Office of Federal Procurement Policy; Policy Letter on Subcontracting Plans

OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy; Policy Letter on

Subcontracting Plans

AGENCY: Executive Office of the President, Office of Management and

Budget (OMB), Office of Federal Procurement Policy (OFPP).

ACTION: OFPP is requesting comments on a proposed Policy Letter on

Subcontracting Plans as required by section 8(d) of the Small Business

Act and amended by the Federal Acquisition Streamlining Act of 1994

(FASA).

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SUMMARY: It is a fundamental policy of the United States Government

that a fair proportion of its contracts be placed with small business

concerns, small business concerns owned and controlled by socially and

economically disadvantaged individuals, and small businesses owned and

controlled by women and that such businesses be provided the maximum

practicable opportunity to participate as subcontractors in the

performance of Government prime contracts consistent with their

efficient performance.

Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) requires

that before award can be made of a contract that exceeds $500,000 ($1

million in the case of construction of a public facility) to other than

a small business concern, the apparent successful offeror must

negotiate a subcontracting plan describing how it will provide

subcontracting opportunities to small businesses.

This Policy Letter, when issued in final, will supersede and cancel

OFPP Policy Letter 80-1, ``Pubic Law 95-507, Section 211,

SubContracting: Agency Coordination with the Small Business

Administration Resident Procurement Center Representatives,'' dated

January 24, 1980; OFPP Policy Letter 80-2, ``Regulatory Guidance on

Section 211 of Public Law 95-507,'' dated April 29, 1980; Supplement

No. 1 to Policy Letter 80-2, dated May 29, 1981; and OFPP Policy Letter

80-4, ``Women's Business Enterprise Program,'' dated April 29, 1980.

The Policy Letter consolidates previously issued guidance contained in

the above Policy Letters; adds clarification on issues that have arisen

since the issuance of the earlier Policy Letters; addresses the FASA

concern about the burden of government-unique requirements for

companies supplying commercial items by establishing a preference for

commercial plans; and provides additional guidance on the

administration and enforcement of subcontracting plans and liquidated

damages.

COMMENT DATE: Comments must be received on or before November 27, 1995.

ADDRESSES: Comments should be submitted to Linda Mesaros, Deputy

Associate Administrator, Office of Federal Procurement Policy, New

Executive Office Building, Room 9001, 725 17th Street, NW, Washington,

DC 20503.

FOR FURTHER INFORMATION CONTACT: Linda Mesaros at 202-395-4821.

Steven Kelman,

Administrator.

Policy Letter 94-X

To the Heads of Executive Departments and Establishments

Subject: Policy Regarding SubContracting Plans

1. Purpose. This directive provides Executive Branch policies

concerning subcontracting plans required by section 8(d) of the

Small Business Act (15 U.S.C. 637(d)) as amended by the Federal

Acquisition Streamlining Act of 1994 (FASA).

2. Supersession Information. This Policy Letter supersedes and

cancels OFPP Policy Letter 80-1, Public Law 95-507, Section 211,

``Subcontracting: Agency Coordination with the Small Business

Administration Resident Procurement Center Representatives,'' dated

January 24, 1980; OFPP Policy Letter 80-2, ``Regulatory Guidance on

Section 211 of Public Law 95-507,'' dated April 29, 1980; Supplement

No. 1 to Policy Letter 80-2, dated May 29, 1981; and OFPP Policy

Letter 80-4, ``Women's Business Enterprise Program,'' dated April

29, 1980.

3. Authority. This Policy Letter is issued pursuant to section 6

of the Office of Federal Procurement Policy Act, as amended, 41

U.S.C. 405.

4. Definitions.

a. Small business concern. Means a concern, including its

affiliates, that is independently owned and operated, not dominant

in the field of operation in which it is bidding on government

contracts, and qualified as a small business under the criteria and

size standards in 13 CFR Part 121.

b. Small business subcontractor. Means a concern, including its

affiliates, whose (1) number of employees does not exceed 500

employees, provided the subcontract is $10,000 or less, or (2)

number of employees or average annual receipts does not exceed the

size standard under 13 CFR 121.601 when the value of the product or

service it is providing on a subcontract exceeds $10,000.

c. Small disadvantaged business concern. Normally means a small

business concern that is at least 51 percent unconditionally owned

by one or more individuals who are both socially and economically

disadvantaged, or a publicly owned business that has at least 51

percent of its stock unconditionally owned by one or more socially

and economically disadvantaged individuals, and that has its

management and daily business controlled by one or more such

individuals. The term also means a small business concern that is at

least 51 percent unconditionally owned by an economically

disadvantaged Indian tribe or Native Hawaiian Organization, or a

publicly owned business that has at least 51 percent of its stock

unconditionally owned by one of these entities, that has its

management and daily business controlled by members of an

economically disadvantaged Indian tribe or Native Hawaiian

Organization, and that meets the requirements of 13 CFR Part 124.

This definition may not apply to all agencies when a different one

is established by statute.

d. Socially disadvantaged individuals. Means individuals who

have been subjected to racial or ethnic prejudice or cultural bias

because of their identity as a member of a group without regard to

their qualities as individuals. Individuals who certify that they

are members of these named groups, Black Americans, Hispanic

Americans, Native Americans, Asian-Pacific Americans, and

Subcontinent-Asian Americans, are considered to be socially

disadvantaged.

(1) Subcontinent-Asian Americans means United States citizens

whose origins are in India, Pakistan, Bangladesh, Sri Lanka, Bhutan,

Nepal, or the Maldive Islands.

(2) Asian-Pacific Americans means United States citizens whose

origins are in Japan, China, the Philippines, Vietnam, Korea, Samoa,

Guam, the U.S. Trust Territory of the Pacific Islands (Republic of

Palau), the Commonwealth of the Northern Mariana Islands, Laos,

Kampuchea (Cambodia), Taiwan, Burma, Thailand, Malaysia,

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Indonesia, Singapore, Brunei, Republic of the Marshall Islands, the

Federated States of Micronesia, Macao, Hong Kong, Fiji, Tonga,

Kiribati, Tuvalu, or Nauru.

(3) Native Americans means American Indians, Eskimos, Aleuts,

and Native Hawaiians.

e. Economically disadvantaged individuals. Means a socially

disadvantaged individual whose ability to compete in the free

enterprise system is impaired due to diminished opportunities to

obtain capital and credit as compared to others in the same line of

business who are not socially disadvantaged (see 13 CFR Part 124).

f. Small business concerns owned and controlled by women (women-

owned small business concerns). Means a small business concern (1)

which is at least 51 percent owned by one or more women, or, in the

case of any publicly owned business, at least 51 percent of the

stock of which is owned by one or more women, and (2) whose

management and daily business operations are controlled by one or

more women.

g. Subcontract. Means any agreement (other than one involving an

employer-employee relationship) entered into by a Government prime

contractor or subcontractor calling for supplies and/or services

required for contract performance, contract modification, or

subcontract. However, purchases from a corporation, company or

division which are affiliates, as defined in 13 CFR 121.401, of a

prime contractor are not considered ``subcontracts.''

h. Individual contract plan. Means a subcontracting plan that

covers the entire contract period (including option periods),

applies to a specific contract, and has goals which are based on the

offeror's planned subcontracting in support of the specific

contract, except that indirect costs incurred for common or joint

purposes may be allocated on a prorated basis to the contract.

i. Master plan. Means a subcontracting plan that contains all of

the required elements except goals and may be incorporated into an

individual contract plan provided the master plan has been approved.

j. Commercial plan. Means a subcontracting plan covering the

offeror's fiscal year and which is applicable to the entire

production of commercial items sold by either the entire company or

portion thereof (e.g., division, plant, or product line). As used in

this Policy Letter, the term ``commercial item'' is a product or

service that satisfies the definition of commercial item in section

8001 of FASA (41 U.S.C. 403).

k. Failure to make a good faith effort to comply with the

subcontracting plan. Means willful or intentional failure to perform

in accordance with the requirements of the subcontracting plan, or

willful or intentional action to frustrate the plan.

5. Background

a. It is a fundamental policy of the United States Government

that a fair proportion of its contracts be placed with small

business concerns, small business concerns owned and controlled by

socially and economically disadvantaged individuals, and small

business concerns owned and controlled by women and that such

businesses be provided the maximum practicable opportunity to

participate as subcontractors in the performance of Government prime

contracts consistent with their efficient performance. In

furtherance of the policy for providing the maximum practicable

opportunity to small business concerns to perform as subcontractors

on Government contracts, the laws governing Federal procurement do

not require contractors to subcontract specific percentages of the

work on Government contracts to small, small disadvantaged, or

women-owned small business concerns. The policy does require that to

the extent a Government contractor does subcontract a portion of the

work on the Government contract, it must provide the maximum

practicable opportunity to small, small disadvantaged, and women-

owned small business concerns to perform the subcontracted portion

of that contract.

b. Section 8(d) of the Small Business Act (15 U.S.C. 637(d))

requires that before award can be made of a contract that exceeds

$500,000 ($1 million in the case of construction of a public

facility) to other than a small business concern, the apparent

successful offeror must negotiate a subcontracting plan describing

how it will provide subcontracting opportunities to small

businesses. This requirement does not apply if the contract offers

no subcontracting opportunities. The subcontracting plan shall

become a material part of the contract.

c. Regulations implementing the policies of Section 8(d) of the

Small Business Act have been implemented in Part 19 of the Federal

Acquisition Regulation (FAR). This Policy Letter consolidates

previously issued guidance contained in Policy Letters 80-1, 80-2

and its Supplement No. 1, and 80-4; adds clarification on issues

that have arisen since the issuance of the earlier Policy Letters;

addresses the Congress' concern about the burden of government-

unique requirements for companies supplying commercial items by

establishing a preference for commercial plans; and provides

additional guidance on the use and administration of commercial

plans.

6. Solicitation and Subcontracting Plan Requirements

a. The FAR shall prescribe a clause entitled ``Utilization of

Small, Small Disadvantaged and Women-Owned Small Business Concerns''

to be inserted in solicitations and contracts when the acquisition

is expected to exceed the simplified acquisition threshold, except

when (1) A personal services contract is contemplated, or (2) the

contract and all of its subcontracts will be performed and awarded

entirely outside of the United States, its possessions, Puerto Rico,

or the Trust Territory of the Pacific Islands. This clause shall

express the policy of the United States for providing maximum

practicable opportunity to small, small disadvantaged, and women-

owned small business concerns to participate in the performance of

prime contracts let by the Federal Government and subcontracts. The

clause also shall require prime contractors to establish procedures

to ensure timely payment to such small business concerns performing

as subcontractors and commit the prime contractor to carrying out

these policies and cooperating with the Small Business

Administration (SBA) in studies to determine the extent of the prime

contractor's compliance. The requirements of the clause also shall

apply to small business concerns.

b. For each subcontract the prime contractor will award to a

small business subcontractor, the prime contractor must obtain a

written representation from the subcontractor that it qualifies

under the size and ownership standards applicable for the

subcontract (see 13 CFR 121.911 and the definition at subparagraph

4.b. The contractor may rely on this written representation, unless

it has reason to believe otherwise. Before including a firm on its

source list, a contractor should obtain written acknowledgment that

the potential subcontractor is aware of the adverse consequences for

misrepresentation provided for in Section 16(d) of the Small

Business Act (15 U.S.C. 645(d)).

(1) Upon receipt of a formal protest, the Office of Government

Contracting in the SBA has the final authority to determine the

eligibility of a concern to be designated as a small business and to

answer inquiries from prime contractors and others regarding such

eligibility.

(2) Similar authority to make determinations of the formally

protested eligibility of small disadvantaged businesses has been

given to the SBA's Office of Minority Enterprise Development.

(3) Women-owned eligibility determinations will be made in

accordance with regulations established by the SBA.

c. The FAR shall prescribe a clause entitled ``Small, Small

Disadvantaged and Women-Owned Small Business Subcontracting Plan''

in solicitations and contracts if the award is expected to exceed

$500,000 ($1 million for construction of a public facility), unless

the acquisition is reserved for small business concerns, offers no

subcontracting opportunities, or unless the contract will be

performed and awarded outside the United States, its possessions,

Puerto Rico or the Trust Territory of the Pacific Islands. Other

exceptions include contracts with Federal Prison Industries and

contracts with workshops for the blind or severely disabled awarded

under the provisions of the Javits-Wagner-O'Day Act. The clause

shall apply to all other entities including large businesses, state

and local governments, non-profit associations, public utilities,

Historically Black Colleges and Universities, Minority Institutions,

and foreign-owned firms that receive Federal contracts if any

portion of that contract will be performed in the United States.

There is an exemption to the clause for the Department of Defense

(DOD), the Coast Guard, and National Aeronautics and Space

Administration (NASA) in regard to Historically Black Colleges and

Universities and Minority Institutions. The actual or estimated

value of the contract for the entire term of the contract, including

any option periods, determines whether the threshold is met. The

clause shall require that the subcontracting plan include the

following elements:

(1) A statement of total dollars to be subcontracted and

statements of total dollars to be subcontracted to small business,

to small disadvantaged business, and to

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women-owned small business. Small disadvantaged and women-owned small

business dollars are included in the small business category. This

means, for example, that a small business owned by a minority woman

is counted as a small business, a small disadvantaged business, and

as a women-owned small business. An individual contract plan for a

contract with options shall contain a separate statement for the

basic contract and individual statements for each option.

(2) Separate goals expressed as percentages of total planned

subcontracting dollars for small, small disadvantaged, and women-

owned small business. Unless a commercial plan is involved, goals

are stated separately for the basic contract and for any option

periods or quantities.

(3) A statement as to whether or not the offeror included

indirect costs in establishing subcontracting goals and a

description of the methods used to determine the proportionate share

of indirect costs to be incurred with small, small disadvantaged,

and women-owned small business concerns.

(4) A description of the principal types of supplies and

services to be subcontracted (to large, small, small disadvantaged,

and women-owned small business concerns) and an identification of

the specific types to be subcontracted to each small business

category.

(5) A description of the methods that were used in developing

the subcontracting goals.

(6) The name and a description of the duties of the individual

employed by the offeror who will administer the offeror's

subcontracting program.

(7) A description of the methods used to identify potential

sources for solicitation purposes. Offerors may rely on information

contained in SBA's Procurement Automated Source System (PASS). The

information included in PASS will be incorporated into the Federal

Acquisition Computer Network (FACNET) Contractor Registration Data

Base.

(8) A description of the efforts the offeror will make to assure

that small, small disadvantaged, and women-owned small business

concerns have an equitable opportunity to compete for subcontracts.

(9) Assurances that the offeror will include the Utilization of

Small, Small Disadvantaged and Women-Owned Small Business Concerns

clause in all subcontracts over the simplified opportunities.

(10) Assurances that subcontractors (except small business

concerns) who receive subcontracts in excess of $500,000 ($1 million

for construction of a public facility) will adopt a plan similar to

the plan agreed to by the offeror. For individual contract plans,

offerors are required to describe their procedures for reviewing,

approving, and monitoring their subcontractors' compliance with

subcontracting plans. Copies of subcontractors' subcontracting plans

must be retained by the prime contractor until completion of the

subcontract. A ``certificate of compliance'' or statement from the

subcontractor that it has a subcontracting plan does not satisfy

this requirement.

(11) Assurances that the offeror will cooperate in any studies

or surveys that may be required; submit periodic reports so the

Government can determine the extent of compliance by the offeror

with the subcontracting plan; submit Standard Form (SF) 294,

Subcontracting Report for Individual Contracts, and/or SF 295,

Summary Subcontract Report, following the instructions on the form

or as provided in agency regulations; and ensure that its

subcontractors agree to submit SF 294s and 295s.

(12) A description of the type of records that will be

maintained concerning procedures that will ensure compliance with

the plan and its goals.

(13) A description of the efforts that will be made to locate

and award subcontracts to small, small disadvantaged, and women-

owned small business concerns.

d. A contractor's failure to make a good faith effort to comply

with the subcontracting plan is a material breach of the contract.

Section 8(d)(4)(F) of the Small Business Act requires that contracts

that include the Utilization and Subcontracting Plan clauses also

contain a clause requiring the payment of liquidated damages upon a

finding that the contractor failed to make a good faith effort to

comply with the requirements of these clauses. The FAR shall

prescribe a clause entitled ``Liquidated Damages-Subcontracting

Plan'' that shall describe the procedures for making such a

determination.

e. Nothing in this Policy Letter precludes an agency from

establishing additional requirements regarding subcontracting plans.

(1) The contracting officer may also use informational goals in

solicitations to inform potential offerors of the Government's

expectations concerning the goals in an acceptable subcontracting

plan. Informational goals shall not be interpreted as minimal

acceptable requirements.

7. Instructions to Contracting Officers. Contracting officers

are required to determine the acceptability of the subcontracting

plan before awarding the contract. The following policy and

procedural guidance is provided to contracting officers to assist

them in making their determinations. This guidance is not intended

to be all inclusive. Ultimately, there is no substitute for the

reasoned and objective judgment of a contracting officer exercised

on a case-by-case basis.

a. Reviewing the Subcontracting Plan. Many factors warrant

consideration in reviewing the adequacy of a subcontracting plan.

Consequently, the contracting officer should be flexible and avoid

establishing arbitrary criteria. Potential weaknesses in the plan

should be identified and brought to the attention of the offeror.

For example, by regulation, a zero goal is not acceptable. A

positive goal is required to establish a gauge for measuring results

and to provide an incentive for continuing efforts to increase the

dollar value of subcontracts placed with small, small disadvantaged,

and women-owned small business concerns. During the contract period,

the contractor is expected to make continuing efforts to locate and

identify new small, small disadvantaged, and women-owned small

business concerns as potential subcontractors. Subcontracting goals

should not be negotiated upward if they would significantly increase

the Government's cost or seriously impede the attainment of the

acquisition's objective. The contracting officer shall take the

following actions:

(1) Evaluate the anticipated potential for subcontracting to

small, small disadvantaged, and women-owned small business concerns

taking into consideration the make-or-buy policies or programs of

the offeror, the nature of the products or services to be

subcontracted and the known availability of small, small

disadvantaged, and women-owned small business concerns in the

geographical area where the work will be performed.

(2) If informational goals are stated in the solicitation,

require an offeror that proposes lower goals to explain why its

subcontracting plan cannot achieve the stated goals.

(3) If the proposed goals are questionable, advise the offeror

of (a) the names of any known potential small, small disadvantaged,

and women-owned small business subcontract sources and (b) the

availability of the sources of information on potential small, small

disadvantaged, and women-owned small business subcontractors. The

contracting officer shall emphasize that one or more of the

available sources of information concerning potential small, small

disadvantaged, and women-owned small business subcontract sources

should be considered in developing realistic and acceptable goals.

Sources of information include:

(i) Local SBA offices.

(ii) The Department of Commerce, Minority Business Development

Agency (MBDA). An offeror can ask for access to the MBDA's Profile

System.

(iii) State, county, and city government minority business

offices.

(iv) Small, minority, and women business associations.

(v) Local chambers of commerce.

(vi) The Commerce Business Daily (CDB), the FACNET Contractor

Registration Data Base, newspapers, and other communication media.

An offeror can synopsize in the CBD or advertise in trade newspapers

or journals seeking competition for subcontracts and to increase

participation by small, small disadvantaged, and women-owned small

business concerns to meet subcontract goals.

(4) Obtain advice and recommendations of the agency Small

Business Specialist and the SBA Procurement Center Representative

(SBA PCR) concerning the acceptability of the proposed plan. The FAR

shall require that the contracting officer provide the SBA PCR a

reasonable opportunity to review subcontracting plans and make

recommendations, which are advisory in nature.

(5) Consider the offeror's performance on other Government

contracts that required subcontracting plans. The contracting

officer should encourage the offeror to identify other contracts

that had subcontracting plans and contact the contracting officers

who administered those earlier plans to ascertain whether the

objectives of those plans were realized and whether required reports

were submitted in a timely manner. Overall compliance should be

considered, not merely whether or not the goals established in the

plan were met.

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(6) Incorporate by reference the terms of a master plan into an

individual contract plan provided:

(a) The master plan contained all the required elements;

(b) The master plan has been approved within the last three

years and the SBA PCR had an opportunity to comment on the master

plan;

(c) Subcontract goals for small, small disadvantaged, and women-

owned small business concerns are specifically set forth in each

contract or modification over the threshold;

(d) Any changes to the plan deemed necessary and required by the

contracting officer in areas other than goals are specifically set

forth in the contract or modification; and

(e) The contracting officer has copies of the complete plan.

(7) A preliminary subcontracting plan may be accepted for letter

contracts and similar undefinitized instruments provided negotiation

of the final plan is accomplished within 90 days after award or

before definitization, whichever occurs first.

b. Award of Contract or Contract Modification

(1) After award of a contract or contract modification

containing a subcontracting plan, the contracting officer shall

provide a copy of the award document to the SBA Area Director for

Government Contracting in the Area where the contract will be

performed. A copy of any subcontracting plan submitted pursuant to a

sealed bid solicitation or the subcontracting plan incorporated into

a negotiated contract or modification shall be provided to the SBA

PCR.

(2) The following policies apply to contract modifications other

than options. The Small Business Act treats contracts and

modifications separately. If a subcontracting plan is not required

at the time of award because the value of the contract is below the

threshold, a subcontracting plan will not be required even if a

subsequent modification increases the value of the contract to an

amount exceeding the threshold. The only exception to this rule is

when the value of the modification itself exceeds $500,000 ($1

million for construction of a public facility). Moreover, it is not

necessary to obtain another subcontracting plan for a modification

exceeding the applicable threshold if the contract already includes

a subcontracting plan. However, the original plan must be modified

to adjust goals accordingly for the new effort. If the value of the

modification does not exceed the threshold, the original plan does

not need to be modified.

(3) The following policies apply to contractors and

subcontractors that no longer meet the size or ownership status as a

small, small disadvantaged, or women-owned small business concern

during the period of contract performance as a result of growth, a

buy-out, or a merger:

(a) A subcontracting plan is not required of any former small

business prime contractor that, during contract performance, no

longer meets the definition of a small business concern. Similarly,

the requirement to submit periodic reports does not apply. However,

a subcontracting plan is required if the prime contractor

erroneously considered itself small at the time of contract award.

Under this circumstance, the contracting officer should request a

subcontracting plan from the contractor and the responsibility to

submit the periodic reports would apply.

(b) If a prime contractor awards a subcontract to a small

business, it may continue to report those subcontract dollars as a

small business award for the duration of the subcontract, including

all option years.

c. Contract Awards Involving Commercial Plans

(1) A commercial plan is an annual subcontracting plan which is

effective during the offeror's fiscal year and applies to all of the

offeror's production of both commercial and noncommercial items.

This type of plan is useful for companies that normally rely on

their existing network of suppliers for all of their business and do

not enter into specific subcontracts to fill Government contracts.

The plan may apply to the production of the offeror's entire

company, or it may be limited to a corporation, company, division,

plant or product line. A commercial plan is approved by the first

Federal agency awarding a contract for commercial products or

services during the contractor's fiscal year, and is applicable to

every additional Federal contract for those items awarded to that

contractor during the contractor's same fiscal year. The cutoff date

for applying a previously approved commercial plan to additional

Federal contracts is the end of the company's fiscal year in which

the commercial plan was approved. If a contract extends beyond the

expiration date of the plan, a new plan must be obtained and

approved by the contracting officer monitoring the plan. The new

plan should be requested 30 days before the old plan expires.

(2) Commercial plans are recognized as one way the burdens of

government-unique requirements can be reduced for companies that

provide commercial items on Government contracts and subcontracts.

(a) It is the policy of the United States Government that

commercial plans, when authorized under this Policy Letter, shall be

the preferred method of compliance with the requirements of section

8(d) of the Small Business Act. Commercial plans are only authorized

for products or services that meet the definition of commercial item

as provided in subparagraph 4j.

(b) Agencies, in all solicitations expected to trigger the

requirements for a subcontracting plan, shall inform prospective

offerors of the opportunity for them and/or their subcontractors to

develop commercial plans if they are supplying commercial items.

Commercial plans are authorized for subcontractors that provide

commercial items under a prime contract even when the prime

contractor is not supplying a commercial item.

(3) When a contractor has a commercial plan previously approved

by another agency's contracting activity or another Federal agency

for the company's fiscal year, the contracting officer shall obtain

a copy of the plan and the approval document from the contractor.

These documents shall be incorporated into the contract.

(4) Since a commercial plan may be applicable to contracts

awarded by more than one contracting activity or Federal agency,

contracting officers must ensure that the commercial plan is not

allowed to expire prior to the negotiation of a new commercial plan.

This eventuality may occur when the contract of the contracting

officer monitoring the plan is completed and no new contract is

awarded to that contractor during the contractor's fiscal year. To

prevent such an occurrence, 30 days prior to contract completion,

the contracting officer monitoring the commercial plan shall obtain

from the contractor the name of the contracting officer

administering the contract with the latest completion date and

arrange for the transfer of the monitoring responsibilities to that

contracting officer.

d. Contract Administration of Subcontracting Plans

(1) The contracting officer administering a contract with an

individual contract plan is responsible for monitoring receipt of

the SF 294 reports. The SF 294 is used to evaluate the contractor's

progress toward meeting the subcontracting goals established in the

individual contract plan. The contracting officer shall pay

particular attention to reviewing the SF 294 required at contract

completion. The SF 294 is not required for contracts with an

approved commercial plan.

(2) The SF 295 is used to evaluate the contractor's progress

toward meeting the subcontracting goals in subcontracting plans. The

contracting officer monitoring a subcontracting plan is responsible

for ensuring receipt and review of the SF 295. The SF 295 report

summarizes all subcontract awards under contracts with a particular

federal agency and is due on or before October 30th of each year.

Since this report measures progress during the Government's fiscal

year and the commercial plan applies to the contractor's fiscal

year, a second SF 295 will be required from contractors with

commercial plans whose fiscal year is different from the

Government's. This second SF 295 report shall enable the contracting

officer monitoring the commercial plan to evaluate progress in

meeting subcontracting goals by comparing the applicable report with

the plan.

(3) For contracts containing a commercial plan, the contracting

officer monitoring the plan shall review the contractor's

performance at the close of the fiscal year for which the plan is

applicable in order to determine whether it is appropriate to assess

liquidated damages under the FAR clause entitled ``Liquidated

Damages-Subcontracting Plan.'' For contracts containing individual

contract plans, the contracting officer should evaluate contract

performances at the time of contract completion, unless the contract

contains options for extending contract performance. In this case, a

decision would be made upon completion of the initial period of

performance and at the end of each option period.

(4) In making a determination regarding the assessment of

liquidated damages, the

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contracting officer should consider whether the contractor made a good

faith effort to comply with the subcontracting plan. Failure by the

contractor to meet the subcontracting goals established in the

subcontracting plan does not, in and of itself, constitute a failure

to make a good faith effort. The contracting officer shall consider

the totality of the contractor's effort. If the contractor failed to

make a good faith effort to comply, section 8(d) of the Small

Business Act mandates that liquidated damages must be assessed. When

considering whether a good faith effort has been made, the

contracting officer should examine whether the contractor:

(a) Submitted the periodic reports required by the

subcontracting plan in a timely manner.

(b) Failed to meet its subcontracting goals because of a lack of

diligence. Factors such as unavailability of anticipated sources or

unreasonable prices may impact on the achievement of the

contractor's goals.

(c) Made efforts to identify, contact, solicit and consider for

award small, small disadvantaged, and women-owned small business

concerns. Factors such as the contractor's efforts to request

assistance from SBA or to reach out to other organizations, i.e.,

trade associations, business development associations, etc., in an

effort to locate small, small disadvantaged, and women-owned small

business concerns should be considered in evaluating the

contractor's efforts.

(d) Maintained records and established procedures to comply with

the subcontracting plan. The contracting officer should look for

documentation of efforts to contact organizations to locate small,

small disadvantaged, and women-owned small business concerns,

participation in business fairs, information on who was solicited

for particular solicitations, and any documentation of reasons for

not awarding to small, small disadvantaged, or women-owned business

concerns.

(e) Maintained a company official to administer the

subcontracting program and monitor and enforce compliance.

(f) Assisted small, small disadvantaged, and women-owned small

business concerns in responding to solicitations issued by the

contractor.

(5) If the contracting officer's initial assessment is that the

contractor did not make a good faith effort to comply with the

subcontracting plan, the contracting officer must notify the

contractor, in writing, calling the contractor's attention to the

suspected failure. As part of the notification, the contractor must

be given the opportunity to demonstrate that good faith efforts have

been made. The contractor must be advised that failure to respond to

the notice may be taken as an admission that no valid explanation

exists.

(6) Before making a final decision, the contracting officer

shall consider the contractor's response, if any, along with any

pertinent information available. The contracting officer's final

decision shall be documented in a ``final decision'' which is

appealable by the contractor under the ``Disputes'' clause of the

contract. The contracting officer's final decision should include:

(a) A description of the contractor's failure;

(b) Reference to the appropriate contract terms;

(c) A statement of the factual areas of agreement and

disagreement;

(d) A statement of the contracting officer's decision with

supporting rationale;

(e) A demand for liquidated damages; and

(f) An explanation of the contractor's appeal rights.

(7) For a contract containing an individual contract plan, the

amount of liquidated damages to be assessed is the sum of the

amounts by which the contractor failed to meet each subcontracting

goal for small, and/or small disadvantaged, and/or women-owned small

business concerns. For contracts containing a commercial plan, the

amount of liquidated damages to be assessed is calculated based upon

the total payments made under contracts subject to the commercial

plan as a percentage of the contractor's total sales. For example,

if the contractor's total sales are $50 million and the Government's

total payments under contracts subject to the commercial plan are $5

million, the Government accounts for 10 percent of the contractor's

total sales. The commercial plan stated that the subcontracting

dollars to support the sales would be $20 million. Therefore, the

pro rata share of subcontracting attributable to the Government

contracts would be 10 percent of the $20 million or $2 million. If

the contractor failed to achieve its small business goal by 1

percent, the liquidated damages would be calculated as 1 percent of

the $2 million or $20,000. The contracting officer shall make

similar calculations for each category of small business where the

contractor failed to achieve its goal and the sum of the dollars for

all of the categories equals the amount of the liquidated damages to

be assessed. The contracting officer of the agency that originally

approved the plan will exercise the functions of the contracting

officer on behalf of all agencies that awarded contracts subject to

the commercial plan.

(8) Liquidated damages shall be in addition to any other

remedies available to the Government by law or under the contract.

8. Responsibilities. The Federal Acquisition Regulatory Council

shall ensure that the policies established herein are incorporated

in the FAR within 210 days from the date this Policy Letter is

published final in the Federal Register. Promulgation of final

regulations within that 210 day period shall be considered issuance

in a ``timely manner'' as prescribed in 41 U.S.C. 405(b).

9. Information Contact. Questions regarding this Policy Letter

should be directed to Linda Mesaros, Deputy Associate Administrator,

Office of Federal Procurement Policy, 725 17th Street, NW,

Washington, DC 20503, telephone 202-395-3501, facsimile 202-395-

5105.

10. Judicial Review. This Policy Letter is not intended to

provide a constitutional or statutory interpretation of any kind and

it is not intended, and should not be construed, to create any right

or benefit, substantive or procedural, enforceable at law by a party

against the United States, its agencies, its officers, or any

persons. It is intended only to provide policy guidance to agencies

in the exercise of their discretion concerning Federal contracting.

Thus, this Policy Letter is not intended, and should not be

construed, to create any substantive or procedural basis on which to

challenge any agency action or inaction on the ground that such

action or inaction was not in accordance with this policy letter.

11. Effective Date. The Policy Letter is effective 30 days after

the date of issuance.

Steven Kelman,

Administrator.

[FR Doc. 95-23880 Filed 9-25-95; 8:45 am]

BILLING CODE 3110-01-M