Federal Acquisition Regulation; Reform of Affirmative Action in Federal Procurement

Federal RegisterMay 9, 1997

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 12, 14, 15, 19, 33, 52, and 53

[FAR Case 97-004]

RIN 9000-AH59

Federal Acquisition Regulation; Reform of Affirmative Action in

Federal Procurement

AGENCIES: Department of Defense (DOD), General Services Administration

(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule with request for comments.

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SUMMARY: The Department of Defense, the General Services

Administration, and the National Aeronautics and Space Administration

are proposing amendments to the Federal Acquisition Regulation (FAR)

concerning programs for small disadvantaged business concerns. These

amendments conform to a Department of Justice (DoJ) proposal to reform

affirmative action in Federal procurement. DoJ's proposal is designed

to ensure compliance with the constitutional standards established by

the Supreme Court in Adarand Constructors, Inc. v. Pena, 115 S.Ct. 2097

(1995). This proposed rule is not requesting public comments on the DoJ

proposal or its disposition of the public comments received. This

proposed rule requests public comments only on the FAR implementation

of the DoJ proposal. Comments on the DoJ proposal will not be

considered. This regulatory action was subject to Office of Management

and Budget review under Executive Order 12866, dated September 30,

1993. This is a major rule under 5 U.S.C. 804.

DATES: Comments on the proposed rule should be submitted to the address

below on or before July 8, 1997 to be considered in the formulation of

a final rule.

ADDRESSES: Interested parties should submit written comments to:

General Services Administration, FAR Secretariat (MVR), 1800 F Street,

NW, Room 4035, Washington, DC 20405.

E-mail comments submitted over Internet should be addressed to: www.arnet.gov">97-

[email protected]www.arnet.gov. Please cite FAR case 97-004 in all correspondence

related to this case.

FOR FURTHER INFORMATION CONTACT: Ms. Victoria Moss, Procurement

Analyst, Federal Acquisition Policy Division, General Services

Administration, telephone (202) 501-4764, or Mike Sipple, Procurement

Analyst, Office of the Director of Defense Procurement, Department of

Defense, telephone (703) 695-8567. For general information, contact the

FAR Secretariat, 1800 F Street, NW, Room 4035, GS Building, Washington,

DC 20405 (202) 501-4755. Please cite FAR case 97-004.

SUPPLEMENTARY INFORMATION:

A. Background

In Adarand, the Supreme Court extended strict judicial scrutiny to

Federal affirmative action programs that use racial or ethnic criteria

as a basis for decisionmaking. In procurement, this means that any use

of race in the decision to award a contract is subject to strict

scrutiny. Under strict scrutiny, any Federal programs that make race a

basis for contract decisionmaking must be narrowly tailored to serve a

compelling government interest.

DoJ developed a proposed structure to reform affirmative action in

Federal procurement designed to ensure compliance with the

constitutional standards established by the Supreme Court in Adarand.

The DoJ proposal was previously published for public notice and

invitation for comments (61 FR 26042, May 23, 1996). Its proposal, and

its disposition of the public comments which is discussed elsewhere in

this publication, are within the purview of DoJ. The DoJ model is

expected to be implemented in several parts: Small Business

Administration regulations; Department of Commerce regulations; and

revisions to the FAR and the FAR supplements. This proposed rule

contains the FAR revisions.

B. Regulatory Flexibility Act

This proposed rule may have a significant economic impact on a

substantial number of small entities within the meaning of the

Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule

provides mechanisms through which small disadvantaged business concerns

may be provided a benefit in Federal contracting. An Initial Regulatory

Flexibility Analysis (IRFA) has been prepared and may be obtained from

the FAR Secretariat. A copy of the IRFA has been submitted to the Chief

Counsel for Advocacy of the Small Business Administration. The IRFA is

summarized as follows:

This proposed rule would establish in the FAR three procurement

mechanisms benefiting small disadvantaged businesses (SDBs). These

mechanisms will be authorized in certain two-digit Standard

Industrial Classification (SIC) Major Groups authorized by the

Administrator of the Office of Federal Procurement Policy (OFPP).

The first mechanism is a price evaluation adjustment of up to 10

percent. This price evaluation adjustment would be mandatory for

those competitive procurements to which it applied. The second

mechanism is a source selection evaluation factor or subfactor for

planned SDB participation, primarily at the subcontract level, in

the performance of a contract. This evaluation factor or subfactor

would be used in competitive, negotiated acquisitions expected to

exceed $500,000 ($1,000,000 for construction). A third mechanism

provides for a monetary incentive for subcontracting with SDBs.

The main impact of the proposed rule is expected to be on SDBs

seeking to obtain from Federal Government agencies, or Federal

Government agency prime contractors, contracts and subcontracts that

are subject to the procurement mechanisms described above. The best

available estimate of the number of such firms is 17,350. The

proposed rule would also directly affect, although to a lesser

degree, all non-SDB small businesses seeking Federal Government

contracts that are subject to any of the procurement mechanisms

described above, except the price evaluation adjustment (this

mechanism applies only to SDB prime contractors).

Comments are invited. Comments from small entities concerning the

affected FAR subparts will be considered in accordance with section 610

of the Act. Such comments must be submitted separately and should cite

5 U.S.C. 601, et seq. (FAR case 97-004), in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (Public Law 104-13) applies

because the proposed rule contains reporting and recordkeeping

requirements. This proposed rule provides mechanisms through which

businesses may be provided a benefit in Federal contracting through

their status as small disadvantaged business concerns or their

utilization of small disadvantaged business concerns. In order to

obtain these benefits, businesses must provide information supporting

their status. In addition, firms claiming an advantage on the basis of

their utilization of small disadvantaged business concerns must report

on their actual accomplishments.

In addition, this proposed rule requires contractors that submit

reports under small, small disadvantaged and women-owned small business

subcontracting plans to annually provide a breakout of awards (in

dollars) to small disadvantaged business concerns by Standard

Industrial Classification Major Group.

[[Page 25787]]

A request for approval of the paperwork burden has been submitted

to the Office of Management and Budget and a notice of that request

appears elsewhere in this issue.

List of Subjects in 48 CFR Parts 12, 14, 15, 19, 33, 52, and 53

Government procurement.

Dated: May 6, 1997.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Therefore, it is proposed that 48 CFR Parts 12, 14, 15, 9, 33, 52,

and 53 be amended as set forth below:

1. The authority citation for 48 CFR Parts 12, 14, 15, 9, 33, 52,

and 53 continues to read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42

U.S.C. 2473(c).

PART 12--ACQUISITION OF COMMERCIAL ITEMS

2. Section 12.303 is amended by revising paragraph (b)(1) to read

as follows:

12.303 Contract format.

* * * * *

(b) * * *

(1) Block 10 if set-aside for emerging small businesses, if a price

evaluation adjustment for small disadvantaged business concerns is

applicable (the contracting officer shall indicate the percentage(s)

and applicable line item(s)), or if an incentive subcontracting clause

is used (the contracting officer shall indicate the applicable

percentage);

* * * * *

PART 14--SEALED BIDDING

14.206 Small business set-asides, and price evaluation adjustments for

small disadvantaged business concerns.

3. The section heading for 14.206 is revised to read as set forth

above.

4. Section 14.502 is amended by redesignating paragraph (b)(4) as

(b)(5) and adding a new (b)(4) to read as follows:

14.502 Conditions for use.

* * * * *

(b) * * *

(4) The use of the price evaluation adjustment for small

disadvantaged business concerns (see subpart 19.11).

* * * * *

PART 15--CONTRACTING BY NEGOTIATION

5. Section 15.605 is amended by adding paragraph (b)(1)(v) to read

as follows:

15.605 Evaluation factors and subfactors.

* * * * *

(b)(1) * * *

(v) The extent of participation of small disadvantaged business

concerns in performance of the contract shall be evaluated in

unrestricted acquisitions expected to exceed $500,000 ($1,000,000 for

construction) subject to certain limitations (see 19.201 and 19.1202).

* * * * *

6. Section 15.608 is amended in paragraph (a)(2)(ii) by adding the

following sentence after the fourth sentence:

15.608 Proposal evaluation.

(a) * * *

(2) * * *

(ii) * * * Where past performance is to be evaluated, the

evaluation should include the past performance of offerors in complying

with subcontracting plan goals for small disadvantaged business (SDB)

concerns (see subpart 19.7), monetary targets for SDB participation

(see 19.1202), and notifications submitted under 19.1202-4(b). * * *

* * * * *

7. Section 15.1003 is amended by revising paragraph (a)(2) to read

as follows:

15.1003 Notifications to unsuccessful offerors.

(a) * * *

(2) Preaward notices for small business set-asides. (i) In a small

business set-aside (see subpart 19.5), or when a small disadvantaged

business concern receives a benefit based on its disadvantaged status

(see subpart 19.11 and 19.1202) and is the apparently successful

offeror, upon completion of negotiations and determinations of

responsibility, but prior to award, the contracting officer shall

notify each unsuccessful offeror in writing of the name and location of

the apparently successful offeror. The notice shall also--

(A) Include, when applicable, the name and address of the

organization that certified ownership and control of the small

disadvantaged business concern;

(B) State that the Government will not consider subsequent

revisions of the unsuccessful offerors proposal; and

challenge the disadvantaged status and/or small business size status of

the apparently successful offeror.

(ii) The notice is not required when the contracting officer

determines in writing that the urgency of the requirement necessitates

award without delay.

* * * * *

PART 19--SMALL BUSINESS PROGRAMS

8. Section 19.000 is amended by revising paragraph (a) introductory

text; at the end of (a)(6) by removing and; at the end of (a)(7) by

removing the period and inserting a semicolon in its place; and adding

(a)(8) and (a)(9) to read as follows:

19.000 Scope of part.

(a) This part implements the acquisition-related sections of the

Small Business Act (15 U.S.C. 631, et seq.), applicable sections of the

Armed Services Procurement Act (10 U.S.C. 2302, et seq.), the Federal

Property and Administrative Services Act (41 U.S.C. 252), section 7102

of the Federal Acquisition Streamlining Act of 1994 (Public Law 103-

355), 10 U.S.C. 2323, and Executive Order 12138, May 18, 1979. It

covers--

* * * * *

(8) The use of a price evaluation adjustment for small

disadvantaged business concerns; and

(9) The Small Disadvantaged Business Participation Program.

* * * * *

9. Section 19.201 is amended by redesignating paragraphs (b), (c),

and (d) as (c), (d), and (e), respectively; and adding new paragraphs

(b) and (f) to read as follows:

19.201 General policy.

* * * * *

(b) The Administrator of the Office of Federal Procurement Policy

(OFPP), based upon a recommendation by the Department of Commerce, will

publish on an annual basis, by two-digit Major Groups as contained in

the Standard Industrial Classification (SIC) Manual, and by region, if

any, the authorized small disadvantaged business (SDB) procurement

mechanisms, and their effective dates for new solicitations for the

upcoming year. The SDB procurement mechanisms currently authorized are

a price evaluation adjustment for SDB concerns (see subpart 19.11), an

evaluation factor or subfactor for participation of SDB concerns (see

19.1202), and monetary subcontracting incentive clauses for SDB

concerns (see 19.1203). This issuance shall also include the applicable

factors, by SIC Major Group, to be used in the price evaluation

adjustment for SDB concerns (see 19.1104). The authorized procurement

mechanisms shall be applied

[[Page 25788]]

consistently with the policies and procedures in this subpart. No SDB

procurement mechanisms recommended by the Department of Commerce may be

used unless authorized by the Administrator of OFPP. The Department of

Commerce, in making its recommendations to the Administrator of OFPP,

is not limited to the SDB procurement mechanisms identified in this

section where the Department of Commerce has found substantial and

persuasive evidence of--

(1) A persistent and significant underutilization of minority firms

in a particular industry, attributable to past or present

discrimination; and

(2) A demonstrated incapacity to alleviate the problem by using

those mechanisms.

* * * * *

(f)(1) Each agency shall designate, at levels it determines

appropriate, personnel responsible for determining whether use of the

SDB mechanism in subpart 19.11 has caused a particular industry

category to bear a disproportionate share of the contracts awarded by a

contracting activity of the agency to achieve its goal for SDB

concerns. Requests for a determination may be submitted by any

individual or business concern to the agency designee. If that person

makes an affirmative determination of disproportionate impact, the

determination shall be forwarded through agency channels for submittal

to the Department of Commerce [name and address]. The following

information should be included in any submittal:

(i) A determination of disproportionate impact, including proposed

corrective action;

(ii) The SIC code(s) affected;

(iii) Supporting information to justify the determination,

including dollars and percentages by the contracting activity under the

affected SIC code(s) for the previous two fiscal years and current

fiscal year to date for--

(A) Total awards;

(B) Total awards to small businesses;

(D) Awards to SDBs categorized as SDB price evaluation adjustment,

8(a), small business set-aside, and other; and

(iv) A discussion of the pertinent findings, including any

peculiarities related to the industry, regions, or demographics.

(2) If the determination is approved by the Department of Commerce,

the contracting activity shall limit the use of the SDB mechanism in

subpart 19.11. This limitation shall not apply to solicitations that

already have been synopsized.

Subpart 19.3--Determination of Status as a Small Disadvantaged

Business Concern or a Small Business Concern

10. The heading of subpart 19.3 is revised to read as set forth

above.

11. Section 19.304 is redesignated as 19.306 and new 19.304 and

19.305 are added to read as follows:

19.304 Disadvantaged business status.

(a) The contracting officer may accept an offeror's representation

that it is a small disadvantaged business (SDB) concern for general

statistical purposes.

(b) For a prime contractor to be eligible to receive a benefit

based on its disadvantaged status, the concern must be a small business

and must, no later than the date specified by the contracting officer

in the solicitation (see 19.306(b)), qualify as a disadvantaged

business concern. The mechanisms that may provide benefits on the basis

of disadvantaged status as a prime contractor are a price evaluation

adjustment for SDB concerns (see subpart 19.11), and an evaluation

factor or subfactor for SDB participation (see 19.1202). Disadvantaged

status is determined by two factors: Social and economic disadvantage;

and ownership and control by the designated socially and economically

disadvantaged individuals. Status as a small business is addressed in

19.301.

(1) The contracting officer shall grant members of designated

minority groups (see the provision at 52.219-22, Small Disadvantaged

Business Status) a presumption of social and economic disadvantage. An

offeror must represent in good faith its minority status. Offerors that

are not members of designated minority groups shall be required to

establish social and economic disadvantage. For non-presumed offerors,

a determination of social and economic disadvantage shall be obtained

by the offeror from the Small Business Administration (SBA). When a

non-presumed offeror represents that it has a current determination of

social and economic disadvantage from the SBA, the contracting officer

may assess the validity of the representation of social and economic

disadvantage by accessing the SBA's on-line central registry at

[Internet address].

(2) To claim disadvantaged status, an offeror must also submit to

the contracting officer a certification, obtained within the prior

three years, that the business is owned and controlled by the

designated socially and economically disadvantaged individuals. Such a

certification must come from an SBA approved organization, a list of

which is maintained by the SBA.

(3) Non-presumed offerors must obtain a determination of social and

economic disadvantage, and all offerors claiming a disadvantaged status

must provide a certification of ownership and control, no later than

the date specified by the contracting officer in the solicitation (see

19.306(b)).

Sec. 19.305 Protesting a determination of disadvantaged business

status.

This section applies to protests of a small business concern's

disadvantaged status as a prime contractor. Protests of a small

business concern's disadvantaged status as a subcontractor are

processed under 19.703(a)(2). Protests of a concern's size as a prime

contractor are processed under 19.302. Protests of a concern's size as

a subcontractor are processed under 19.703(b). Any offeror, the

contracting officer, or the SBA may protest the apparently successful

offeror's representation of disadvantaged status if the concern is

eligible to receive a benefit based on its disadvantaged status (see

subpart 19.11 and 19.1202).

(a) An offeror may protest a concern's representation of

disadvantaged status by filing a protest with the contracting officer.

The protest--

(1) Must be filed within the times specified in 19.302(d)(1); and

(2) Must contain specific detailed evidence supporting the basis of

protest.

(b) The contracting officer or the SBA may protest a concern's

representation of disadvantaged status at any time.

(1) If a contracting officer's protest is based on information

provided by a party ineligible to protest directly or ineligible to

protest under the timeliness standard, the contracting officer must be

persuaded by the evidence presented before adopting the grounds for

protest as his or her own.

(2) The SBA may protest a concern's representation of disadvantaged

status by filing directly with its Office of Program Certification and

Eligibility and by notifying the contracting officer.

protester. This includes protests filed before bid opening or

notification of the apparently successful offeror.

(d) Upon receipt of a timely protest, the contracting officer shall

withhold award and forward the protest to the SBA Office of Program

Certification and Eligibility, Office of Minority Enterprise

Development, 409 Third Street, SW, Washington, DC 20416. The

contracting officer shall send to SBA--

(1) The protest;

(2) The date the protest was received and a determination of

timeliness;

[[Page 25789]]

(3) A copy of the protested concern's submittals regarding

disadvantaged status; and

(4) The date of bid opening or date on which notification of the

apparently successful offeror was sent to unsuccessful offerors.

(e) When the contracting officer makes a written determination that

award must be made to protect the public interest, award may be made

notwithstanding the protest.

(f) The SBA, Office of Program Certification and Eligibility, will

determine the disadvantaged status of the challenged offeror and will

notify the contracting officer, the challenged offeror, and the

protester. Award may be made on the basis of that determination. The

determination is final for purposes of the instant acquisition,

unless--

(1) It is appealed; and

(2) The contracting officer receives the SBA's decision on the

appeal before award.

(g) If the contracting officer does not receive an SBA

determination within 15 business days after the SBA's receipt of the

protest, the contracting officer shall presume that the challenged

offeror is disadvantaged.

(h) An SBA determination may be appealed by--

(1) The interested party whose protest has been denied;

(2) The concern whose status was protested; or

(3) The contracting officer.

(i) The appeal must be filed with the SBA's Associate Administrator

for Minority Enterprise Development within five business days after

receipt of the determination. If the contracting officer receives the

SBA's decision on the appeal before award, the decision shall apply to

the instant acquisition. If the decision is received after award, it

will apply to future acquisitions.

12. Newly redesignated 19.306 is amended by redesignating paragraph

(b) as (c) and adding a new (b) to read as follows:

19.306 Solicitation provision and contract clause.

* * * * *

(b) The contracting officer shall insert the provision at 52.219-

22, Small Disadvantaged Business Status, in solicitations that include

the clause at 52.219-23, Notice of Price Evaluation Adjustment for

Small Disadvantaged Business Concerns, or 52.219-25, Small

Disadvantaged Business Participation Program--Disadvantaged Status and

Reporting. The contracting officer shall insert a date that allows

offerors a reasonable time, consistent with the needs of the

procurement, to obtain a determination of social and economic

disadvantage and a certification of ownership and control.

* * * * *

13. Section 19.703 is amended in paragraph (a)(2) by inserting the

following sentence after the first sentence; in the new sixth sentence

by removing ``Small Business and Capital Ownership'' and inserting

``Enterprise'' in its place; and in paragraph (b) by removing the first

sentence. The new text reads as follows:

19.703 Eligibility requirements for participating in the program.

(a) * * *

(2) * * * A prime contractor, acting in good faith, may accept, for

general statistical purposes or for purposes of a subcontracting plan,

a subcontractor's representation that it is a small disadvantaged

business concern. * * *

* * * * *

14. Section 19.705-1 is amended by inserting the following sentence

after the first sentence of the undesignated paragraph to read as

follows:

19.705-1 General support of the program.

* * * This subsection does not apply to small disadvantaged

business subcontracting (see 19.1203). * * *

19.705-4 [Amended]

15. Section 19.705-4 is amended in the last sentence of paragraph

19.708 [Amended]

16. Section 19.708 is amended in the first sentence of paragraphs

(c)(1), (c)(2), and (c)(3) by removing ``, small disadvantaged''.

17. Section 19.1001 is amended by designating the undesignated

introductory paragraph as (a); redesignating paragraphs (a) and (b) as

(a)(1) and (a)(2), respectively; and adding paragraph (b) to read as

follows:

19.1001 General.

* * * * *

(b) Notwithstanding the Small Business Competitiveness

Demonstration Program, the following apply to acquisitions in the

designated industry groups if authorized by the Administrator of the

Office of Federal Procurement Policy (see 19.201(b)):

(1) A price evaluation adjustment for small disadvantaged business

concerns (see subpart 19.11), provided this mechanism may only be used

when small business set-asides are authorized in the designated

industry groups;

(2) An evaluation factor or subfactor for participation of small

disadvantaged business concerns (see 19.1202); and

(3) Monetary subcontracting incentive clauses for small

disadvantaged business concerns (see 19.1203).

18. Subparts 19.11 and 19.12, consisting of sections 19.1101

through 19.1204, are added to read as follows:

Subpart 19.11--Price Evaluation Adjustment for Small Disadvantaged

Business Concerns

Sec.

19.1101 General.

19.1102 Applicability.

19.1103 Procedures.

19.1104 Solicitation provisions and contract clauses.

19.1101 General.

A price evaluation adjustment for small disadvantaged business

concerns shall be applied when authorized by the Administrator of the

Office of Federal Procurement Policy (OFPP) (see 19.201(b)). The

Administrator of OFPP will publish an annual listing of price

evaluation adjustment percentages, by Standard Industrial

Classification Major Group, to be used in solicitations for the

upcoming year.

19.1102 Applicability.

(a) The price evaluation adjustment shall be used in competitive

acquisitions.

(b) The price evaluation adjustment shall not be used in

acquisitions that--

(1) Are not greater than the simplified acquisition threshold;

(2) Are awarded pursuant to the 8(a) program;

(3) Are set-aside for small business concerns; or

(4) Are for long distance telecommunications services.

19.1103 Procedures.

(a) Give offers from small disadvantaged business concerns a price

evaluation adjustment by adding the factor authorized by OFPP to all

offers, except--

(1) Offers from small disadvantaged business concerns that have not

waived the evaluation adjustment;

(2) Otherwise successful offers of eligible products under the

Trade Agreements Act when the acquisition equals or exceeds the dollar

threshold in 25.402;

(3) Offers where application of the factor would be inconsistent

with a Memorandum of Understanding or other international agreement

with a foreign government.

(b) Apply the factor on a line item basis or apply it to any group

of items on which award may be made. Add other evaluation factors such

as transportation costs or rent-free use of

[[Page 25790]]

Government facilities to the offers before applying the price

evaluation adjustment.

when it would cause award to be made at a price that exceeds fair

market price by more than 10 percent (10 U.S.C. 2323(e)(3) and section

7102(a)(1)(B) of Public Law 103-355).

19.1104 Solicitation provisions and contract clauses.

The contracting officer shall insert the clause at 52.219-23,

Notice of Price Evaluation Adjustment for Small Disadvantaged Business

Concerns, in solicitations and contracts when the circumstances in

19.1102 apply. The contracting officer shall insert the authorized

price evaluation adjustment factor. The clause shall be used with its

Alternate I when the contracting officer determines that there are no

small disadvantaged business manufacturers that can meet the

requirements of the solicitation. This clause does not apply to the

Department of Defense, the National Aeronautics and Space

Administration, or the Coast Guard.

Subpart 19.12--Small Disadvantaged Business Participation Program

Sec.

19.1201 General.

19.1202 Evaluation factor or subfactor.

19.1202-1 General.

19.1202-2 Applicability.

19.1202-3 Considerations in developing an evaluation factor or

subfactor.

19.1202-4 Procedures.

19.1203 Incentive subcontracting with small disadvantaged business

concerns.

19.1204 Solicitation provisions and contract clauses.

19.1201 General.

This subpart addresses the evaluation of the extent of

participation of small disadvantaged business (SDB) concerns in

performance of contracts in the Standard Industrial Classification

(SIC) Major Groups authorized by the Administrator of the Office of

Federal Procurement Policy (OFPP) (see 19.201(b)) and to the extent

authorized by law. Two mechanisms are addressed in this subpart:

(a) An evaluation factor or subfactor for the participation of SDB

concerns in performance of the contract; and

(b) An incentive subcontracting program for SDB concerns.

19.1202 Evaluation factor or subfactor.

19.1202-1 General.

The extent of participation of SDB concerns in performance of the

contract, in the SIC Major Groups authorized by the Administrator of

OFPP and to the extent authorized by law, shall be evaluated consistent

with this section. Participation in performance of the contract

includes joint ventures, teaming arrangements, and subcontracts. Credit

under the evaluation factor or subfactor is not available to SDB

concerns that receive a price evaluation adjustment under subpart

19.11. If an SDB concern waives the price evaluation adjustment at

subpart 19.11, participation in performance of that contract includes

the work expected to be performed by the SDB concern at the prime

contract level.

19.1202-2 Applicability.

(a) Except as stated in paragraph (b) of this subsection, the

extent of participation of SDB concerns in performance of the contract

in the authorized SIC Major Groups shall be evaluated in competitive,

negotiated acquisitions expected to exceed $500,000 ($1,000,000 for

construction).

(b) The extent of participation of SDB concerns in performance of

the contract in the authorized SIC Major Groups (see paragraph (a) of

this subsection) shall not be evaluated in--

(1) Small business set-asides (see subpart 19.5);

(2) 8(a) acquisitions (see subpart 19.7);

(3) Negotiated acquisitions where source selection is based on cost

or price competition between proposals that meet the Government's

minimum requirements stated in the solicitation (see 15.602); or

(4) Contract actions that will be performed entirely outside of any

State, territory, or possession of the United States, the District of

Columbia, and the Commonwealth of Puerto Rico.

19.1202-3 Considerations in developing an evaluation factor or

subfactor.

In developing an SDB participation evaluation factor or subfactor,

agencies may consider: The extent to which such concerns are

specifically identified; the extent to which identified concerns have

obtained disadvantaged status (for example, non-presumed offerors that

have already obtained disadvantaged status (i.e., obtained a

determination of social and economic disadvantage and a certification

of ownership and control) are to receive greater consideration than

non-presumed offerors that have only applied for disadvantaged

status)); the extent of commitment to use such concerns (for example,

enforceable commitments are to be weighted more heavily than non-

enforceable ones); the complexity and variety of the work small

disadvantaged concerns are to perform; the realism of the proposal;

past performance of offerors in complying with subcontracting plan

goals for SDB concerns and monetary targets for SDB participation; and

the extent of participation of such firms in terms of the value of the

total acquisition.

19.1202-4 Procedures.

(a) The solicitation shall describe the SDB participation

evaluation factor or subfactor. The solicitation shall require offerors

to provide, with their offers, targets, expressed as dollars and

percentages of total contract value, in each of the applicable,

authorized SIC Major Groups, and total targets for SDB participation

segregated by joint venture partners, team members, and subcontractors.

The solicitation shall require an SDB offeror that waives the SDB price

evaluation adjustment in the clause at 52.219-23 to provide with its

offer a target for the work that it intends to perform as the prime

contractor. The solicitation shall state that any targets will be

incorporated into and become part of any contract. Contractors with SDB

participation targets shall be required to report SDB participation.

(b) When an evaluation includes an SDB participation evaluation

factor or subfactor that considers the extent to which SDB firms are

specifically identified, the SDBs considered in the evaluation shall be

listed in the contract, and the contractor shall be required to notify

the contracting officer of any substitutions of firms that are not SDB

concerns.

19.1203 Incentive subcontracting with small disadvantaged business

concerns.

The contracting officer may encourage increased subcontracting

opportunities in the SIC Major Groups authorized by the Administrator

of OFPP for SDB concerns in negotiated acquisitions by providing

monetary incentives (see the clause at 52.219-26, Incentive

Subcontracting Program for Small Disadvantaged Business Concerns, and

19.1204(c)). Monetary incentives shall be based on actual achievement

as compared to proposed monetary targets for SDB subcontracting (see

19.1202) or award fee contracting. The incentive subcontracting program

is separate and distinct from the establishment, monitoring, and

enforcement of SDB subcontracting goals in a subcontracting plan.

19.1204 Solicitation provisions and contract clauses.

(a) The contracting officer may insert a provision substantially

the same as the provision at 52.219-24, Small

[[Page 25791]]

Disadvantaged Business Participation Targets, in solicitations that

consider the extent of participation of SDB concerns in performance of

the contract. The contracting officer may vary the terms of this

provision consistent with the policies in 19.1202-4.

(b) The contracting officer shall insert the clause at 52.219-25,

Small Disadvantaged Business Participation Program--Disadvantaged

Status and Reporting, in solicitations and contracts that consider the

extent of participation of small disadvantaged business concerns in

performance of the contract.

insert in solicitations and contracts containing the clause at 52.219-

25, Small Disadvantaged Business Participation Program--Disadvantaged

Status and Reporting, a clause substantially the same as the clause at

52.219-26, Incentive Subcontracting Program for Small Disadvantaged

Business Concerns, when authorized (see 19.1203). The contracting

officer may include an award fee provision in lieu of the incentive; in

such cases, however, the contracting officer shall not use the clause

at 52.219-26.

PART 33--PROTESTS, DISPUTES, AND APPEALS

19. Section 33.102 is amended by revising the last sentence of

paragraph (a) to read as follows:

33.102 General.

(a) * * * (See 19.302 for protests of small business status and

19.305 for protests of disadvantaged business status.)

* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

52.212-2 [Amended]

20. Section 52.212-2 is amended by revising the provision date; and

in the parenthetical following paragraph (a) of the provision by

inserting ``; (iv) small disadvantaged business participation;'' after

``(see FAR 15.605)''.

21. Section 52.212-3 is amended by revising the provision date; and

adding two sentences at the end of paragraph (c)(2) to read as follows:

52.212-3 Offeror Representations and Certifications--Commercial Items.

* * * * *

Offeror Representations and Certifications--Commercial Items (Date)

* * * * *

(2) * * * See the clause at 52.212-5, Contract Terms and

Conditions Required to Implement Statutes or Executive Orders--

Commercial Items. If the Contracting Officer has checked 52.219-23,

Notice of Price Evaluation Adjustment for Small Disadvantaged

Business Concerns, or 52.219-25, Small Disadvantaged Business

Participation Program--Disadvantaged Status and Reporting, and the

offeror desires a benefit based on its disadvantaged status, the

offeror shall submit a completed copy of the provision at 52.219-22,

Small Disadvantaged Business Status, together with any documents

required by that provision.

* * * * *

22. Section 52.212-5 is amended by revising the clause date;

redesignating paragraphs (b)(6) through (b)(17) as (b)(9) through

(b)(20), respectively; and adding paragraphs (b)(6), (b)(7), and (b)(8)

to read as follows:

52.212-5 Contract Terms and Conditions Required To Implement Statutes

or Executive Orders--Commercial Items.

* * * * *

Contract Terms and Conditions Required To Implement Statutes or

Executive Orders--Commercial Items (Date)

* * * * *

(b) * * *

______ (6) 52.219-23, Notice of Price Evaluation Adjustment for

Small Disadvantaged Business Concerns (Pub. L. 103-355, section 7102).

(______Alternate I). If the offeror elects to waive the adjustment, it

shall so indicate in its offer.

______ (7) 52.219-25, Small Disadvantaged Business Participation

Program--Disadvantaged Status and Reporting.

______ (8) 52.219-26, Incentive Subcontracting Program for Small

Disadvantaged Business Concerns.

* * * * *

23. Section 52.219-9 is amended by revising the clause date and

paragraph (d)(10)(iii); and by adding paragraph (j) to read as follows:

52.219-9 Small, Small Disadvantaged and Women-Owned Small Business

Subcontracting Plan.

* * * * *

Small, Small Disadvantaged and Women-Owned Small Business

Subcontracting Plan (Date)

* * * * *

(d)(10) * * * (iii) submit Standard Form (SF) 294,

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

Summary Subcontract Report, in accordance with the instructions on

the forms and in paragraph (j) of this clause, and * * *

* * * * *

(j) The Contractor shall submit the following reports:

(1) Standard Form 294, Subcontracting Report for Individual

Contracts. This report shall be submitted to the Contracting Officer

semiannually and at contract completion. The reports cover

subcontract award data related to this contract. This report is not

required for company-wide or division-wide subcontracting plans.

(2) Standard Form 295, Summary Subcontract Report. This report

encompasses all the contracts with the awarding agency. It must be

submitted semi-annually for contracts with the Department of Defense

and annually for contracts with civilian agencies. If the reporting

activity is covered by a company-wide or division-wide plan, the

reporting activity must report annually all subcontract awards under

that plan. All reports submitted at the close of each fiscal year

(both individual and company-wide or division-wide plans) shall

include a breakout of subcontract awards, in whole dollars, to small

disadvantaged business concerns by Standard Industrial

Classification (SIC) Major Group. For a company-wide or division-

wide plan, the Contractor may obtain from each of its subcontractors

a predominant SIC code and report all awards to that subcontractor

under its predominant SIC code.

* * * * *

52.219-10 [Amended]

24. Section 52.219-10 is amended by revising the clause date; and

in the first sentence of paragraph (b) of the clause by inserting ``for

small business concerns and women-owned small business concerns'' after

the word ``goals''.

25. Sections 52.219-22 through 52.219-26 are added to read as

follows:

52.219-22 Small Disadvantaged Business Status.

As prescribed in 19.306(b), insert the following provision:

Small Disadvantaged Business Status (Date)

(a) Definition. Small disadvantaged business concern, as used in

this provision, means--

(1) A small business concern that--

(i) Is at least 51 percent unconditionally owned by one or more

individuals who are both socially and economically disadvantaged, or

a publicly owned business having at least 51 percent of its stock

unconditionally owned by one or more socially and economically

disadvantaged individuals;

(ii) Has its management and daily business controlled by one or

more such individuals; and

(iii) For the Department of Defense, National Aeronautics and

Space Administration, and Coast Guard only, the majority of earnings

of which accrue to such individuals; or

(2) 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 having

at least 51 percent of its stock unconditionally owned by one or

more of these entities, which has its management and daily business

controlled by members of an economically disadvantaged Indian tribe

or Native Hawaiian Organization, and which meets the requirements of

13 CFR Part 124.

[[Page 25792]]

(b) General. This provision is used to assess an offeror's small

disadvantaged business status for the purpose of obtaining a benefit

as a result of this solicitation. Status as a small business concern

and status as a small disadvantaged business concern for general

statistical purposes is covered by the provision at 52.219-1, Small

Business Program Representation. Offerors claiming disadvantaged

business status must demonstrate social and economic disadvantage

and ownership and control by the designated individuals. [The

offeror shall check one of the following:]

______ The offeror is not claiming disadvantaged business

status.

______ The offeror is claiming disadvantaged business status.

[The offeror shall enter the name(s), title(s) and business

address(es) of the socially and economically disadvantaged

individuals and paragraphs (b)(1) and (b)(2) of this provision.] The

socially and economically disadvantaged individual(s) are:

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

(1) Social and Economic Disadvantage. Individuals who are

members of the groups named in paragraph (b)(1)(i) of this provision

are entitled to a presumption of social and economic disadvantage

and must check the applicable categories. However, these

presumptions are rebuttable (see the criteria for social

disadvantage at 13 CFR 124.105 and economic disadvantage at 13 CFR

124.106). Individuals who are not members of the named groups must

complete paragraph (b)(1)(ii) of this provision.

(i) Individuals with a Presumption of Social and Economic

Disadvantage. The offeror represents that its ownership falls within

at least one of the following categories [the offeror shall check

the applicable categories]:

______ Black American;

______ Hispanic American;

______ Native American (American Indians, Eskimos, Aleuts, or

Native Hawaiians);

______ Asian-Pacific American (persons with origins from Burma,

Thailand, Malaysia, Indonesia, Singapore, Brunei, Japan, China,

Taiwan, Laos, Cambodia (Kampuchea), Vietnam, Korea, the Philippines,

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

Republic of the Marshall Islands, Federated States of Micronesia,

the Commonwealth of the Northern Mariana Islands, Guam, Samoa,

Macao, Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru);

______ Subcontinent Asian (Asian-Indian) American (persons with

origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the

Maldives Islands, or Nepal).

______ Individual/concern, other than one of the preceding,

currently certified for participation in the Minority Enterprise

Development Program under section 8(a) of the Small Business Act (15

U.S.C. 637(a)).

(ii) Individuals without a Presumption of Social and Economic

Disadvantage. Offerors must obtain a determination of social and

economic disadvantage from the Small Business Administration dated

no earlier than three years prior to the date of the solicitation.

The offeror shall check one of the following:

______ The offeror represents, as part of its offer, that the

Small Business Administration has made a determination concerning

the individual's or individuals' status as socially and economically

disadvantaged. The offeror certifies that it was found by the Small

Business Administration to be socially and economically

disadvantaged as a result of that determination and that no

circumstances have changed to alter that determination.

______ The offeror represents that it will obtain a

determination of social and economic disadvantage from the Small

Business Administration by

____________ [contracting officer shall insert date] or forego

any benefits based on disadvantaged status.

(2) Ownership and Control. Both presumed and non-presumed

offerors must demonstrate ownership and control by providing a

certification from an organization approved by the Small Business

Administration dated no earlier than three years prior to the date

of the solicitation. [The offeror shall check one of the following:]

______Attached is a certification of ownership and control. The

offeror certifies that no circumstances have changed to alter the

validity of the certification.

______The offeror represents that it will provide a

certification of ownership and control from an organization approved

by the Small Business Administration by __________ [contracting

officer shall insert date] or forego any benefits based on

disadvantaged status.

of the disadvantaged status of a concern for the purposes of

securing a contract or subcontract shall--

(1) Be punished by imposition of a fine, imprisonment, or both;

(2) Be subject to administrative remedies, including suspension

and debarment; and

(3) Be ineligible for participation in programs conducted under

authority of the Small Business Act.

(End of provision)

52.219-23 Notice of Price Evaluation Adjustment for Small

Disadvantaged Business Concerns.

As prescribed in 19.1104, insert the following clause:

Notice of Price Evaluation Adjustment for Small Disadvantaged Business

Concerns (Date)

(a) Definitions. Small disadvantaged business concern, as used

in this clause, means--

(1) A small business concern that--

(i) Is at least 51 percent unconditionally owned by one or more

individuals who are both socially and economically disadvantaged, or

a publicly owned business having at least 51 percent of its stock

unconditionally owned by one or more socially and economically

disadvantaged individuals; and

(ii) Has its management and daily business controlled by one or

more such individuals; or

(2) 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 having

at least 51 percent of its stock unconditionally owned by one or

more of these entities, which has its management and daily business

controlled by members of an economically disadvantaged Indian tribe

or Native Hawaiian Organization, and which meets the requirements of

13 CFR Part 124.

United States, as used in this clause, means the United States,

its territories and possessions, the Commonwealth of Puerto Rico,

the U.S. Trust Territory of the Pacific Islands, and the District of

Columbia.

(b) Evaluation adjustment. (1) Offers will be evaluated by

adding a factor of __________ [percentage to be inserted by the

contracting officer] percent to the price of all offers, except--

(i) Offers from small disadvantaged business concerns that have

not waived the adjustment;

(ii) Otherwise successful offers of eligible products under the

Trade Agreements Act when the dollar threshold for application of

the Act is exceeded (see section 25.402 of the Federal Acquisition

Regulation); and

(iii) Offers where application of the factor would be

inconsistent with a Memorandum of Understanding or other

international agreement with a foreign government.

(2) The factor shall be applied on a line item basis or to any

group of items on which award may be made. Other evaluation factors

described in the solicitation shall be applied before application of

the factor. The factor may not be applied if using the adjustment

would cause the contract award to be made at a price that exceeds

the fair market price by more than 10 percent.

business concern may elect to waive the adjustment, in which case

the factor will be added to its offer for evaluation purposes. The

agreements in paragraph (d) of this clause do not apply to offers

that waive the adjustment.

______ Offeror elects to waive the adjustment.

(d) Agreements. (1) A small disadvantaged business concern, that

did not waive the adjustment, agrees that in performance of the

contract, in the case of a contract for

(i) Services, except construction, at least 50 percent of the

cost of personnel for contract performance will be spent for

employees of the concern.

(ii) Supplies (other than procurement from a nonmanufacturer of

such supplies), at least 50 percent of the cost of manufacturing,

excluding the cost of materials, will be performed by the concern.

(iii) General construction, at least 15 percent of the cost of

the contract, excluding the cost of materials, will be performed by

employees of the concern.

(iv) Construction by special trade contractors, at least 25

percent of the cost of the contract, excluding the cost of

materials, will be performed by employees of the concern.

[[Page 25793]]

(2) A small disadvantaged business concern submitting an offer

in its own name agrees to furnish in performing this contract only

end items manufactured or produced by small disadvantaged business

concerns in the United States. This paragraph does not apply in

connection with construction or service contracts.

(End of clause)

Alternate I (Date). As prescribed in 19.1104, substitute the

following paragraph (d)(2) for paragraph (d)(2) of the basic clause:

(d)(2) A small disadvantaged business concern submitting an

offer in its own name agrees to furnish in performing this contract

only end items manufactured or produced by small business concerns

in the United States. This paragraph does not apply in connection

with construction or service contracts.

52.219-24 Small Disadvantaged Business Participation Targets.

As prescribed in 19.1204(a), insert a provision substantially as

follows:

Small Disadvantaged Business Participation Targets (Date)

(a) This solicitation contains a source selection factor or

subfactor related to the participation of small disadvantaged

business (SDB) concerns in the contract. Credit under that

evaluation factor or subfactor is not available to an SDB concern

that qualifies for a price evaluation adjustment under the clause at

FAR 52.219-23, Notice of Price Evaluation Adjustment for Small

Disadvantaged Business Concerns, unless the SDB concern specifically

waives the price evaluation adjustment.

(b) In order to receive credit under the source selection factor

or subfactor, the offeror must provide, with its offer, targets,

expressed as dollars and percentages of total contract value, for

SDB participation in any of the Standard Industrial Classification

(SIC) Major Groups for which the Administrator of the Office of

Federal Procurement Policy has authorized the use of an evaluation

factor or subfactor for SDB participation. A listing of those SIC

codes may be found at: gopher://www.sbaonline.sba.gov:70/00/

Government-Contracting/Size/sizeall.txt. The targets may provide for

participation by a prime contractor, joint venture partner, teaming

arrangement member, or subcontractor; however, the targets for

subcontractors must be listed separately.

(End of provision)

52.219-25 Small Disadvantaged Business Participation Program--

Disadvantaged Status and Reporting.

As prescribed in 19.1204(b), insert the following clause:

Small Disadvantaged Business Participation Program--Disadvantaged

Status and Reporting (Date)

(a) Disadvantaged status for joint venture partners, team

members, and subcontractors. This clause addresses disadvantaged

status for joint venture partners, teaming arrangement members, and

subcontractors and is applicable if this contract contains small

disadvantaged business (SDB) participation targets. Disadvantaged

status consists of a determination of social and economic

disadvantage, and a certification of ownership and control by the

designated socially and economically disadvantaged individuals.

(1) Social and economic disadvantage. The Contractor, acting in

good faith, may rely on the representations of joint venture

partners, teaming arrangement members, and subcontractors regarding

membership in designated minority groups. Representations shall be

obtained from joint venture partners, teaming arrangement members,

and subcontractors by way of a provision substantially the same as

the provision at FAR 52.219-22, Small Disadvantaged Business Status.

The Contractor shall grant members of designated minority groups a

presumption of social and economic disadvantage. The Contractor

shall also consider individuals to be socially and economically

disadvantaged if they have obtained a determination of social and

economic disadvantage from the Small Business Administration (SBA).

The Contractor shall assess the validity of the determination by

accessing the SBA's on-line registry at [INTERNET ADDRESS].

(2) Ownership and control. To claim disadvantaged status, a

joint venture partner, teaming arrangement member or subcontractor

must submit to the Contractor a certification that the business is

owned and controlled by the designated socially and economically

disadvantaged individuals. Such a certification must come from an

SBA approved organization dated no earlier than three years from the

date of the joint venture or teaming arrangement or subcontract

solicitation. A list of approved certifying organizations is

maintained by the SBA.

(b) Reporting requirement. If this contract contains SDB

participation targets, the Contractor shall report on the

participation of SDB concerns at contract completion, or as

otherwise provided in this contract. Reporting may be on the

Optional Form XX, Small Disadvantaged Business Participation Report,

or in the Contractor's own format providing the same information.

This report is required for each contract containing SDB

participation targets. If this contract contains an individual

Small, Small Disadvantaged and Women-owned Small Business

Subcontracting Plan, reports may be submitted with the final

Subcontracting Report for Individual Contracts (Standard Form 294)

at the completion of the contract.

(End of clause)

52.219-26 Incentive Subcontracting Program for Small Disadvantaged

Business Concerns.

As prescribed in 19.1204(c), insert the following clause:

Incentive Subcontracting Program for Small Disadvantaged Business

Concerns (Date)

(a) Of the total dollars it plans to spend under subcontracts,

the Contractor has committed itself in its offer to try to award a

certain amount to small disadvantaged business concerns in the

Standard Industrial Classification (SIC) Major Groups authorized by

the Administrator of the Office of Federal Procurement Policy.

(b) If the Contractor exceeds its total monetary target for

subcontracting to small disadvantaged business concerns in the

authorized SIC Major Groups, it will receive __________ [insert the

appropriate number between 0 and 10] percent of the dollars in

excess of the monetary target, unless the Contracting Officer

determines that the excess was not due to the Contractor's efforts

(e.g., a subcontractor cost overrun caused the actual subcontract

amount to exceed that estimated in the offer, or the excess was

caused by the award of subcontracts that had been planned but had

not been disclosed in the offer during contract negotiations).

Determinations made under this paragraph are not subject to the

Disputes clause.

fixed fee and the incentive fee earned under this contract may not

exceed the limitations in Subpart 15.9 of the Federal Acquisition

Regulation.

(End of clause)

PART 53--FORMS

26. Section 53.219 is amended by adding paragraph (c) to read as

follows:

Sec. 53.219 Small business programs.

* * * * *

Report. (See subpart 19.12.)

27. Section 53.302-XX is added to read as follows:

53.302-XX OF XX, Small Disadvantaged Business Participation Report.

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