Federal Acquisition Regulation; Reform of Affirmative Action in Federal Procurement

SUMMARY: The Civilian Agency Acquisition Council and the Defense

Acquisition Regulations Council (the Councils) have agreed to adopt the

interim rules published in the Federal Register at 63 FR 35719, June

30, 1998; 63 FR 36120, July 1, 1998; 63 FR 52426, September 30, 1998;

and 63 FR 71721, December 29, 1998, as final rules with changes. These

amendments conform to a Department of Justice (DoJ) model for reform of

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).

DATES: Effective Date: October 1, 1999.

Applicability Date: The policies, provisions, and clauses of this

final rule are effective for all solicitations issued on or after

October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Ms. Victoria Moss, Procurement

Analyst, Federal Acquisition Policy Division, General Services

Administration, at (202) 501-4764, or Mr. Charles Zuckerman, Office of

the Director of Defense Procurement, Department of Defense, at (703)

697-0895. For general information, contact the FAR Secretariat, Room

4035, GS Building, Washington, DC, 20405, (202) 501-4755. Please cite

FAC 97-13, FAR case 97-004.

SUPPLEMENTARY INFORMATION:

A. Background

DoD, GSA, and NASA issued the following Federal Acquisition

Circulars (FACs) to make amendments to the FAR concerning programs for

small disadvantaged business concerns:

FAC 97-06, 63 FR 35719, June 30, 1998

FAC 97-07, 63 FR 36120, July 1, 1998

FAC 97-08, 63 FR 52426, September 30, 1998

FAC 97-07 Addendum, 63 FR 71721, December 29, 1998

These amendments conformed to the DoJ model for reform of affirmative

action in Federal procurement. This rule revises and finalizes the

above interim rules. The Councils received twenty-four letters

containing 63 comments in response to the interim rules and considered

them in the formulation of this final rule. The Councils made only one

significant change to the rule, as follows:

FAC 97-07 Addendum amended the FAR to allow contractors acting in

good faith to rely upon the self-representations of their

subcontractors as to their status as small disadvantaged business

concerns. The change provided an additional period of time for

subcontractors to become certified under rules issued by the Small

Business Administration. That time period is being extended to

September 30, 1999. Accordingly, this final rule, which becomes

effective on October 1, 1999, rescinds the change made by FAC 97-07

Addendum.

Also, the Councils made several clarifying amendments in this final

rule, including removing all references to a list of SDBs to be

maintained by the Small Business Administration and referring instead

to SBA's PRO-Net database.

This rule was subject to Office of Management and Budget review

under Section 6(b) of Executive Order 12866, Regulatory Planning and

Review, dated September 30, 1993. This is a major rule under 5 U.S.C.

804.

B. Regulatory Flexibility Act

The changes 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

preferences through which the Government may provide small business

concerns benefits in Federal contracting. The Final Regulatory

Flexibility Analysis (FRFA) is summarized as follows:

In Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995),

the Supreme Court extended strict judicial scrutiny to Federal

affirmative action programs that use racial or ethnic criteria as a

basis for decision-making. Following the decision, the Department of

Justice (DoJ) published, at 61 FR 26042 (May 23, 1996), Proposed

Reforms to Affirmative Action in Federal Procurement. This DoJ model

was implemented in several parts: Small Business Administration

(SBA) regulations; publication of the Department of Commerce price

evaluation adjustments for use in Federal procurements; and interim

FAR rules.

Four interim FAR rules established in the FAR three procurement

mechanisms benefiting small disadvantaged businesses (SDBs). The

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

in certain two-digit Standard Industrial Classification (SIC) Major

Groups. The second mechanism is a source selection evaluation factor

or subfactor for planned SDB participation in the performance of a

contract. The third mechanism provides for a monetary incentive for

subcontracting with SDBs.

We received one public comment that specifically addressed the

Initial Regulatory Flexibility Analysis. That comment provided that

the rule imposes a complicated tracking system and will not increase

opportunities for small disadvantaged businesses. We made no changes

to the rule based on this comment. While we recognize that the rule

calls for more detailed reporting of SDB subcontractors in order to

comply with the DoJ proposal, no alternatives to that reporting

exist. The commenter provided no evidence to support the commenter's

opinion that this rule will not increase opportunities for small

disadvantaged businesses. It is our opinion that, to the contrary,

this rule will increase opportunities for such firms, particularly

in the award of prime contracts by civilian agencies that, unlike

DoD, have not previously granted procurement preferences to SDBs.

The FAR Secretariat has submitted a copy of the FRFA to the Chief

Counsel for Advocacy of the Small Business Administration. Interested

parties may obtain a copy from the FAR Secretariat. The Council will

consider comments from small entities concerning the affected FAR

subpart in accordance with 5 U.S.C. 610. Interested parties must submit

such comments separately and should cite 5 U.S.C 601, et seq. (FAC 97-

13, FAR Case 97-004), in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act (Pub. L. 104-13) applies because the

rules being converted to a final rule contain reporting and

recordkeeping requirements. OMB approved the information collections

under OMB clearance numbers 9000-0007 through June 30, 2000, and 9000-

0150 through June 30, 2000. This final rule does not affect those

previously approved information collection requirements.

List of Subjects in 48 CFR Parts 1, 12, 14, 15, 19, 26, 33, 52, and

53

Government procurement.

[[Page 36223]]

Dated: June 25, 1999.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Federal Acquisition Circular

Federal Acquisition Circular (FAC) 97-13 is issued under the

authority of the Secretary of Defense, the Administrator of General

Services, and the Administrator for the National Aeronautics and Space

Administration.

The policies, provisions and clauses of this final rule are

effective for all solicitations issued on or after October 1, 1999.

Eleanor R. Spector,

Director, Defense Procurement.

Dated: June 15, 1999

Ida M. Ustad,

Deputy Associate Administrator, Office of Acquisition Policy, General

Services Administration.

June 16, 1999.

Tom Luedtke,

Associate Administrator for Procurement, National Aeronautics and Space

Administration.

June 11, 1999.

Interim Rules Adopted as Final With Changes

Accordingly, DoD, GSA, and NASA adopt the interim rules amending 48

CFR parts 1, 12, 14, 15, 19, 26, 33, 52, and 53, which were published

at 63 FR 35719, June 30, 1998; 63 FR 36120, July 1, 1998; 63 FR 52426,

September 30, 1998; and 63 FR 71721, December 29, 1998, as final with

the following changes:

1. The authority citation for 48 CFR parts 1, 12, 14, 15, 19, 26,

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 19--SMALL BUSINESS PROGRAMS

2. Amend section 19.001 to revise the definition ``Small

disadvantaged business concern'' to read as follows:

19.001 Definitions.

* * * * *

Small disadvantaged business concern, as used in this part (except

for 52.212-3(c)(2) and 52.219-1(b)(2) for general statistical purposes

and 52.212-3(c)(7)(ii), 52.219-22(b)(2), and 52.219-23(a) for joint

ventures under the price evaluation adjustment for small disadvantaged

business concerns), means an offeror that represents, as part of its

offer, that it is a small business under the size standard applicable

to the acquisition; and either--

(1) It has received certification as a small disadvantaged business

concern consistent with 13 CFR part 124, subpart B; and

(i) No material change in disadvantaged ownership and control has

occurred since its certification;

(ii) Where the concern is owned by one or more disadvantaged

individuals, the net worth of each individual upon whom the

certification is based does not exceed $750,000 after taking into

account the applicable exclusions set forth at 13 CFR 124.104(c)(2);

and

(iii) It is identified, on the date of its representation, as a

certified small disadvantaged business (SDB) concern in the database

maintained by the Small Business Administration (PRO-Net); or

(2) For a prime contractor, it has submitted a completed

application to the Small Business Administration or a private certifier

to be certified as a small disadvantaged business concern in accordance

with 13 CFR part 124, subpart B, and a decision on that application is

pending, and that no material change in disadvantaged ownership and

control has occurred since it submitted its application. In this case,

a contractor must receive certification as an SDB by the SBA prior to

contract award.

* * * * *

3. Amend section 19.304 to revise paragraph (c)(1) to read as

follows:

19.304 Disadvantaged business status.

* * * * *

(c) * * *

(1) If the apparently successful offeror has represented that it is

currently certified as an SDB, the contracting officer may confirm that

the concern is identified as a small disadvantaged business concern by

accessing SBA's database (PRO-Net) or by contacting the SBA's Office of

Small Disadvantaged Business Certification and Eligibility.

* * * * *

4. Amend section 19.703 to add two new sentences after the first

sentence of paragraph (b) to read as follows:

19.703 Eligibility requirements for participating in the program.

* * * * *

(b) * * * The clause at 52.219-25, Small Disadvantaged Business

Participation Program--Disadvantaged Status and Reporting, requires the

contractor to obtain representations of small disadvantaged status from

subcontractors through use of a provision substantially the same as

paragraph (b)(1)(i) of the provision at 52.219-22, Small Disadvantaged

Business Status. The clause requires the contractor to confirm that a

subcontractor representing itself as a small disadvantaged business

concern is identified by SBA as a small disadvantaged business concern

by accessing SBA's database (PRO-Net) or by contacting the SBA's Office

of Small Disadvantaged Business Certification and Eligibility. * * *

5. Revise section 19.1102 to read as follows:

19.1102 Applicability.

(a) Use the price evaluation adjustment in competitive acquisitions

in the authorized SIC Major Groups.

(b) Do not use the price evaluation adjustment in acquisitions--

(1) That are less than or equal to the simplified acquisition

threshold;

(2) That are awarded pursuant to the 8(a) Program;

(3) That are set aside for small business concerns;

(4) That are set aside for HUBZone small business concerns;

(5) Where price is not a selection factor so that a price

evaluation adjustment would not be considered (e.g., architect/engineer

acquisitions); or

(6) Where all fair and reasonable offers are accepted (e.g., the

award of multiple award schedule contracts).

6. Amend section 19.1103 to revise paragraphs (a)(2), (a)(3),

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

19.1103 Procedures.

(a) * * *

(2) An otherwise successful offer of eligible products under the

Trade Agreements Act when the acquisition equals or exceeds the dollar

threshold in 25.402;

(3) An otherwise successful offer where application of the factor

would be inconsistent with a Memorandum of Understanding or other

international agreement with a foreign government;

(4) For DoD, NASA, and Coast Guard acquisitions, an otherwise

successful offer from a historically black college or university or

minority institution; or

(5) For DoD acquisitions, an otherwise successful offer of

qualifying country end products (see DFARS 225.000-70 and 252.225-

7001).

(b) Apply the factor to a line item or a group of line items on

which award may be made. Add other evaluation factors such as

transportation costs or rent-free use of Government facilities to the

offers before applying the price evaluation adjustment.

* * * * *

7. Amend section 19.1104 to revise the heading and the first

sentence to read as follows:

19.1104 Contract clause.

Insert the clause at 52.219-23, Notice of Price Evaluation

Adjustment for

[[Page 36224]]

Small Disadvantaged Business Concerns, in solicitations and contracts

when the circumstances in 19.1101 and 19.1102 apply. * * *

8. Amend section 19.1202-3 to revise the introductory text to read

as follows:

19.1202-3 Considerations in developing an evaluation factor or

subfactor.

In developing an SDB participation evaluation factor or subfactor

for the solicitation, agencies may consider

* * * * *

19.1202-4 [Amended]

9. In section 19.1202-4, remove paragraph (c).

PART 26--OTHER SOCIOECONOMIC PROGRAMS

10. Revise section 26.304 to read as follows:

26.304 Solicitation provision.

Insert the provision at 52.226-2, Historically Black College or

University and Minority Institution Representation, in solicitations

exceeding the micro-purchase threshold, for research, studies,

supplies, or services of the type normally acquired from higher

educational institutions. For DoD, NASA, and Coast Guard acquisitions,

also insert the provision in solicitations that contain the clause at

52.219-23, Notice of Price Evaluation Adjustment for Small

Disadvantaged Business Concerns.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

11. Amend section 52.212-3 to revise the date of the provision and

paragraph (c)(7)(i)(A) to read as follows:

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

* * * * *

Offeror Representations and Certifications--Commercial Items (Oct 1999)

* * * * *

(c) * * *

(7) * * *

(i) * * *

(A) It /__/ is, /__/ is not certified by the Small Business

Administration as a small disadvantaged business concern and

identified, on the date of this representation, as a certified small

disadvantaged business concern in the database maintained by the

Small Business Administration (PRO-Net), and that no material change

in disadvantaged ownership and control has occurred since its

certification, and, where the concern is owned by one or more

individuals claiming disadvantaged status, the net worth of each

individual upon whom the certification is based does not exceed

$750,000 after taking into account the applicable exclusions set

forth at 13 CFR 124.104(c)(2); or

* * * * *

12. Amend section 52.219-8 to revise the date of the clause and

paragraph (c)(3) to read as follows:

52.219-8 Utilization of Small Business Concerns.

* * * * *

Utilization of Small Business Concerns (Oct 1999)

* * * * *

(c) * * *

(3) Small business concern owned and controlled by socially and

economically disadvantaged individuals and small disadvantaged

business concern mean a small business concern that represents, as

part of its offer that--

(i) It has received certification as a small disadvantaged

business concern consistent with 13 CFR 124, Subpart B;

(ii) No material change in disadvantaged ownership and control

has occurred since its certification;

(iii) Where the concern is owned by one or more individuals, the

net worth of each individual upon whom the certification is based

does not exceed $750,000 after taking into account the applicable

exclusions set forth at 13 CFR 124.104(c)(2); and

(iv) It is identified, on the date of its representation, as a

certified small disadvantaged business in the database maintained by

the Small Business Administration (PRO-Net).

* * * * *

13. Amend section 52.219-9 to revise the date of the clause and

paragraph (d)(5) to read as follows:

52.219-9 Small Business Subcontracting Plan.

* * * * *

SMALL BUSINESS SUBCONTRACTING PLAN (OCT 1999)

* * * * *

(d) * * *

(5) A description of the method used to identify potential

sources for solicitation purposes (e.g., existing company source

lists, the Procurement Marketing and Access Network (PRO-Net) of the

Small Business Administration (SBA), the National Minority

Purchasing Council Vendor Information Service, the Research and

Information Division of the Minority Business Development Agency in

the Department of Commerce, or small, HUBZone, small disadvantaged,

and women-owned small business trade associations). A firm may rely

on the information contained in PRO-Net as an accurate

representation of a concern's size and ownership characteristics for

the purposes of maintaining a small, HUBZone, small disadvantaged

and women-owned small business source list. Use of PRO-Net as its

source list does not relieve a firm of its responsibilities (e.g.,

outreach, assistance, counseling, or publicizing subcontracting

opportunities) in this clause.

* * * * *

14. Amend section 52.219-22 to revise the date of the provision and

paragraph (b)(1)(i)(C) to read as follows:

52.219-22 Small Disadvantaged Business Status.

* * * * *

SMALL DISADVANTAGED BUSINESS STATUS (OCT 1999)

* * * * *

(b) * * *

(1) * * *

(i) * * *

(C) It is identified, on the date of its representation, as a

certified small disadvantaged business concern in the database

maintained by the Small Business Administration (PRO-Net); or

* * * * *

15. Amend section 52.219-23 to revise the date of the clause and

paragraphs (a)(1)(iii) and (b) to read as follows:

52.219-23 Notice of Price Evaluation Adjustment for Small

Disadvantaged Business Concerns.

* * * * *

NOTICE OF PRICE EVALUATION ADJUSTMENT FOR SMALL DISADVANTAGED BUSINESS

CONCERNS (OCT 1999)

(a) * * *

(1) * * *

(iii) It is identified, on the date of its representation, as a

certified small disadvantaged business concern in the database

maintained by the Small Business Administration (PRO-Net).

* * * * *

(b) Evaluation adjustment. (1) The Contracting Officer will

evaluate offers by adding a factor of ______ [Contracting Officer

insert the percentage] percent to the price of all offers, except--

(i) Offers from small disadvantaged business concerns that have

not waived the adjustment;

(ii) An otherwise successful offer of eligible products under

the Trade Agreements Act when the dollar threshold for application

of the Act is equaled or exceeded (see section 25.402 of the Federal

Acquisition Regulation (FAR));

(iii) An otherwise successful offer where application of the

factor would be inconsistent with a Memorandum of Understanding or

other international agreement with a foreign government;

(iv) For DoD, NASA, and Coast Guard acquisitions, an otherwise

successful offer from a historically black college or university or

minority institution; and

(v) For DoD acquisitions, an otherwise successful offer of

qualifying country end products (see sections 225.000-70 and

252.225-7001 of the Defense FAR Supplement).

(2) The Contracting Officer will apply the factor to a line item

or a group of line items on which award may be made. The Contracting

Officer will apply other evaluation factors described in the

solicitation before application of the factor.

[[Page 36225]]

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 the factor in paragraph (b)(1) of this

clause.

* * * * *

16. Amend section 52.219-25 to revise the date of the clause and

paragraph (a) to read as follows:

52.219-25 Small Disadvantaged Business Participation Program--

Disadvantaged Status and Reporting.

* * * * *

SMALL DISADVANTAGED BUSINESS PARTICIPATION PROGRAM--DISADVANTAGED

STATUS AND REPORTING (OCT 1999)

(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. The Contractor

shall obtain representations of small disadvantaged status from

joint venture partners, teaming arrangement members, and

subcontractors through use of a provision substantially the same as

paragraph (b)(1)(i) of the provision at FAR 52.219-22, Small

Disadvantaged Business Status. The Contractor shall confirm that a

joint venture partner, team member, or subcontractor representing

itself as a small disadvantaged business concern, is identified as a

certified small disadvantaged business in the database maintained by

the Small Business Administration (PRO-Net) or by contacting the

SBA's Office of Small Disadvantaged Business Certification and

Eligibility.

* * * * *

[FR Doc. 99-16855 Filed 7-1-99; 8:45 am]

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