Government Contracting Assistance

SMALL BUSINESS ADMINISTRATION

13 CFR Part 125

Government Contracting Assistance

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: In response to President Clinton's Government-wide regulatory

reform initiative, the Small Business Administration (SBA) has

completed a page-by-page, line-by-line review of all of its existing

regulations to determine which should be revised or eliminated. This

proposed rule would eliminate seven sections which are currently

contained in 13 CFR Part 125 pertaining to SBA's procurement assistance

programs. The Part would be retitled Government Contracting Assistance.

DATES: Comments must be submitted on or before December 27, 1995.

ADDRESS: Written comments should be addressed to David R. Kohler,

Regulatory Reform Team Leader, (125), Small Business Administration,

409 3rd Street, S.W., Suite 13, Washington, D.C. 20416.

FOR FURTHER INFORMATION CONTACT: John W. Klein, Chief Counsel for

Special Programs, at (202) 205-6645.

SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a

Memorandum to Federal agencies, directing them to simplify their

regulations. In response to this directive, SBA has completed a page-

by-page, line-by-line review of all of its existing regulations to

determine which should be revised or eliminated. 13 CFR Part 125 is

presently titled ``Procurement Assistance'' and consists

[[Page 58277]]

of 12 sections. This proposed rule would change the title to

``Government Contracting Assistance'' and would reduce the number of

sections to six. SBA's regulatory review indicated that seven sections

could be eliminated as unnecessary (repeating statutory provisions),

obsolete, or inappropriate.

Section-by-Section Analysis

The following is a section-by-section analysis of each provision of

SBA's regulations that would be affected by this proposed rule:

Current Sec. 125.1 is a statement of policy paraphrased from the

Small Business Act (the Act). SBA proposes to eliminate this language

as being unnecessary and duplicative and replace it with a brief

description of the programs included in Part 125.

Current Sec. 125.2 contains definitions such as ``Administrator,''

``SBA,'' and ``procurement.'' The proposed rule would eliminate these

definitions as unnecessary. Revised regulations on the Prime

Contracting Assistance program, now found at Sec. 125.6, would become

Sec. 125.2. These regulations have been simplified to eliminate a

lengthy list of duties performed by SBA procurement center

representatives and breakout procurement center representatives, which

are already contained in the Act and the Federal Acquisition Regulation

(FAR). In addition, the set-aside and breakout appeals procedures have

been shortened to incorporate the procedures already set forth in the

FAR.

Section 125.3 is presently an introduction. The proposed rule would

eliminate this as unnecessary and replace it with revised regulations

on the Subcontracting Assistance program now found at Sec. 125.9. The

revised subcontracting assistance regulations have been clarified and

rewritten in plain language for ease of use, but no substantive changes

are proposed.

Current Sec. 125.4 is a summary of statutory provisions contained

in the Act. SBA proposes to eliminate this summary as being unnecessary

and duplicative. Revised regulations on the Government Property Sales

Assistance program, now found at Sec. 125.8, would become Sec. 125.4.

These regulations have been clarified and rewritten in plain language

for ease of use, but no substantive changes are proposed.

The proposed rule would eliminate that portion of the current

regulation which deals with size standards and rules for timber sales,

since those rules are already set forth in Part 121 of this title.

On August 21, 1992, SBA published in the Federal Register (57 FR

37909) a proposed revision of 13 CFR Sec. 125.5, SBA's regulations on

the Certificate of Competency (COC) program. Due to the passage of

time, and after review of all previous comments, SBA is again proposing

revised regulations for comment.

The proposed rule would also make further technical changes to COC

rules. It would eliminate referrals to SBA for eligibility

determinations under the Walsh-Healey Public Contracts Act (WHPCA)

(previously proposed Sec. 125.5(d)). Section 7201 of the Federal

Acquisition Streamlining Act of 1994 (FASA) repealed the ``regular

dealer'' or ``manufacturer'' eligibility requirements imposed by WHPCA

for offerors on contracts subject to the Act.

This proposed rule would change the $25,000 threshold (under which

a contracting officer has no right to appeal an initial affirmative COC

decision to SBA Headquarters) referenced in Sec. 125.5(b)(11) of the

previously proposed COC regulation to dollar values that coincide with

either contracting actions valued under $100,000, or the use of

Simplified Acquisition Threshold (SAT) procedures implemented under

FASA.

The proposed rule would also make some minor technical edits to

SBA's earlier proposed rule dealing with the COC program. The following

substitutions have been made from the rule as originally proposed: (1)

references to the Office of Procurement Assistance have been changed to

the Office of Government Contracting; (2) references to the Associate

Administrator for Procurement Assistance have been changed to the

Associate Administrator for Government Contracting; (3) references to

Regional Administrators have been deleted; (4) references to the

Assistant Regional Administrator for Procurement Assistance have been

changed to Area Director for Government Contracting.

The proposed rule would also make several changes to the Prime

Contractor Performance Requirements (Limitations on Subcontracting),

which were earlier proposed as part of the COC regulatory package

published for public comment on August 21, 1992 (57 FR 37909). This

proposed rule would separate those provisions into a separate section

125.6, since the provisions have applicability outside the COC process.

The comments, however, relate back to the COC proposal as published on

August 21, 1992.

A commenter to that rule suggested that SBA make it clear that this

section applies to both the DoD Small Disadvantaged Business (SDB) set

aside program, including the SDB 10% evaluation preference, and SBA's

MED (8(a)) program. SBA agrees and has revised the earlier proposed

regulation accordingly.

Another comment suggested clarification of the applicability of

this requirement to sealed bidding situations. Since the ``limitations

on subcontracting'' requirement applies to negotiated and formally

advertised procurements as well as to procurements under the Simplified

Acquisition Threshold, SBA considers it unnecessary to state this again

in the regulation. In the case of a formally advertised procurement,

compliance with the requirement will be determined after bid opening

and before contract award through the procuring agency's preaward

evaluation procedures. This requirement applies only to small business

set-asides or that portion of a procurement set aside for small

business.

A comment suggested that the regulation address the need for SBA to

evaluate compliance with this requirement for the base period and all

option periods of a contract. SBA has not revised the regulation since

a failure to comply with the requirement in the course of contract

performance is considered to be a material breach of contract.

Contracting officers already have remedies to assure compliance with

the requirement.

Another comment suggested that SBA clarify that the term

``materials'' includes purchases made by a small business which are

``normal commercial practices within the industry.'' SBA has revised

the regulation to include normal commercial practices within the

industry.

Another comment suggested that SBA clarify whether Government-

specified sources referenced within a solicitation are included in the

definition of ``cost of materials.'' SBA has not changed the regulation

in response to this comment because the definition of

``subcontracting'' in Sec. 125.5(c)(4)(vii) states that where the prime

contractor has been directed by the Government to utilize a specific

source, the costs associated with such a purchase will be considered as

the cost of materials.

One commenter suggested that a separate definition for ``off-the-

shelf'' items should be added to this section. SBA has adopted this

suggestion.

Finally, a commenter suggested that SBA clarify the use of ``part-

time'' employees in the definition of ``personnel'' in this section

rather than reference Sec. 121.404 of this Title. SBA has not adopted

this suggestion because the definition of ``employee'' in SBA's size

regulations at part 121 includes part-time employees.

[[Page 58278]]

SBA proposes to eliminate in its entirety current Sec. 125.7 which

deals with Defense Production Pools. Although such Pools continue to be

authorized by statute, their formation is such a rare event that it is

unnecessary to have a separate regulation on the subject when it can be

adequately dealt with on a case-by-case basis.

SBA also proposes to delete in its entirety current Sec. 125.10

dealing with the Procurement Automated Source System (PASS). Since this

computerized information data base on small business contractors is

governed by contractual provisions, it is unnecessary to have a

separate regulation on the topic.

The proposed rule would eliminate Sec. 125.11 which describes the

Technology Assistance Program. This program has been administratively

discontinued and is no longer in operation.

Current Sec. 125.12 describes the Natural Resources Development

Program or ``tree-planting program.'' SBA would eliminate this section

as obsolete since Congress no longer provides funds for this program.

Compliance With Executive Orders 12612, 12778, and 12866, the

Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork

Reduction Act (44 U.S.C. Ch. 35)

SBA certifies that this proposed rule would not have a significant

economic impact on a substantial number of small entities within the

meaning of Executive Order 12866 or the Regulatory Flexibility Act, 5

U. S. C. 601, et seq. This rule would eliminate seven sections of SBA's

regulations that SBA has determined to be obsolete, unnecessary, or

duplicative. The remaining regulations have been rewritten for clarity

and ease of use. No contracting opportunities for small business would

be affected by this proposed rule. Therefore, it is not likely to have

an annual economic impact of $100 million or more, result in a major

increase in costs or prices, or have a significant adverse effect on

competition or the U.S. economy.

For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA

certifies that this proposed rule, if adopted in final form, would

contain no new reporting or recordkeeping requirements.

For purposes of Executive Order 12612, SBA certifies that this rule

would not have any federalism implications warranting the preparation

of a Federalism Assessment.

For purposes of Executive Order 12778, SBA certifies that this rule

is drafted, to the extent practicable, in accordance with the standards

set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 125

Government contracts; Government procurement; Reporting and

recordkeeping requirements; Small businesses; Technical assistance.

For the reasons set forth above, SBA proposes to revise Part 125 of

Title 13 of the Code of Federal Regulations as follows:

PART 125--GOVERNMENT CONTRACTING PROGRAMS

Sec.

125.1 Programs included.

125.2 Prime contracting assistance.

125.3 Subcontracting assistance.

125.4 Government property sales assistance.

125.5 Certificate of Competency program.

125.6 Prime contractor performance requirements (limitations on

subcontracting).

Authority: 15 U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701,

9702.

Sec. 125.1 Programs included.

The regulations in this part relate to the Government contracting

assistance programs of SBA. There are four main programs: Prime

contracting assistance; Subcontracting assistance; Government property

sales assistance; and the Certificate of Competency program. The

objective of the programs is to assist small businesses in obtaining a

fair share of Federal Government contracts, subcontracts, and property

sales.

Sec. 125.2 Prime contracting assistance.

(a) Traditional PCR responsibilities. (1) SBA Procurement Center

Representatives (PCRs) are located at Federal agencies and buying

activities which have major contracting programs. PCRs review all

acquisitions not set aside for small businesses to determine whether a

set-aside would be appropriate. In cases where there is disagreement

between a PCR and the contracting officer over the suitability of a

particular acquisition for a small business set-aside, the PCR may

initiate an appeal to the head of the contracting activity. If the head

of the contracting activity agrees with the contracting officer, SBA

may appeal to the secretary of the department or head of the agency.

The procedures and time limits for such appeals are set forth in

Sec. 19.505 of the Federal Acquisition Regulation (FAR). (48 CFR

19.505).

(2) PCRs review and evaluate the small business programs of Federal

agencies and buying activities and make recommendations for

improvement. They also recommend small business, small women-owned

business, and small disadvantaged business sources for use by

contracting activities and assist these businesses in obtaining Federal

contracts and subcontracts. Other authorized duties of a PCR are set

forth in the FAR in 48 CFR 19.402(c) and in the Small Business Act in

Section 15(a) (15 U.S.C. 644(a)).

(b) BPCR responsibilities. (1) SBA is required by section 403 of

Public Law 98-577 to assign a breakout PCR (BPCR) to major contracting

centers. A major contracting center is a center that, as determined by

SBA, purchases substantial dollar amounts of other than commercial

items, and which has the potential to achieve significant savings as a

result of the assignment of a BPCR.

(2) BPCRs advocate full and open competition in the Federal

contracting process and recommend the breakout for competition of items

and requirements which previously have not been competed. They may

appeal the failure by the buying activity to act favorably on a

recommendation in accord with the appeal procedures set forth in

Sec. 19.505 of the FAR (48 CFR 19.505). BPCRs also review restrictions

and obstacles to competition and make recommendations for improvement.

Other authorized functions of a BPCR are set forth in 48 CFR 19.403(c)

of the FAR and Section15(l) of the Small Business Act (15 U.S.C.

644(l)).

Sec. 125.3 Subcontracting assistance.

(a) The purpose of the subcontracting assistance program is to

achieve maximum utilization of small business by major prime

contractors. The Small Business Act requires other than small firms

awarded contracts by the Federal Government in excess of $500,000, or

$1 million for construction of a public facility, to submit a

subcontracting plan to the contracting agency. The FAR sets forth the

requirements for subcontracting plans in 48 CFR subpart 19.7 and 48 CFR

52.219-9.

(b) Upon determination of the successful subcontract offeror, but

prior to award, the prime contractor must inform each unsuccessful

subcontract offeror in writing of the name and location of the apparent

successful offeror. This is applicable to all subcontracts over

$10,000.

(c) SBA Commercial Market Representatives (CMRs) facilitate the

process of matching large prime contractors with small, small

disadvantaged, and small women-owned subcontractors. CMRs identify,

develop, and market small businesses to the prime contractors and

assist the small firms in obtaining subcontracts.

(d) Each CMR has a portfolio of prime contractors and conducts

periodic

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compliance reviews and needs assessments of the companies in this

portfolio. CMRs are also required to perform opportunity development

and source identification. Opportunity development means assessing the

current and future needs of the prime contractors. Source

identification means identifying those small, small disadvantaged, and

small women-owned firms which can fulfill the needs assessed from the

opportunity development process.

(e) CMRs offer additional assistance to small businesses: (1)

Advice to representatives of small firms interested in obtaining

subcontracts from Federal prime contractors;

(2) Information and assistance on how to identify subcontract

opportunities and what opportunities are currently available; and

(3) Information and assistance on the qualifications required to

become eligible for inclusion on potential source listings of large

firms for future subcontract requirements.

(f) CMRs also perform the following duties:

(1) Assisting both Government agencies and prime contractors in the

formulation of subcontracting plans and providing contractors with

potential sources to help them comply with their plans;

(2) Assisting PCRs, upon request, in reviewing subcontracting plans

submitted by prime contractors prior to contract award;

(3) Evaluating compliance by contractors with the contract clause

entitled ``Utilization of Small, Small Disadvantaged and Women-Owned

Small Business Concerns'';

(4) Recommending small, small disadvantaged, and small women-owned

firms to prime contractors and Government agencies for performance of

subcontract requirements; and

(5) Maintaining liaison and contact with prime contractors to

assist in advance procurement planning and to foster increased

utilization of small businesses.

Sec. 125.4 Government property sales assistance.

(a) The purpose of SBA's Government property sales assistance

program is to:

(1) Insure that small businesses obtain their fair share of all

Federal real and personal property qualifying for sale or other

competitive disposal action; and

(2) Assist small businesses in obtaining Federal property being

processed for disposal, sale, or lease.

(b) SBA property sales assistance primarily consists of two

activities:

(1) Obtaining small business set-asides when necessary to insure

that a fair share of Government property sales are made to small

businesses; and

(2) Providing advice and assistance to small businesses on all

matters pertaining to sale or lease of Government property.

(c) The program is intended to cover the following categories of

Government property:

(1) Sales of timber and related forest products;

(2) Sales of strategic material from national stockpiles;

(3) Sales of royalty oil by the Department of Interior's Minerals

Management Service;

(4) Leases involving rights to minerals, petroleum, coal, and

vegetation; and

(5) Sales of surplus real and personal property.

(d) SBA has established specific small business size standards and

rules for the sale or lease of the different kinds of Government

property. These provisions are contained in Secs. 121.501 through

121.514 of this title.

Sec. 125.5 Certificate of Competency Program.

(a) General. (1) The Certificate of Competency (COC) Program is

authorized under section 8(b)(7) of the Small Business Act. A COC is a

written instrument issued by SBA to a Government contracting officer,

certifying that one or more named small business concerns possess the

responsibility to perform a specific Government procurement (or sale)

contract. The COC Program is applicable to all Government procurement

actions.

(2) A contracting officer must, upon determining a low responsive

small business offeror to be nonresponsible, refer that small business

to SBA for a possible COC, even if the next low responsive offeror is

also a small business.

(3) A small business offeror referred to SBA as nonresponsible may

apply to SBA for a COC.

(b) COC Eligibility. (1) The offeror seeking a COC has the burden

of proof to demonstrate its eligibility for COC review. To be eligible

for the COC program, a firm must meet the following criteria:

(i) It must qualify as a ``small business concern'' under the size

standard applicable to the procurement. Where the solicitation fails to

specify a size standard or Standard Industrial Classification (SIC)

code, SBA will assign the appropriate size standard to determine COC

eligibility. SBA determines size eligibility as of the date described

in Sec. 121.404 of this title.

(ii) A manufacturing, service, or construction concern must

demonstrate that it will perform a significant portion of the proposed

contract with its own facilities, equipment, and personnel. The

contract must be performed or the end item manufactured within the

United States, its territories, possessions, or the Commonwealth of

Puerto Rico.

(iii) A non-manufacturer making an offer on a small business set-

aside contract for supplies must furnish end items that have been

manufactured in the United States, its territories, possessions, or the

Commonwealth of Puerto Rico by a small business. Non-manufacturing

concerns may apply for a waiver of this requirement under

Secs. 121.1301 through 121.1305 of this title for either the type of

product being procured or the specific contract at issue.

(iv) A non-manufacturer submitting an offer on a procurement

utilizing simplified acquisition threshold procedures with a cost that

does not exceed $25,000, or on any unrestricted procurement, must

furnish end items manufactured in the United States, or its trust

territories, possessions, or the Commonwealth of Puerto Rico. Any COC

shall apply to the responsibility of the non-manufacturer, not to that

of the manufacturer.

(v) An offeror intending to provide a kit consisting of finished

components or other components provided for a special purpose, is

eligible if:

(A) It meets the Size Standard for the SIC code assigned to the

procurement; and

(B) More than 50% of the total dollar value of the components of

the kit were manufactured by small businesses under the size standard

applicable to the component provided. The offeror need not itself be

the manufacturer of any of the components of the kit. Each component

comprising the kit must be produced or manufactured in the United

States or its trust territories, possessions, or the Commonwealth of

Puerto Rico. Where the Government has specified any item for the kit

which is not manufactured by a small business, then such item shall be

excluded from the determination of total value for the purposes of this

section.

(2) SBA will determine a concern ineligible for a COC if the

concern, or any of its principals, appears in the ``Parties Excluded

From Federal Procurement Programs'' section found in the U.S. General

Services Administration Office of Acquisition Policy Publication: List

of Parties Excluded From Federal Procurement or Nonprocurement

Programs. If a principal is unable to presently control the applicant

concern, and appears in

[[Page 58280]]

the Procurement section of the list due to matters not directly related

to the concern itself, responsibility will be determined in accordance

with paragraph (c)(9) of this section.

(3) An eligibility determination will be made on a case by case

basis, where a concern or any of its principals appears in the

Nonprocurement Section of the publication referred to in paragraph

(b)(2) of this section.

(c) Referral of nonresponsibility determination to SBA. (1) A

contracting officer who determines that an apparently successful

offeror that has certified itself to be a small business with respect

to a specific Government contract lacks any element of responsibility

(including competency, capability, capacity, credit, integrity or

tenacity or perseverance) must refer the matter in writing to the SBA

Government Contracting Area Office (Area Office) serving the area in

which the headquarters of the offeror is located. The referral must

include a copy of the following:

(i) Solicitation;

(ii) Offer submitted by the concern whose responsibility is at

issue for the procurement (as of Best and Final Offers for a negotiated

procurement, and as of bid opening for a sealed bid procurement);

(iii) Abstract of Bids, where applicable, or the Contracting

Officer's Price Negotiation Memorandum;

(iv) Preaward survey, where applicable;

(v) Contracting officer's written determination of non-

responsibility;

(vi) Technical data package (including drawings, specifications,

and Statement of Work); and

(vii) Any other justification and documentation used to arrive at

the nonresponsibility determination.

(2) Contract award must be withheld by the contracting officer for

a period of 15 working days (or longer if agreed to by SBA and the

contracting officer) following receipt by the appropriate Area Office

of a referral which includes all required documentation.

(3) The COC referral must indicate that the offeror has been found

responsive to the solicitation, but at the same time must identify the

reasons for the nonresponsibility determination.

(d) Application for COC. (1) Upon receipt of the contracting

officer's referral, the SBA Area Office will inform the concern of the

contracting officer's negative responsibility determination, and offer

it the opportunity to apply to SBA for a COC by a specified date.

(2) The COC application must include all information and

documentation requested by SBA and any additional information which the

firm believes will demonstrate its ability to perform on the proposed

contract. The application should be returned as soon as possible, but

no later than the date specified by SBA.

(3) Upon receipt of a complete and acceptable application, SBA may

elect to visit the applicant's facility to review its responsibility.

Where a service or construction contract will be performed outside the

United States or its trust territories, possessions, or the

Commonwealth of Puerto Rico, SBA will rely solely on documentation and

other relevant information obtained within the United States. SBA

personnel may obtain clarification or confirmation of information

provided by the applicant by directly contacting suppliers, financial

institutions, and other third parties upon whom the applicant's

responsibility depends.

(e) Incomplete applications. If an application for a COC is

materially incomplete or is not submitted by the date specified by SBA,

SBA will close the case and so notify the contracting officer. The

basis for its decision will be specified in a declination letter sent

to both the concern and the contracting officer.

(f) Reviewing an application. (1) The COC review process is not

limited to the areas of nonresponsibility cited by the contracting

officer. SBA may, at its discretion, independently evaluate the COC

applicant for all elements of responsibility, but it may presume

responsibility exists as to elements other than those cited as

deficient. SBA may deny a COC for reasons of nonresponsibility not

originally cited by the contracting officer.

(2) A small business will be rebuttably presumed nonresponsible if

any of the following circumstances are shown to exist:

(i) Within three years before the application for a COC, the

concern, or any of its principals, has been convicted of an offense or

offenses that would constitute grounds for debarment or suspension

under FAR subpart 9.4 (48 CFR Subpart 9.4), and the matter is still

under the jurisdiction of a court (e.g., the principals of a concern

are incarcerated, on probation or parole, or under a suspended

sentence); or

(ii) Within three years before the application for a COC, the

concern or any of its principals has had a civil judgment entered

against it or them for any reason that would constitute grounds for

debarment or suspension under FAR subpart 9.4 (48 CFR Subpart 9.4).

(g) Decision by Area Director. After reviewing the information

submitted by the applicant and the information gathered by SBA, the

Director will make a determination, either final or recommended as set

forth in the following chart:

------------------------------------------------------------------------

SBA official or Finality of

office with decision; options

Contracting actions authority to make for contracting

decision agencies

------------------------------------------------------------------------

$100,000 or less, or in Director may approve Final. The Director

accordance with Simplified or deny. will notify both

Acquisition Threshold the applicant and

procedures. contracting agency

in writing of the

decision.

Between $100,000 and $25 (1) Director may (1) Final.

million.. deny.. (2) Contracting

(2) Director may agency may proceed

approve, subject to under paragraph (h)

right of appeal and or paragraph (1) of

other options. this section.

Exceeding $25 million....... (1) Director may (1) Final.

deny. (2) Contracting

(2) Director must agency may proceed

refer to SBA under paragraph (j)

Headquarters of this section.

recommendation for

approval.

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(h) Notification of intent to issue on a contract with a value

between $100,000 and $25 million. Where the Director determines that a

COC is warranted, he or she will notify the contracting officer of the

intent to issue a COC, and of the reasons for that decision, prior to

issuing the COC. At the time of notification, SBA will give the

contracting officer the following options:

(1) Accept the Director's decision to issue the COC and award the

contract to the concern (the issuance letter will

[[Page 58281]]

include as an attachment a detailed rationale of the decision); or

(2) Ask the Director to suspend the case:

(i) for a specified period of time, and to forward a detailed

rationale for the decision to the contracting officer; or

(ii) to afford the contracting officer the opportunity to meet with

the Area Office to review all documentation contained in the case file;

or

(iii) to submit any information which the contracting officer

believes SBA has not considered (at which time, SBA will establish a

new suspense date mutually agreeable to the contracting officer and

SBA); or

(iv) to permit resolution of an appeal by the contracting agency to

SBA Headquarters under pargraph (i) of this section.

(3) After any discussions under paragraph (h)(2) of this section,

the Director will issue the determination.

(i) Appeals of Area Director determinations. For COC actions with a

value exceeding $100,000, contracting agencies may appeal a Director's

decision to issue a COC to SBA Headquarters by filing an appeal with

the Area Office processing the COC application. The Area Office must

honor the request to appeal if the contracting officer agrees to

withhold award until the appeal process is concluded. Without such an

agreement from the contracting officer, the Director will issue the

COC. When such an agreement has been obtained, the Area Office will

immediately forward the case file to SBA Headquarters.

(1) The intent of the appeal procedure is to allow the contracting

agency the opportunity to submit to SBA Headquarters any documentation

which the contracting officer believes the Area Office has not

considered.

(2) SBA Headquarters will furnish written notice to the Director,

Office of Small and Disadvantaged Business Utilization (OSDBU) at the

secretariat level of the procuring agency (with a copy to the

contracting officer), that the case file has been received and that an

appeal decision may be requested by an authorized official at that

level. If the contracting agency decides to file an appeal, it must

notify SBA Headquarters through its Director, OSDBU, within 10 working

days (or a time period agreed upon by both agencies) of its receipt of

the notice under paragraph (h) of this section. The appeal and any

supporting documentation must be filed within 10 working days (or a

different time period agreed to by both agencies) after SBA receives

the request for a formal appeal. The SBA Associate Administrator for

Government Contracting (AA/GC) will make a final determination, in

writing, to issue or to deny the COC.

(j) Decision by SBA Headquarters where contract value exceeds $25

million. (1) Prior to taking final action, SBA Headquarters will

contact the contracting agency at the secretariat level or agency

equivalent and afford it the following options:

(i) Ask SBA Headquarters to suspend the case so that the agency can

meet with Headquarters personnel and review all documentation contained

in the case file; or

(ii) Submit to SBA Headquarters for evaluation any information

which the contracting agency believes has not been considered.

(2) After reviewing all available information, the AA/GC will make

a final decision to either issue or deny the COC. If the AA/GC's

decision is to deny the COC, the applicant and contracting agency will

be informed in writing by the Area Office. If the decision is to issue

the COC, a letter certifying the responsibility of the firm will be

sent to the contracting agency by Headquarters and the applicant will

be informed of such issuance by the Area Office. Except as set forth in

paragraph (l) of this section, there can be no further appeal or

reconsideration of the decision of the AA/GC.

(k) Notification of denial of COC. The notification to an

unsuccessful applicant following either an Area Director or a

Headquarters denial of a COC will briefly state all reasons for denial

and inform the applicant that a meeting may be requested with

appropriate SBA personnel to discuss the denial. Upon receipt of a

request for such a meeting, the appropriate SBA personnel will confer

with the applicant and explain the reasons for SBA's action. The

meeting does not constitute an opportunity to rebut the merits of the

SBA's decision to deny the COC, and is for the sole purpose of giving

the applicant the opportunity to correct deficiencies so as to improve

its ability to obtain future contracts either directly or, if

necessary, through the issuance of a COC.

(l) Reconsideration of COC after issuance. (1) An approved COC may

be reconsidered and possibly rescinded, at the sole discretion of SBA,

in the following circumstances:

(i) If, after issuance of a COC, but before award of any contract

in reliance upon such COC, SBA discovers that:

(A) the COC applicant submitted false or omitted material

information; or

(B) new materially adverse information has appeared relating to the

current responsibility of the applicant concern; or

(ii) Where the contract for which a COC has been issued has not

been awarded within 60 days (in which case SBA may investigate the

firm's current circumstances).

(2) Where SBA reaffirms the COC, the procedures under paragraph (h)

of this section do not apply.

(m) Effect of COC Certification. By the terms of the Small Business

Act, a COC is conclusive as to responsibility. Where SBA issues a COC

on behalf of a small business with respect to a particular contract,

contracting officers are required to award the contract without

requiring the firm to meet any other requirement with respect to

responsibility.

(n) Non-Certification. Denial of a COC by SBA does not preclude a

contracting officer from awarding a contract to the referred firm.

(o) Monitoring performance. Once a COC has been issued and a

contract awarded on that basis, SBA will monitor contractor

performance.

Sec. 125.6 Prime contractor performance requirements (limitations on

subcontracting).

(a) In order to be awarded a small business set-aside, a partial

set-aside, an 8(a) contract, or an unrestricted procurement where a

concern has claimed a 10 percent SDB price evaluation preference, a

small business concern must agree that:

(1) In the case of a contract for services (except construction),

the concern will perform at least 50 percent of the cost of the

contract incurred for personnel with its own employees.

(2) In the case of a contract for supplies or products (other than

procurement from a regular dealer in such supplies or products), the

concern will perform at least 50 percent of the cost of manufacturing

the supplies or products (not including the costs of materials).

(3) In the case of a contract for general construction, the concern

will perform at least 15 percent of the cost of the contract with its

own employees (not including the costs of materials).

(4) In the case of a contract for construction by special trade

contractors, the concern will perform at least 25 percent of the cost

of the contract with its own employees (not including the cost of

materials).

(b) Definitions. The following definitions apply to this section:

(1) Cost of the Contract. All allowable direct and indirect costs

allocable to the contract, excluding profit or fees.

(2) Cost of contract performance incurred for personnel. Direct

labor costs and any overhead which has only

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direct labor as its base, plus the concern's General and Administrative

rate multiplied by the labor cost.

(3) Cost of manufacturing. Those costs incurred by the firm in the

production of the end item being acquired. These are costs associated

with the manufacturing process, including the direct costs of

fabrication, assembly, or other production activities, and indirect

costs which are allocable and allowable. The cost of materials, as well

as the profit or fee from the contract, are excluded.

(4) Cost of materials. Includes costs of the items purchased,

handling and associated shipping costs for the purchased items (which

includes raw materials), off-the-shelf items (and similar

proportionately high-cost common supply items requiring additional

manufacturing or incorporation to become end items), special tooling,

special testing equipment, and construction equipment purchased for and

required to perform on the contract. In the case of a supply contract,

the acquisition of services or products from outside sources following

normal commercial practices within the industry are also included. In

addition, where the services of a public or private utility company are

obtained for the lease and use of distribution facilities such as

telecommunications circuits, petroleum or natural gas pipelines, or

electric transmission lines in connection with the performance of a

contract, the acquisition of those services will also be considered as

cost of materials.

(5) Off-the-shelf item. An item produced and placed in stock by a

manufacturer, or stocked by a distributor, before orders or contracts

are received for its sale. The item may be commercial or may be

produced to military or Federal specifications or description. Off-the-

shelf items are also known as Nondevelopmental Items (NDI).

(6) Personnel. Individuals who are ``employees'' under Sec. 121.106

of this title.

(7) Subcontracting. That portion of the contract performed by a

firm, other than the concern awarded the contract, under a second

contract, purchase order, or agreement for any parts, supplies,

components, or subassemblies which are not available off-the-shelf, and

which are manufactured in accordance with drawings, specifications, or

designs furnished by the contractor, or by the government as a portion

of the solicitation. Raw castings, forgings, and moldings are

considered as materials, not as subcontracting costs. Where the prime

contractor has been directed by the Government to use any specific

source for parts, supplies, components subassemblies or services, the

costs associated with those purchases will be considered as part of the

cost of materials, not subcontracting costs.

(c) SBA will determine compliance with the Prime Contractor

Performance Requirements (Requirements) as of the following dates:

(1) In a sealed bid procurement, as of the date the bid was

submitted;

(2) In a negotiated procurement, as of the date the concern submits

its best and final offer. If a concern is determined not to be in

compliance at the time it submits its best and final offer, it may not

come into compliance later for that procurement by revising its

subcontracting plan.

(d) The Requirements will be considered an element of

responsibility and not a component of size eligibility.

(e) The base contract period (excluding any options) will be used

to determine compliance with the Requirements.

(f) Work to be performed by subsidiaries or other affiliates of a

concern is not counted as being performed by the concern for purposes

of determining whether the concern will perform the required percentage

of work.

(g) The procedures of Sec. 125.5 apply where the contracting

officer determines non-compliance with the requirements applicable to

small business set-aside or SDB-related procurements, and refers the

matter to SBA for a COC determination.

Dated: November 11, 1995.

Philip Lader,

Administrator.

[FR Doc. 95-28515 Filed 11-24-95; 8:45 am]

BILLING CODE 8025-01-P