# Office of Federal Procurement Policy; Policy Letter on Subcontracting Plans for Companies Supplying Commercial Items > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A95-23881 ## Record - **Collection:** Federal Register - **Document type:** Notice - **Published:** September 26, 1995 - **Citation:** 60 FR 49641 ## Text [[Page 49642]] OFFICE OF MANAGEMENT AND BUDGET Office of Federal Procurement Policy; Policy Letter on Subcontracting Plans for Companies Supplying Commercial Items AGENCY: Executive Office of the President, Office of Management and Budget (OMB), Office of Federal Procurement Policy (OFPP). ACTION: OFPP is issuing a Policy Letter on ``subcontracting Plans for Companies Supplying Commercial Items.'' ----------------------------------------------------------------------- SUMMARY: Section 8(d) of the Small Business Act (15 U.S.C. 637(d) requires that each contract that exceeds $500,000 ($1 million in the case of construction), and that offers subcontracting opportunities, include a requirement that the apparent successful offeror negotiate a subcontracting plan which shall become a material part of the contract. These requirements have been implemented by prior OFPP Policy Letters and subsequent promulgation in the Federal Acquisition Regulation (FAR). Sections 8104 and 8203 of the Federal Acquisition Streamlining Act of 1994 (FASA), Public Law 103-355, establish a preference for the acquisition of commercial items. In establishing this preference, Congress expressed concern that implementing policies ease the burden of government-unique requirements for companies supplying commercial items. In response to this concern, the policy on subcontracting plans is being revised to reduce the burden of government-unique requirements on contractors that supply commercial items. This Policy Letter focuses on contracts and subcontracts for ``commercial items'' as defined in section 8001 of FASA. Annual commercial subcontracting plans that relate to a company's commercial and noncommercial production are authorized for: (a) prime contracts for commercial items, or (b) subcontractors that provide commercial items under a prime contract, whether or not the prime contractor is supplying a commercial item. In addition, the Policy Letter states that commercial plans, when authorized under the Policy Letter, shall be the preferred method of compliance with the requirements of section 8(d) of the Small Business Act. The policy letter reinforces that these provisions for subcontracting plans for commercial item contractors do not in any way relieve contracting officers, prime contractors or subcontractors of their responsibilities for assuring that small, small disadvantaged, and women-owned small businesses have the maximum practicable opportunity to participate in contracts awarded by Federal agencies. SUPPLEMENTARY INFORMATION: A proposed Policy Letter and request for comments was published in the February 7, 1995 Federal Register (60 FR 7229). Forty-three comment letters were received in response to the Federal Register notice, of which, 28 were from the private sector. A summary of the more significant comments received and OFPP responses to them follows: 1. Standard From 294 Many personnel from the private sector commented that this Policy Letter would eliminate the Standard Form 294, a report that they considered integral as an indication of a government contractor's compliance with federal mandated small business and small disadvantaged business subcontracting goals on a contract by contract basis. While there will be some reduction in the submission of Standard Form 294 as a result of this revised policy, it should be noted that there has been a policy in place since 1980 that allows prime contractors supplying commercial items to use commercial plans which eliminates the requirement to submit the Standard Form 294. This policy was introduced in OFPP Policy Letter 80-2, dated April 29, 1980. For the past fifteen years, prime contractors supplying commercial items have not been required to submit the Standard Form 294. The information has been reported in summary through the Standard Form 295 (Summary Subcontract Report). The new policy letter is drafted to reemphasize the FASA's preference for the acquisition of commercial items. The Conference Report (H.R. 103-712) recognized the specific authority already provided in policy and subsequent regulation for commercial (e.g., corporation, company, division, plant, or product line) rather than contract-by-contract subcontracting plans for subcontractors providing commercial items. The report also noted that traditional business practices by commercial manufacturers does not lend itself to unique government related orders. Under OFPP policy, all other contract awards not involving commercial items will require submission of subcontracting plans on a contract-by-contract basis and the submission of the Standard Form 294. 2. Liquidated Damages Many personnel from the private sector commented that the Policy Letter eliminates the liquidated damages penalty for government contractors that refuse to comply with subcontracting goals. OFPP has not eliminated the liquidated damages penalty; that language is contained in the FAR and various OFPP Policy Letters. Additional guidance on liquidated damages and the assessment of liquidated damages is contained in the draft Policy Letter on Subcontracting Plans that is being published concurrently with this Policy Letter. 3. Enforcement and Administration of Subcontracting Plans Some personnel from both the government and private sector stated that more guidance is needed on enforcement and administration of subcontracting plans. We agree that the government needs to more strongly administer and monitor subcontracting plans. In order to emphasize that policy, we are publishing a draft Policy Letter on Subcontracting Plans concurrently with this Policy Letter. The draft Policy Letter on Subcontracting Plans especially focuses on the contracting officer's responsibility to monitor the plan and list methods that the contracting officer can use in considering whether a good faith effort has been made. 4. Inconsistencies With Past Policy Letters A few commentors stated that the Policy Letter is inconsistent with past Policy Letters. We are adding language to this Policy Letter that states that it supersedes any provision inconsistent with prior policy letters. We are also publishing a draft Policy Letter on Subcontracting Plans concurrently with this Policy Letter that, when issued in final, will supersede and cancel 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. 5. Classification of Commercial Items Several commentors requested that OFPP develop a comprehensive list of commercial items with appropriate product and service codes in order to [[Page 49643]] avoid confusion regarding what purchases qualify for the designation of commercial items. OFPP feels that the definition of commercial items in FASA and the corresponding implementing regulations provides sufficient information on what constitutes a commercial item. The development of a comprehensive list to be used by agencies would be time consuming, inflexible, require constant updating, and impose micro-management. DATES: The Policy Letter is effective 30 days from the date of issuance. It directs that governmentwide regulations be promulgated to implement the policies contained therein within 210 days from the date this Policy Letter is published in the Federal Register. FOR FURTHER INFORMATION CONTACT: William Coleman, Deputy Administrator, 202-395-3503 or Linda Mesaros, Deputy Associate Administrator, 202-395- 4821. The address is Office of Federal Procurement Policy, 725 17th Street, NW, New Executive Office Building, Room 9001, Washington, DC 20503. To obtain a copy of this Policy Letter, please call the Executive Office of the President's Publication Office at 202-395-7332. Steven Kelman, Administrator. Policy Letter 95-1 To the Heads of Executive Departments and Establishments Subject: Subcontracting Plans for Companies Supplying Commercial Items 1. Purpose. The purpose of this Policy Letter is to establish policies on the requirement for subcontracting plans for companies supplying commercial items. 2. 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. 3. Definition. 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., corporation, company, division, plant, or product line). As used in this Policy Letter, the term ``commercial item'' is a product of service that satisfies the definition of commercial item in section 8001 of FASA (41 U.S.C. 403). 4. Background. Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) requires that each contract that exceeds $500,000 ($1 million in the case of construction), and that offers subcontracting opportunities, include a requirement that the apparently successful offeror negotiate a subcontracting plan which shall become a material part of the contract. The requirement for subcontracting plans does not apply to small businesses. The above requirements have been implemented by OFPP Policy Letter 80-2 ``Regulatory Guidance on Section 211 of Public Law 95-507'' dated April 29, 1980, and Supplement No. 1 dated May 29, 1981, and further implemented in Part 19 of the Federal Acquisition Regulation (FAR). OFPP Policy Letter 80-2 specifically authorized the use of an annual commercial subcontracting plan that relates to the contractor's commercial and noncommercial production when the government is acquiring a commercial item. Sections 8104 and 8203 of the Federal Acquisition Streamlining Act of 1994 (FASA), Public Law 103-355, establish a preference for the acquisition of commercial items by the Department of Defense and civilian agencies. In establishing this preference, Congress expressed concern that implementing policies ease the burden of government-unique requirements for companies supplying commercial items. The Conference Report (H.R. 103-712) recognizes the unique circumstance faced by commercial contractors and the specific authority already provided in regulation and policy for commercial plans rather than contract-by-contract plans. The report cites OFPP Policy Letter 80-2, FAR 52.219-9(g), and 519.704(b) of the General Services Administration Acquisition Regulation which provide express authority for commercial plans. The Report states: ``Because contractors and subcontractors offering commercial items tend to rely on their existing network of suppliers rather than entering new subcontracts to fill government orders, the requirements applicable to the company-wide subcontracting plans of commercial companies differ from the requirements applicable to individual subcontracting plans of non-commercial companies. See e.g. sections 519.704(c)(2), 519.705-5 and 519.705-6(b) of the GSA FAR Supplement. For example, a single company-wide plan authorized by these regulations is likely to address subcontracting opportunities at both the prime contract and subcontract levels, obviating the need for the filing of individual contract-by-contract or subcontract-by-subcontract plans. Title VIII of the bill is not intended to require any changes to such practices.'' (emphasis added) In response to this concern, the policy on subcontracting plans is being revised to reduce the burden of government-unique requirements on prime contractors and subcontractors that supply commercial items. 5. Policy. The following policy applies governmentwide to contracts and subcontracts for ``commercial items'' as defined in section 8001 of FASA and implementing regulations: (1) It is a fundamental policy of the Federal government that a fair proportion of its contracts be placed with small businesses, small businesses owned and controlled by socially and economically disadvantaged individuals, and small businesses owned and controlled by women and that such businesses participate in subcontracting under government prime contracts. (2) When the requirements for a subcontracting plan under section 8(d) of the Small Business Act apply, annual commercial subcontracting plans that relate to a company's commercial and noncommercial production are authorized for: (a) prime contracts for commercial items, or (b) subcontractors that provide commercial items under a prime contract, whether or not the prime contractor is supplying a commercial item. (3) Furthermore, 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. In all solicitations expected to offer subcontracting opportunities which trigger the requirements for a subcontracting plan, the Government shall inform prospective offerors of the opportunity for themselves and/or their subcontractors to develop commercial plans if they are supplying commercial items. This would apply whether or not the prime contractor is supplying a commercial item. (4) This policy is in addition to the existing policies cited in Section 3 of this Policy Letter. This Policy Letter supersedes any provisions inconsistent with prior OFPP Policy Letters. 6. Contracting Officer Responsibilities. Contracting officers shall ensure that: (1) These provisions for subcontracting plans for commercial item contractors do not in any way relieve contracting officers, prime contractors or subcontractors of their responsibilities for assuring that small, small disadvantaged and women-owned small businesses have the maximum practicable opportunity to participate in contracts awarded by Federal agencies. (2) The use of a commercial subcontracting plan does not relieve a contractor of the requirement to make a good faith effort to comply with the requirements of the subcontracting plan. (3) Contracting officers should impose liquidated damages as applicable when contractors fail to comply with subcontracting plans. (4) 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. (5) 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 eventually 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. 7. Regulatory Responsibilities. The Federal Acquisition Regulatory Council shall ensure that the policies established herein are [[Page 49644]] incorporated in the FAR within 210 days from the date this Policy Letter is published 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). 8. Information Contact. Questions regarding this Policy Letter should be directed to William Coleman, Deputy Administrator, 202- 395-3505 or Linda Mesaros, Deputy Associate Administrator, 202-395- 4821, facsimile 202-395-5105. The address is Office of Federal Procurement Policy, 725 17th Street, NW, Washington, DC 20503. 9. 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. 10. Effective Date. This Policy Letter is effective 30 days after the date of issuance. Steven Kelman, Administrator. [FR Doc. 95-23881 Filed 9-25-95; 8:45 am] BILLING CODE 3110-01-M --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A95-23881. Public record. Not legal advice.