subcontractor
subject to this section before or after close-out of the contract.
This section further stipulates that once the contracting officer
makes the determination that there was an unjustified failure by the
prime contractor to make a full or timely payment to a subcontractor
under this section, then the prime contractor must cooperate with the
contracting officer to correct and mitigate the unjustified failure.
During this process, the contracting officer consults with the Director
of Small Business Programs or the Director of Small and Disadvantaged
Business Utilization acting or other representatives of the Federal
Government to ensure compliance with small business goals. The prime
contractor has a duty to cooperate until the subcontractor is made
whole or the contracting officer's determination is no longer
effective, regardless of performance or close-out status of the subject
contract.
SBA intends to remove Sec. 125.3(d)(8) entirely because when the
contract is awarded, the original subcontracting plan will include all
options; therefore, this provision is unnecessary.
As a result of removing Sec. 125.3(d)(8) and adding new paragraph
Sec. 125.3(d)(7), SBA proposes to redesignate the current Sec.
125.3(d)(7) as Sec. 125.3(d)(8).
Sections 125.3(e)(1) Through (e)(5)
Similar to amendments made in Sec. 125.3(d)(3)(i), SBA proposes to
revise the language in Sec. 125.3(e)(1) through (5) by revising
``large'' to ``other than small'' with the intent to clarify that
application of this section includes, but is not limited to,
businesses, organizations, public utilities, and State and local
governments.
Section 125.3(e)(3)
In addition to revising ``large'' to ``other than small'' in Sec.
125.3(e)(3), SBA proposes to add DSBS as an alternative market research
tool for prime contractors to assist in identifying small business
concerns that can perform all or part of the work as a subcontractor.
This section currently omits DSBS as a market research tool, thus SBA
intends to ensure this database is listed as one of the key market
research alternatives available to contractors in addition to the
currently listed tools, SAM, SUBnet and Business Matchmaking events.
Section 125.3(f)(1)
First, SBA proposes to revise Sec. 125.3(f)(1) by removing the
language ``on site'' because virtual meetings and calls are more common
and widely accessible. Next, SBA proposes to remove the ``six to eight
months'' for a follow-up review and replace that language with ``within
a year''. This revision will clarify that SBA or the agency conducting
the review has at least a year to conduct a follow-up compliance review
to ensure the contractor has implemented all corrective actions.
Lastly, SBA proposes to include the language ``the corrective actions''
after ``implemented''. This revision clarifies that contractors are
required to complete any corrective actions by the time of its follow-
up review. Overall, this provides additional time to complete this
segment of contract performance.
Section 125.3(f)(4)
SBA proposes to amend the timeframe from ``30'' days to within
``45'' days of receipt of the official compliance report. This provides
a contractor that receives a marginal or unsatisfactory rating
additional time to provide a written corrective action plan to SBA, or
to both
[[Page 103713]]
SBA and the agency that conducted the compliance review (if the agency
conducting the review has an agreement with SBA).
Section 125.3(h)(2)
SBA proposes to revise the language in Sec. 125.3(h)(2) to include
the text ``when order-level goals were required'' and the text ``on the
underlying contract's ISR report.'' Specifically, this revision
clarifies the time a contractor is required to submit small business
subcontracting accomplishments, which is when order-level goals are
required; and the correct agency to submit this information, which is
the contracting agency on the underlying contract's ISR report.
Summarily, SBA intends to update the requirements so contractors are
aware that the order-level achievements must be reported on the
underlying contract's ISR report when order-level goals are required.
Second, SBA proposes to add the language ``[t]he order's
subcontracting only needs to be included on the ISR's order-level
report from the inception of the order until the order is completed,
and on the ISR designated as `final'.'' This specifies the length of
time an order level subcontracting must be included on the ISR's order-
level report.
Compliance with Executive Orders 12866, 12988, 13132, 13175, 13563,
the Congressional Review Act (5 U.S.C. 801-808), the Paperwork
Reduction Act (44 U.S.C., Ch. 35), and the Regulatory Flexibility Act,
(5 U.S.C. 601-612).
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
rulemaking is significant regulatory action for the purposes of
Executive Order 12866.
SBA's Regulatory Impact Analysis
1. Regulatory Impact Analysis: Is there a need for the regulatory
action?
This action proposes to implement a statutory requirement--the NDAA
FY24--as well as simplify the subcontracting reporting process by
proposing additional changes to the Subcontracting Program. The
proposed rule provides an offeror with the option to base its
commercial subcontracting plans on its fiscal year or the Federal
Government's fiscal year; and allows for the size status of the
subcontractor to be based on its primary NAICS code for commercial
subcontracting plans, indirect costs subcontracts, and contracts under
the MPT. The proposed rule defines executive agency and contract
completion. It clarifies how to calculate the agency allocation on the
Commercial SSR; when the higher tier contractors must review the lower
tier ISR; and submission of SSRs for orders under multi-agency IDIQ
contracts.
2. What is the baseline, and the incremental benefits and costs of
this regulatory action?
There are three provisions associated with incremental benefits or
incremental costs. SBA has determined that the remaining changes
clarify or improve existing policies.
First, NDAA FY 2024 amends section 8(d)(13) of the Small Business
Act to encourage faster payments to small business subcontractors.
Prime contractors are required to notify contracting officers of its
failure to make full or timely payments to the subcontractor within 30
days. The prime contractor must cooperate with the contracting officer
until full and timely payments are made or the contracting officer's
determinations are no longer effective. The contracting officer may
consider the prime contractor's failure to make a full or timely
payment to a subcontractor in past performance. The existing baseline
without implementing the change provides prime contractors 90 days to
notify a contracting officer of late payments without any effect to
past performance or incentive to cooperate with the contracting officer
to resolve the failure to make timely payments. As a result,
subcontractors may not receive full payments until after performance
and contract completion. The most significant benefits of this proposed
rule will ensure subcontractors receive timely payments and incentivize
the prime contractor to cooperate with contracting officers regarding
full payments to subcontractors.
Second, Sec. 125.3(c)(1)(vi) allows a contractor's CEO, president,
vice president, general manager, or most senior executive for
government procurement to sign the SSRs. The current baseline only
allows the CEO/President to sign the SSR. As a result, submissions of
SSRs take additional time, subject to the availability and subject-
matter knowledge of the CEO/President. This proposed change will
benefit the process by allowing additional individuals within a firm to
sign the SSRs report. SBA believes this will create more efficiency in
the SSR reporting process.
Lastly, Sec. 123.3(c)(1)(vi) would require prime contractors
submit separate summary subcontracting reports (SSRs) for each ordering
agency against each multi-agency indefinite delivery, indefinite
quantity (IDIQ) contract. The existing baseline without implementing
the change only requires prime contractors submit one SSR report to the
IDIQ agency. As a result, the ordering agency may not receive proper
credit towards its subcontracting goals.
The proposed change will benefit program participants by ensuring
each ordering agency receives credit as required under 13 CFR
125.3(h)(3). Contractors are already required to submit SSRs to the
agency that awarded the IDIQ contract, and the data should already
exist. Thus, the only cost associated with the proposed change would be
the cost to complete additional SSR reports and organize existing
ordering data by agency. It is difficult to calculate the cost
associated with submitting SSRs. To determine a cost for this change,
SBA reviewed the Paperwork Reduction Act Supporting Statement for the
FAR's Subcontracting Plan forms, under OMB Control No. 9000-0007.
Considering the burdens estimated in the Supporting Statement, SBA
estimates a contractor currently spends approximately three hours to
submit an SSR, the equivalent to an individual subcontracting report
(ISR). That equates to approximately $132.46 per hour, which is the
mean hourly wage of $66.23 plus 100 percent for overhead and benefits
for Management Occupation (see Management Occupations (<a href="http://bls.gov">bls.gov</a>),
retrieved September 4, 2024). In FY20, 4,389 contractors submitted an
ISR. SBA estimates a 5% increase, which is an approximate increase of
220 reports submitted annually. Thus, the aggregate cost of this
proposed change amounts to $87,424 annually. This proposed rule also
intends to concurrently provide 15 additional days to submit SSRs under
Sec. 125.3(d)(2). Thus, SBA believes the additional time allocated in
this rulemaking will resolve any undue burden, given the data for SSRs
already exist.
3. What alternatives have been considered?
The alternative to the proposed rule would be to keep SBA's
processes and procedures as currently stated in the Code of Federal
Regulations. However, because the proposed rule intends to simplify the
subcontracting reporting process, SBA does not believe this alternative
will benefit the Subcontracting Program.
Additionally, this rulemaking implements section 862 of NDAA FY24.
There is no alternative to implementing this statutory requirement.
Executive Order 13563
This Executive order directs agencies to, among other things: (a)
Afford the public a meaningful opportunity to comment through the
internet on proposed regulations, with a comment
[[Page 103714]]
period that should generally consist of not less than 60 days; (b)
provide for an ``open exchange'' of information among Government
officials, experts, stakeholders, and the public; and (c) seek the
views of those who are likely to be affected by the rulemaking even
before issuing a notice of proposed rulemaking. As far as practicable
or relevant, SBA considers these requirements in developing this
rulemaking as discussed below.
1. Did the agency use the best available techniques to quantify
anticipated present and future costs when responding to E.O. 12866
(e.g., identifying changing future compliance costs that might result
from technological innovation or anticipated behavioral changes)?
To the extent possible the agency utilized the most recent data
available in the System for Award Management (<a href="http://SAM.gov">SAM.gov</a>) and the
Electronic Subcontracting Reporting System (eSRS). This proposed rule
does not attempt to quantify anticipated present and future costs, and
so the agency expects minimal impact.
2. Public participation: Did the agency: (a) afford the public a
meaningful opportunity to comment through the internet on any proposed
regulation, with a comment period that should generally consist of not
less than 60 days; (b) provide for an ``open exchange'' of information
among government officials, experts, stakeholders, and the public; (c)
provide timely online access to the rulemaking docket on
<a href="http://Regulations.gov">Regulations.gov</a>; and (d) seek the views of those who are likely to be
affected by rulemaking?
The notice of proposed rulemaking will have a 60-day comment period
and will be posted on <a href="http://www.regulations.gov">www.regulations.gov</a> to allow the public to
comment meaningfully on its provisions.
3. Flexibility: Did the agency identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public.
Yes, the notice of proposed rulemaking implements changes; provides
offerors with the option to submit their commercial subcontracting
plans using either the Government's fiscal year or their fiscal year;
allows a subcontractor's size status to be based on its primary NAICS
code for commercial subcontracting plans, indirect costs subcontracts,
and contracts under the MPT only in instances where the subcontract
does not result from a solicitation with a NAICS code; and provides
other clarifications.
Executive Order 12988
For purposes of Executive Order 12988, SBA has drafted this
rulemaking, 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
rulemaking has no preemptive or retroactive effect.
Executive Order 13175
This rulemaking does not have Tribal implications under Executive
Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it does 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 rulemaking 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
rulemaking has no federalism implications warranting preparation of a
federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
The notice of proposed rulemaking would make changes and
clarifications to SBA's subcontracting regulation. Specifically, this
rulemaking will require contractors submit a separate SSR for each
ordering agency to capture subcontracts awarded during the fiscal year
for that agency's order(s), so the ordering agency receives credit in
accordance with 13 CFR 125.3(h)(3). This collection of information may
require submission or retention of documents; however, SBA believes
that this impact will be minimal. Contractors are already required to
submit SSRs to the agency that awarded the IDIQ contract, so the data
should already exist in the contractor's ordinary course of business
recordkeeping.
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 862. 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. The data does not allow SBA to
estimate the cost of 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.
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:
[[Page 103715]]
PART 125--GOVERNMENT CONTRACTING PROGRAMS
0
1. The authority citation for part 125 is revised to read as follows:
Authority: 15 U.S.C. 632(p), (q), 634(b)(6), 637, 644, 657f,
657q, 657r, and 657s; 38 U.S.C. 501 and 8127.
0
2. Amend Sec. 125.3 by:
0
a. Revising paragraphs (a)(1)(i)(B), (a)(1)(iii), (b)(3)(ii), (c)(1)(v)
and (vi), (c)(1)(xiii)(C), (c)(2), (5) and (6), (d)(3)(i), (d)(5);
0
b. Removing paragraph (d)(8);
0
c. Redesignating paragraph (d)(7) as paragraph (d)(8);
0
d. Adding new paragraph (d)(7); and
0
e. Revising paragraphs (e)(1) through (5), (f)(1) and (4) and (h)(2).
The revisions and addition read as follows:
Sec. 125.3 What types of subcontracting assistance are available to
small businesses?
(a) * * *
(1) * * *
(i) * * *
(B) Purchases from a corporation, company, or subdivision that is
an affiliate of the prime contractor or subcontractor, or a joint
venture in which the contractor is one of the joint venturers, are not
included in the subcontracting base. Subcontracts by first-tier
affiliates, and subcontracts by a joint venture in which the prime
contractor is one of the joint venturers, shall be treated as
subcontracts of the prime contractor. The subcontracting plan must be
submitted by the entity awarded the contract, which reflects
subcontracting done by itself, its affiliates and if a joint venture,
its joint venture partners.
* * * * *
(iii) The following should not be included in the subcontracting
base: internally generated costs such as salaries and wages; employee
insurance; other employee benefits; payments for petty cash;
depreciation; interest; income taxes; property taxes; lease payments;
fines; claims; and dues; Original Equipment Manufacturer relationships
during warranty periods (negotiated up front with product); utilities
and other services purchased from a municipality or solely authorized
by the municipality to provide services in a particular geographic
region such as electricity, water, natural gas and sewer; and
philanthropic contributions. Utility companies may be eligible for
additional exclusions unique to their industry, which may be approved
by the contracting officer on a case-by-case basis. Exclusions from the
subcontracting base include but are not limited to those listed in this
section.
* * * * *
(b) * * *
(3) * * *
(ii) Conducting market research to identify small business
subcontractors and suppliers through all reasonable means, such as
performing online searches via the System for Award Management (SAM)
(or any successor system), the Dynamic Small Business Search (DSBS),
posting Notices of Sources Sought and/or Requests for Proposal on SBA's
SUBNet, participating in Business Matchmaking events, and attending
pre-bid conferences;
* * * * *
(c) * * *
(1) * * *
(v) The contractor must assign to each subcontract, and to each
solicitation, if a solicitation is utilized, the NAICS code and
corresponding size standard that best describes the principal purpose
of the subcontract (see Sec. 121.401 of this chapter). A formal
solicitation is not required for each subcontract, but the contractor
must provide some form of written notice of the NAICS code and size
standard assigned to potential offerors prior to acceptance and award
of the subcontract. The prime contractor (or subcontractor) may rely on
a subcontractor's electronic representations and certifications, if the
solicitation for the subcontract contains a clause which provides that
the subcontractor verifies by submission of the offer that the size or
socioeconomic representations and certifications are current, accurate,
and complete as of the date of the offer for the subcontract. Where the
subcontract does not result from a solicitation with a NAICS code, a
prime contractor may use a subcontractor's primary NAICS for size
classification, only for indirect costs (in all plan types), for
subcontracts issued under commercial subcontracting plans, and for
subcontracts below the Micro-Purchase Threshold (MPT) as defined in FAR
2.101. If relying upon an electronic size representation, the
subcontract must still include a clause in the solicitation or
subcontract which provides that the subcontractor verifies by
submission of the offer, or acceptance of the subcontract if an offer
is not part of the procurement process, that the size or socioeconomic
representations and certifications in SAM (or in the contractor's
electronic database) are current, accurate and complete as of the date
of the offer for the subcontract (or as of the date of award is if an
offer is not a part of the procurement process). The size certification
and recertification requirements of Sec. 121.404(g) of this chapter do
not apply to subcontracts. However, if there is a merger or acquisition
that causes the reissuance of the subcontract, this is considered a new
subcontract. Electronic submission may include any method acceptable to
the prime contractor (or subcontractor) including, but not limited to,
size or socioeconomic representations and certifications made in SAM
(or any successor system). With the exception of service-disabled
veteran-owned small business and HUBZone, prime contractor (or
subcontractor) may not require the use of SAM (or any successor system)
for purposes of representing size or socioeconomic status in connection
with a subcontract.
(vi) The contractor must submit timely and accurate ISRs and SSRs
in eSRS (or any successor system), or if applicable, submit a timely SF
294, Subcontracting Report for Individual Contract, such as when a
particular procurement cannot be entered into eSRS. A ``final'' ISR
must be submitted within 45 days of contract completion. A contract
should be considered complete in accordance with FAR 4.804-4. For
orders placed under multi-agency IDIQ contracting vehicles that contain
an individual subcontracting plan, a separate SSR should be submitted
for each ordering agency capturing subcontracts awarded during the
fiscal year for that agency's orders. An SSR must also be submitted to
the agency with the underlying contract even if no subcontracting
occurred with this agency; this SSR reflects only subcontract awards as
a result of orders from that agency, if any. SSRs should be submitted
to the executive agency level unless otherwise directed by the agency.
Commercial SSRs may be submitted to the lower-level awarding agency.
Any dollar value of subcontract should be included in the ISR and SSR
reports. Executive agency under this paragraph (c)(1)(vi) means an
executive department, a military department, or any independent
establishment within the meaning of 5 U.S.C. 101, 102, and 104(1),
respectively, and any wholly owned Government corporation within the
meaning of 31 U.S.C. 9101 (FAR 2.101). This is the highest hierarchical
agency level such as ``Department of the Interior.'' For the SSRs, the
contractor's President, CEO, Vice President, General Manager, or most
Senior Executive for Government Procurement may sign the report. When a
report is rejected by the contracting officer, the contractor must make
the necessary corrections and
[[Page 103716]]
resubmit the report within 30 days of receiving the notice of
rejection.
* * * * *
(xiii) * * *
(C) A first-tier small business subcontractor must make the request
for a performance rating from the prime contractor within 30 calendar
days after the completion of the period of performance for the prime
contractor's contract with the Government. A contract should be
considered complete in accordance with FAR 4.804-4. The prime
contractor and the first-tier small business subcontractor may
negotiate a later deadline for the request for a performance rating,
but in no case can the prime contractor impose a deadline earlier than
30 calendar days after the completion of the period of performance for
the prime contractor's contract with the Government.
* * * * *
(2) A commercial subcontracting plan covers the offeror's fiscal
year or the Federal Government's fiscal year and applies to all of the
commercial products and commercial services sold by either the entire
company or a portion thereof (e.g., division, plant, or product line).
Once approved, the plan remains in effect during the fiscal year for
all Federal Government contracts in effect during that period. The
contracting officer of the agency that originally approved the
commercial subcontracting plan will exercise the functions of the
contracting officer on behalf of all agencies that award contracts
covered by the plan. The percentage allocation on the Commercial SSR
should include all subcontracting as a prime contractor or a
subcontractor with any Federal agency, even if the contractor does not
have a contract or a subcontracting plan with the agency; the executive
level of the agency should be selected unless otherwise directed by the
agency; and the agency allocation should be each Executive Agency's
percentage of revenue when compared to the contractor's total revenue
for the Government's fiscal year. Unless the subcontract results from a
solicitation with a NAICS code, a subcontractor may use its primary
NAICS code for its size classification for commercial subcontracting
plans. The contractor shall submit an SSR annually. SSRs are due within
45 days after the end of the Government's fiscal year.
* * * * *
(5) A prime contractor shall notify the contracting officer in
writing if upon completion of the responsibilities of the small
business subcontractor (i.e., the subcontractor is entitled to payment
under the terms of the subcontract), the prime contractor pays a
reduced price to a small business subcontractor for goods and services
provided for the contract or the payment to a small business
subcontractor is more than 30 days past due under the terms of the
subcontract for goods and services provided for the contract and for
which the Federal agency has paid the prime contractor. ``Reduced
price'' means a price that is less than the price agreed upon in a
written, binding contractual document. The prime contractor shall
include the reason for the reduction in payment to or failure to pay a
small business subcontractor in any written notice.
(6) If at the conclusion of a contract the prime contractor did not
meet all of the small business subcontracting goals in the
subcontracting plan, the prime contractor shall provide the contracting
officer with a written explanation as to why it did not meet the goals
of the plan so that contracting officer can evaluate whether the prime
contractor acted in good faith as set forth in paragraph (d)(3) of this
section. A contractor has met its goal when it has met or exceeded its
percentage goal.
* * * * *
(d) * * *
(3) * * *
(i) Evidence that an other than small business prime contractor has
made a good faith effort to comply with its subcontracting plan or
other subcontracting responsibilities includes supporting documentation
that:
* * * * *
(5) Evaluating the prime contractor's written explanation
concerning its payment of a reduced price to a small business
subcontractor for goods and services upon completion of the
responsibilities of the subcontractor or its payment to a subcontractor
more than 30 days past due under the terms of the subcontract for goods
and services provided for the contract and for which the Federal agency
has paid the prime contractor, and considering that information when
rating the contractor for past performance purposes.
* * * * *
(7) Entering or modifying the prime contractor's past performance
information when there is an unjustified failure to make a full or
timely payment to a subcontractor subject to this section before or
after close-out of the contract. If the contracting officer makes a
determination that there was an unjustified failure by the prime
contract to make a full or timely payment to a subcontractor under this
section, then the prime contractor must cooperate with the contracting
officer, who consults with the Director of Small Business Programs or
the Director of Small and Disadvantaged Business Utilization acting, to
correct and mitigate the unjustified failure. The prime contractor must
cooperate with the contracting officer until payment is made in full to
the subcontractor or the contracting officer's determination is no
longer effective, before or after the closeout of the contract.
* * * * *
(e) * * *
(1) Facilitating the matching of other than small prime contractors
with small business concerns;
(2) Counseling other than small business contractors on their
responsibilities to maximize subcontracting opportunities for small
business concerns;
(3) Instructing other than small prime contractors on identifying
small business concerns by means of SAM (or any successor system),
DSBS, SUBNet, Business Matchmaking events, and other resources and
tools;
(4) Counseling small business concerns on how to market themselves
to other than small prime contractors;
(5) Maintaining a portfolio of other than small prime contractors
and conducting Subcontracting Orientation and Assistance Reviews
(SOARs). SOARs are conducted for the purpose of assisting prime
contractors in understanding and complying with their small business
subcontracting responsibilities, including developing subcontracting
goals that reflect maximum practicable opportunity for small business;
maintaining acceptable books and records; and periodically submitting
reports to the Federal Government; and
* * * * *
(f) * * *
(1) A prime contractor's performance under its subcontracting plan
is evaluated by means of compliance reviews and follow-up reviews, as a
supplement to evaluations performed by the contracting agency, either
on a contract-by-contract basis or, in the case of contractors having
multiple contracts, on an aggregate basis. A compliance review is a
surveillance review that determines a contractor's achievements in
meeting the goals and other elements in its subcontracting plan for
both open contracts and contracts completed during the previous 12
months. A follow-up review is done after a compliance review, generally
within a year of SBA's receipt of the contractor's Corrective Action
Plan, to determine if
[[Page 103717]]
the contractor has implemented the corrective actions.
* * * * *
(4) Any contractor that receives a marginal or unsatisfactory
rating must provide a written corrective action plan to SBA, or to both
SBA and the agency that conducted the compliance review if the agency
conducting the review has an agreement with SBA, within 45 days of its
receipt of the official compliance report.
* * * * *
(h) * * *
(2) When order-level goals were required, contractors shall submit
small business subcontracting accomplishments for individual orders to
the contracting agency on the underlying contract's ISR report. The
order-level goals only need to be included on the ISR's order-level
report from the inception of the order until the order is completed,
and on the ISR designated as final.
* * * * *
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-29267 Filed 12-18-24; 8:45 am]
BILLING CODE 8026-09-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.