Policy Letter on Subcontracting Plans for Companies Supplying Commercial Items

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OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy

Policy Letter on Subcontracting Plans for Companies Supplying

Commercial Items

AGENCY: Office of Federal Procurement Policy, OMB.

ACTION: The Office of Federal Procurement Policy (OFPP) is requesting

comments on a proposed policy letter on subcontracting plans for

companies supplying commercial items.

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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 proposed Policy Letter focuses on contracts and subcontracts

for ``commercial items'' as defined in section 8001 of FASA. Annual,

commercial company-wide, division-wide, or plant-wide, 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 proposed Policy Letter states that commercial

company-wide 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.

COMMENT DATE: Comments must be received on or before April 10, 1995.

ADDRESSES: Comments should be submitted to William Coleman, Deputy

Administrator, Office of Federal Procurement Policy, New Executive

Office Building, Room 9013, 725 17th Street NW., Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT:

William Coleman, Deputy Administrator, 202-395-3503.

Steven Kelman,

Administrator.

Policy Letter 95-

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. 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 apparent 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). That Policy

Letter specifically authorized the use of a company-wide annual

subcontracting plan that relates to the contractor's commercial and

noncommercial production when the government is acquiring a

commercial product.

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 company-wide

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 company-wide,

division-wide or plant-wide 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 noncommercial 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 burdens of government-unique

requirements on contractors that supply commercial items.

4. Policy. The following policy applies to contracts and

subcontracts for ``commercial items'' as defined in section 8001 of

FASA. (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

company-wide, division-wide, or plant-wide 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 company-wide 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 company-wide plans

if they are supplying commercial items. This would apply whether or

not the prime contractor is supplying a commercial

item. [[Page 7229]]

(4) This policy is in addition to the existing policies cited in

paragraph 3 of this Policy Letter.

(5) 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.

5. 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 in the Federal Register. Promulgation of final regulations

within the 210-day period shall be considered issuance in a ``timely

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

6. Information Contact. Questions regarding this Policy Letter

should be directed to William Coleman, Deputy Administrator, Office

of Federal Procurement Policy, 725 17th Street, NW, Washington, DC

20503, telephone 202-395-3503, facsimile 202-395-5105.

7. 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.

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

the date of issuance.

Steven Kelman,

Administrator.

[FR Doc. 95-2912 Filed 2-6-95; 8:45 am]

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