Government Contracting Programs

SMALL BUSINESS ADMINISTRATION

13 CFR Parts 121 and 125

Government Contracting Programs

AGENCY: Small Business Administration.

ACTION: Interim rule with request for comments.

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SUMMARY: The Small Business Administration (SBA) is amending its

regulations to address contract bundling due to changes set forth in

the Small Business Reauthorization Act of 1997 (Pub. L. 105-135, 111

Stat. 2617). In addition, this rule restates SBA's current authority to

appeal to the head of a procuring agency decisions made by the agency

that SBA believes to adversely affect small businesses.

DATES: Effective Date: December 27, 1999.

Comment Date: Comments due on or before December 27, 1999.

ADDRESSES: Address comments to Linda G. Williams, Deputy Associate

Deputy Administrator for Government Contracting and Minority Enterprise

Development, U.S. Small Business Administration, 409 Third Street, SW,

Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Anthony Robinson, Office of Government

Contracting, (202) 205-6465.

SUPPLEMENTARY INFORMATION: Section 15(a) of the Small Business Act, 15

U.S.C. 644(a), authorizes SBA to appeal to the head of a procuring

agency certain decisions made by the agency that SBA believes adversely

affects small businesses. Section 413(b)(1) of Pub. L. 105-135

reinforced existing appeal rights and further defined section 15(a) of

the Small Business Act for ``an unnecessary or unjustified bundling of

contract requirements.'' It left intact, however, SBA's current appeal

rights. In this regard, the Joint Explanatory Statement of the bundling

provisions contained in Public Law 105-135 as set forth in the

Congressional Record specifically provided that ``(n)othing in [the

bundling amendments] is intended to amend or change in any way the

existing obligations imposed on a procuring activity or the authority

granted to the Small Business Administration under section 15(a) of the

Small Business Act.'' 143 Cong. Rec. S11522, S11526 (daily ed. Oct. 31,

1997).

On January 13, 1999, SBA published a proposed rule in the Federal

Register requesting public comments on implementation of sections 411-

417 of the Small Business Reauthorization Act of 1997 (Pub. L. 105-

135). See 64 FR 2153, Jan. 13, 1999. The statutory amendments recognize

that the consolidation of contract requirements may be necessary and

justified, in some cases. The rule requires that each Federal agency,

to the maximum extent practicable, take steps to avoid unnecessary and

unjustified bundling of contract requirements that preclude small

business participation as prime contractors. The rule also requires

each agency to eliminate obstacles to small business participation as

prime contractors.

The comment period for 64 FR 2153 closed on March 15, 1999. SBA

received 32 comments in response to the proposed rule. The comments are

comprised of 11 (34 percent) from Government agencies, 11 (34 percent)

from trade associations, 9 (28 percent) from small-businesses, and 1 (3

percent) from a large business.

SBA specifically requested comments on three difficult definitional

areas: (1) What constitutes substantial bundling?; (2) what constitutes

measurably substantial benefits as a justification for bundling?; and

(3) what quantifiable test constitutes substantial if reduction of

administrative or personnel costs is the sole basis for bundling? The

comments and recommendations received by SBA to these questions and to

other provisions of the proposed rule are discussed below in the

section-by-section analysis.

SBA also identifies in the section-by-section analysis below the

number of specific comments relating to particular provisions of the

rule. Not all comments received addressed the issues contained in the

proposed rule. For instance, several commenters identified a particular

provision, but spoke of the problems caused by bundling generally, and

not how the provision itself should be changed. Other commenters stated

that they agreed with or disagreed with a particular provision without

offering any reasoning or alternatives. Thus, SBA has not identified

every comment that it received in response to a particular provision

and responded to them.

Consistent with the statutory amendments, this rule defines

``bundling,'' identifies the circumstances under which such

``bundling'' may be necessary and justified, and permits SBA to appeal

bundling actions that it believes to be unnecessary and unjustified to

the head of the procuring agency. It also authorizes two or more small

businesses to form a contract team and for that team to be considered a

small business for purposes of a bundled procurement requirement,

provided that each small business partner to the teaming arrangement

individually qualifies as a small business under the SIC code for the

requirement. Finally, the rule restates SBA's current authority to

appeal to the head of an agency other procurement decisions made by

procuring activities that SBA believes will adversely affect small

business.

The rule reorganizes and amends 13 CFR 125.2 to more clearly

explain SBA's current rights under section 15(a) of the Small Business

Act. The rule sets forth a procuring activity's current

responsibilities to submit a proposed procurement to SBA for review

whenever the procurement includes in its statement of work goods or

services currently being performed by a small business and the

magnitude of the quantity or estimated dollar value of the proposed

procurement would render small business prime contract participation

unlikely. It also requires a procuring activity to submit a proposed

procurement to SBA for review where a proposed procurement for

construction seeks to package or consolidate discrete construction

projects. In addition, it authorizes SBA to appeal disagreements over

the suitability of a particular acquisition for a small business set-

aside first to the head of the contracting activity, and then to the

head of the agency. This authority is currently granted to SBA by

section 15(a) of the Small Business Act and was not affected by the

addition of new rights regarding ``bundling.'' This rule does not apply

to contracts to be awarded and performed entirely outside of the United

States.

In implementing the new statutory bundling provisions, the rule

also requires a procuring activity to submit a proposed procurement to

SBA for review whenever the procurement includes in its statement of

work a ``bundled'' requirement, and authorizes SBA to appeal to the

head of the contracting activity, and then to the head of the agency,

``bundled'' requirements that SBA believes are not necessary and

justified. Whenever the procurement includes in its statement of work a

``substantial bundling'' of contract requirements, Section 15(a)(3) of

the Small Business Act requires that the procuring activity document

the benefits to be derived from the bundled contract and to justify its

use.

The Small Business Act does not define ``substantial bundling.''

The SBA defines substantial bundling in this interim rule.

The rule also defines what constitutes ``measurably substantial

benefits'' for purposes of determining whether

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bundling is necessary and justified. The rule defines ``measurably

substantial benefits'' to include, in any combination, or in the

aggregate, cost savings; quality improvements that will save time,

improve, or enhance performance or efficiency; reduction in acquisition

cycle times; better terms and conditions; or any other benefits. In

assessing whether benefits would be achieved through bundling, the

analysis must compare the cost that was charged by small businesses for

the work that they performed and, where available, the cost that could

have been or could be charged by small businesses for the work not

previously performed by small business. To proceed with a bundled

procurement, a procuring activity must quantify the identified benefits

as noted herein and explain how their impact would be measurably

substantial.

The statute recognizes that in some circumstances bundling should

be permitted because of the benefits that flow to the Government as a

result of consolidation of requirements. Congress determined that those

benefits may overcome any impact on small business in certain

circumstances. The statutory language requires contracting officers to

demonstrate ``measurably substantial benefits'' and the Joint

Explanatory Statement calls for meaningful, enforceable controls to

preclude unnecessary and unjustified bundling. Pursuant to the statute,

there are two requirements that must be satisfied before items are

bundled. The benefits to be derived by the Government must be

``measurable'' and they must be ``substantial.'' In order to be

``measurable,'' the benefits must be quantifiable. Pursuant to the

statutory language, however, quantifiable benefits are not sufficient

to justify bundling unless they are also ``substantial.'' SBA developed

objective, quantifiable criteria for determining when a consolidation

of procurements will provide ``measurably substantial benefits,'' and,

thus, when bundling will be necessary and justified.

The proposed regulation (64 FR 2153) identified areas in which

there may be ``measurably substantial benefits,'' including cost

savings or price reduction; quality improvements that will save time or

improve or enhance performance or efficiency; reduction in acquisition

cycle times; or better terms and conditions. The proposed rule also

established specific criteria for measuring whether these benefits or

improvements, which are to be derived, are ``substantial.'' Those

criteria are maintained in this interim rule.

The proposed regulation (64 FR 2153) also reiterated the statutory

requirement that the reduction of administrative or personnel costs

alone cannot be a justification for bundling unless the administrative

or personnel costs are expected to be ``substantial'' in relation to

the dollar value of the procurement (including options) to be

consolidated. In determining whether the reduction of administrative or

personnel costs are ``substantial,'' the statute clearly required a

comparison between the administrative or personnel costs without

bundling to those anticipated with bundling. In response to public

comment, this interim rule implements a quantifiable test, outlined

below, for determining whether administrative or personnel cost savings

are expected to be ``substantial.''

SBA is concerned that bundled contracts will render small business

participation as prime contractors unlikely. Section 125.2(b)(5) of

this interim rule authorizes SBA's Procurement Center Representatives

(PCRs) to recommend alternative procurement methods to agencies to

provide prime contract opportunities. These strategies include, under

appropriate circumstances: (1) Breaking up the procurement into smaller

discrete procurements to render them suitable for small business set-

asides; (2) breaking out discrete components, where practicable, to be

set aside for small business; or (3) when issuing multiple awards

against a single solicitation, reserving one or more awards for small

companies.

Section by Section Analysis

SBA received 10 comments concerning proposed Sec. 121.103(f)(3).

This section authorizes an exclusion from SBA's affiliation rules for a

procurement that qualifies as a ``bundled'' requirement. Eight comments

were in strong support of this section. One comment thought that this

section should ``address the implications of past performance.'' SBA

believes that past performance should have no bearing on this

regulatory provision for several reasons. Section 121.103(f)(3) is a

size regulation. Past performance is more typically associated with

responsibility, or a firm's ability to perform a specific contract

opportunity. A firm's ability to perform a given contract, based on

capacity, past performance, or other responsibility criteria, does not

affect whether the concern is a small business or not. Moreover, this

provision is a size rule for joint ventures or teaming relationships. A

joint venture is normally a one-time association to perform a

particular contract. There most likely is not any past performance

history on the joint venture entity. In addition, one commenter

suggested that the proposed rule reference a number of existing FAR

provisions dealing with liability, consent to subcontracts, and

performance and payment bonds. SBA believes existing Federal

Acquisition Regulation (FAR) provisions are adequate for purposes of

this rule and sees no need to amend this section.

SBA received two comments concerning Sec. 125.2(a). One commenter

thought that a literal reading of this section requires all awards to

be made to small businesses. SBA first notes that the language

contained in the regulations repeats almost verbatim the statutory

language contained in section 15(a) of the Small Business Act. SBA does

not agree that language requires what the commenter suggests. The

statutory and regulatory language requires award to a small business

only where ``SBA and the procuring or disposal agency'' determine one

of four things to be present. If the procuring or disposal agency does

not agree that one of those circumstances exists and SBA does not

appeal that decision to the head of the agency, award need not be made

to a small business. Another commenter suggested extending the rule to

include nonprofit agencies contracting with the Government. SBA's size

regulations have historically defined a ``small business concern'' to

be a business entity organized for profit. This rule is not the

appropriate vehicle to consider changes to that longstanding position,

and SBA makes no changes in that regard.

SBA received no comments concerning Sec. 125.2(b)(1), which

generally discusses the duties of SBA PCRs. As such, Sec. 125.2(b)(1)

remains as proposed.

SBA received eight comments concerning Sec. 125.2(b)(2), which

requires the procuring agency to provide a copy of a proposed

acquisition strategy to the PCR 30 days prior to issuance or to the

Government Contracting Area Office if a PCR is not assigned to the

buying activity. This section is consistent with FAR 19.202-1(e)(1)

(Encouraging Small Business Participation). Most of the comments

expressed concern about possible delays in SBA's response. The

procedures and time frames for PCR response are set forth in FAR

19.402(c)(2) and FAR 19.505 (48 CFR 19.402 and 19.505) which SBA

believes are adequate. Therefore, the interim rule remains as proposed.

SBA received four comments concerning Sec. 125.2(b)(3) that

requires the procuring agency to give the PCR a written statement of

explanation and justification for bundling. The statement

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must explain why certain small business accommodations are not

possible. One commenter thought this section would be burdensome and

adds little value given the other criteria in the rule. Sections 411

through 417 of SBA's Reauthorization Act specifically require this

written justification. As such, it remains as proposed in this interim

rule.

SBA received one comment concerning Sec. 125.2(b)(4), which

requires PCRs to identify capable small businesses, including small

business teams, for particular requirements on bundled contracts. The

commenter suggested a 30-calendar-day requirement for such an

identification process to avoid or limit acquisition delays. Timeframes

regarding PCR actions are currently addressed in 48 CFR 19.5. This

section remains as proposed.

Six commenters endorsed the proposed change to Sec. 125.2(b)(5),

which provides the SBA's PCRs with a number of alternatives to

recommend to procurement officials who are considering the bundling of

contracts into one larger contract. These commenters also recommended

that proposed Sec. 125.2(b)(5) be modified to include the following two

additional alternatives: recommending the solicitation and resultant

contract specifically state the small business subcontracting goals

which are expected of the contractor awardee, and recommending that the

small business subcontracting goals be based on contract dollars versus

subcontract dollars. SBA finds that these suggestions have merit and

have incorporated them in this interim rule.

One commenter suggested a time frame to develop alternatives to

bundling. FAR 19.402(c)(2) already specifies the time frame.

SBA received three comments concerning Sec. 125.2(b)(6), which

authorizes a PCR to appeal to the head of the contracting activity and

subsequently to the secretary of the department, or the head of the

agency, in cases where there is disagreement between the PCR and the

contracting officer. One commenter suggested that this section be

clarified by stating that the appeal be initiated within 30 calendar

days of following receipt of the contracting activity's acquisition

strategy statement. SBA believes that existing provisions in FAR 19.505

adequately address this issue.

SBA received one comment concerning Sec. 125.2(b)(7), which

requires the PCR to work with the procuring activity's Small

Disadvantaged Business Utilization Specialists (SADBUS). The commenter

stated that term was changed to Small Business Specialist in 1997. This

term was changed by the Federal Acquisition Streamlining Act (FASA) in

1995. Accordingly SBA will incorporate the recommended change.

SBA received one comment concerning Sec. 125.2(d)(1), which defines

certain identified terms used in these regulations. The comment related

to the impact of the rule on simplified acquisitions and administrative

lead-time. Since the interim rule establishes a dollar value standard

for the determination of substantial bundling, this section need not be

changed from the proposed rule.

SBA received no comments concerning Sec. 125.2(d)(2), which

restates the statutory mandates. This section is not changed in this

interim rule.

SBA received 38 separate comments concerning Sec. 125.2(d)(3) and

its subsections. Paragraph (d)(3)(i) mandates market research to

determine whether bundling is necessary and justified. We believe that

the paragraph, as written, meets the congressional intent, and it will

remain as proposed. The comments received concerning

Sec. 125.2(d)(3)(iii)(A) were diverse, but none offered definitive

criteria from which to quantify measurably substantial benefits. SBA

has reconsidered its original proposal and has formulated a two tiered

approach to quantify measurably substantial benefits. In the first

approach, depending upon the estimated dollar value of the procurement

(including options), the contracting activity must quantify the

identified benefits and explain how their impact would be measurably

substantial. SBA has established percentages to quantify the benefits

which must be met. In the second approach, where the benefits do not

meet the thresholds established by SBA, the Assistant Secretaries with

responsibility for acquisition matters (Service Acquisition Executives)

or the Under Secretary of Defense for Acquisition and Technology (for

other Defense Agencies) in the Department of Defense, and the Deputy

Under Secretary or equivalent for civilian agencies can determine on a

non-delegable basis, that the consolidated requirement is critical to

the success of the agency's mission. The procedures in

Sec. 125.2(d)(3)(iii) (A) and (B) are not applicable to consolidated

procurements that are subject to the cost comparisons conducted in

accordance with OMB Circular A-76.

SBA received two comments concerning Sec. 125.2(d)(4), which

requires agencies, in cases of substantial bundling, to document their

procurement strategies and to include a determination that the

anticipated benefits justify the use of bundling. One commenter

believed that the rule should state that SBA will assist the

contracting officer in identifying less obvious obstacles to small

business participation. Because this is implicitly stated elsewhere in

the rule, SBA believes that re-statement here is unnecessary.

One commenter recommended deletion of Sec. 125.2(d)(4)(iii), as its

might be confusing. SBA believes that the provision is clear, and does

not change it from the proposed rule.

SBA received six comments concerning proposed Sec. 125.2(d)(5),

which specified values for small business evaluation criteria. Some

commenters believed that this proposal unduly involved the SBA in

another agency's contractor selection process. SBA believes that its

statutory mandate provides authority to require this evaluation

criteria. Accordingly, this section remains unchanged in this interim

rule.

SBA received eight comments on Sec. 125.6(g). This section provides

that when the small business members of a team submitting an offer are

exempt from affiliation, the performance of work requirements shall

apply to the cooperative effort of the team or joint venture, not its

individual members. Seven commenters recommended that for services,

this section should be strengthened to require that the cooperative

effort of the team or joint venture perform at least 70 percent of the

cost of the contract incurred for personnel. Changing the percentages

of work required by small businesses is beyond the scope of this rule.

Another commenter suggested clarifying language regarding

contractual obligations, similar to an earlier recommendation. SBA

finds this change unnecessary.

Defining Substantial Bundling

The SBA sought comments on appropriate ways to define substantial

bundling (for example, in terms of threshold contract value or a

threshold number of geographic locations and Standard Industrial

Classification (SIC) codes). Several commenters recommended that

substantial bundling not be defined and to leave determinations of

substantial bundling to the discretion of the contracting officer. The

supporting rationale for this approach is that if the Congress wanted

to define substantial bundling they would have done so in statute. The

absence of a clear-cut definition of substantial bundling, however,

creates a

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number of serious administrative issues, which, if unresolved, would

defeat congressional intent. SBA's approach is to provide a clear and

reasonable standard. For example, in evaluating the level of

substantial bundling, the Congress directed that the Federal

Procurement Data Center track bundling of contract awards at the five

million-dollar level. While SBA believes that this level is too low for

the purpose of defining ``substantial bundling,'' it demonstrates that

a single dollar standard for defining substantial bundling is

consistent with congressional intent. Several other commenters

supported an objective standard for determining what constitutes

``substantial bundling.''

Bundling is any contract consolidation that renders a contract

likely to be unsuitable for award to a small business concern due to

the aggregate dollar value of the anticipated award; the diversity,

size, or specialized nature of the elements of the performance

specified; the geographic dispersion of contract performance sites; or

any combination of these three criteria. SBA determined that the

aggregate dollar value of the anticipated award is the single most

important criteria for determining substantial bundling. The other

criteria, while significant, do not rise to the level of importance as

the aggregate dollar value of anticipated award. In addition, the other

criteria are generally correlated to high aggregate dollar levels.

As such, this interim rule defines substantial bundling as the

aggregation of two or more contracts whose combined average annual

value is at least $10 million. Typically, contracts are described in

terms of their total value over the life of the contract. Thus, for

example, a one-year contract with four one-year options with a value of

$10 million for the base year and each option year, would be considered

a $50 million contract. SBA determined that the $10 million substantial

bundling threshold will meet the statutory mandate to avoid unnecessary

and unjustified bundling of contract requirements that precludes small-

business participation as prime contractors. Establishing the $10

million threshold will not unduly burden federal agencies with the

administrative requirements of this regulation. Using the threshold,

contracting officers and the public can easily determine whether a

given consolidation of requirements constitutes substantial bundling.

For example, a consolidation of two contracts each with an average

value of $6 million into one contract with an average annual value of

$12 million constitutes substantial bundling.

Defining Measurably Substantial Benefits

When a procuring activity intends to proceed with a ``bundled''

requirement, it must document that the bundling is necessary and

justified. If it cannot do so, the procuring activity cannot go forward

with the consolidation. In order for bundling to be necessary and

justified, the consolidation must achieve ``measurably substantial

benefits.'' In its proposed rule, SBA specifically asked for comments

on how SBA could best objectively define this term. SBA received 11

comments regarding how ``measurable substantial benefits'' should be

defined. Of these eleven, four were from Federal Government agencies,

six from trade associations, and one from a small business firm.

Several commenters suggested that ``measurably substantial

benefits'' cannot be defined since the criteria set forth in the

legislation are not directly comparable. SBA recognizes the lack of

direct comparability in the criteria as commonly understood. However,

to meet Congressional intent, SBA has determined that for purposes of

this interim rule all anticipated benefits be expressed in dollars.

This will permit computation of benefits as a percentage of the total

anticipated contract award.

After considering all comments received, SBA concluded that

measurably substantial benefits must be expressed as a percentage of

the anticipated contract award value (including options). This is

necessary in order to facilitate comparisons among the varying benefits

to be derived. In other words, a reduction in cycle time must be

converted to a dollar value in order to be compared to the other

criteria such as cost savings. Without a common denominator such as

dollars, or percent of dollars, the careful analysis and justification

the law contemplates would not be possible. The inability to express

the various competing criteria without a common denominator would, in

effect, prevent evaluation. Several commenters offered a percentage

savings. Two recommended 25 percent and one recommended 20 percent. One

commenter advocated flexibility and did not propose a percentage. Even

though the commenters recommended a higher percentage than those

adopted by SBA in this interim rule, SBA believes that its approach

provides an appropriate balance between the efficiencies of larger

procurements and the socio-economic benefits derived through the use of

small businesses.

SBA determined that measurably substantial benefits should be

quantified using a two tiered approach: (1) Benefits equivalent to 10

percent if the contract value (including options) is $75 million or

less; or (2) benefits equivalent to 5 percent if the contract value

(including options) is over $75 million. The benefits may include cost

savings and/or price reduction, quality improvements that will save

time or improve or enhance performance or efficiency, reduction in

acquisition cycle times, better terms and conditions and any other

benefits that individually, in combination, or in the aggregate would

lead to the above benefits. The rule also permits the Assistant

Secretaries with responsibility for acquisition matters (Service

Acquisition Executives) or the Under Secretary of Defense for

Acquisition and Technology (for other Defense Agencies) in the

Department of Defense, and the Deputy Secretary or equivalent for

civilian agencies, on a non-delegable basis, to determine that a

bundled contract is necessary and justified when: (1) There are

benefits that do not meet the thresholds defined above but, in the

aggregate, are critical to the agency's mission success; and (2) the

procurement strategy provides for maximum practicable participation by

small businesses.

The procedures described above do not apply to consolidated

procurements that are subject to the cost comparisons conducted in

accordance with OMB Circular A-76.

SBA believes that this approach takes into consideration the

likelihood that savings will vary depending on the size of the

contract. SBA has no historical data on cost savings associated with

bundled contracts from which to determine a quantifiable measure.

However, SBA does maintain records on the value of bundled contracts

that we review. Based on data that SBA has collected over the past 4

years, it was determined that the majority of bundled contracts fell

within a range between $50 million and $75 million. We believe that the

highest percentage to quantify the benefits should be applied to

contracts of $75 million or less. At levels above $75 million, benefits

equivalent to 5 percent of the contract value (including options) would

still equate to measurably substantial benefits.

Defining Measurably Substantial Administrative or Personnel Cost

Savings

This interim rule reiterates the statutory requirement that the

reduction of administrative or personnel costs

[[Page 57370]]

alone cannot be a justification for bundling unless the administrative

or personnel costs are expected to be ``substantial'' in relation to

the dollar value of the procurement (including options) to be

consolidated. In determining whether the reduction of administrative or

personnel costs are ``substantial,'' the statute clearly requires a

comparison between the administrative or personnel costs without

bundling to those anticipated with bundling. SBA is committed to

implementing a quantifiable test for determining whether administrative

or personnel cost savings are expected to be ``substantial.''

SBA specifically requested comments on how best to define

``substantial'' administrative or personnel cost savings. SBA received

six comments regarding defining ``measurably substantial administrative

or personnel cost savings,'' two from Federal agencies, three from

trade associations, and one from a small business concern. Several

commenters offered specific percentages to define substantial

administrative savings. Commenters suggested 10 percent, 20 percent and

25 percent. SBA determined that a saving of at least 10 percent of the

anticipated contract award (including options) will be deemed

substantial for purposes of this section.

Compliance With Executive Orders 12612, 12788 and 12866, the

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

Paperwork Reduction Act (44 U.S.C. Chapter 3501 et seq.)

SBA certifies that this interim rule, if adopted in final form,

would not be a significant rule within the meaning of Executive Order

12866. The rule does not impose costs upon the businesses, which may be

affected by it. 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 United States

economy.

SBA has determined that this interim rule may have a significant

beneficial economic impact on a substantial number of small entities

within the meaning of the Regulatory Flexibility Act, 5 U.S.C.

Secs. 601-612. The interim rule can potentially apply to all small

businesses that are performing or may want to perform on the prime

contract opportunities of the Federal Government. While there is no

precise estimate of the number of small entities or the extent of the

economic impact, SBA believes that a significant number of small

businesses would be affected. SBA has submitted a complete Initial

Regulatory Flexibility Analysis of this interim rule to the Chief

Counsel for Advocacy of the Small Business Administration. For a copy

of this analysis, please contact Anthony Robinson at (202) 205-6465.

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

SBA certifies that this rule would not impose new reporting or record

keeping requirements, other than those required on the Government by

law.

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

does not have any federalism implications warranting the preparation of

a Federalism Assessment.

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

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

standards set forth in section 2 of this order.

List of Subjects

13 CFR Part 121

Government procurement, Government property, Grant programs-

business, Individuals with disabilities, Loan programs-business, Small

businesses.

13 CFR Part 125

Government contracts, Government procurement, Reporting and

recordkeeping requirements, Small businesses, Technical assistance.

For the reasons stated in the preamble, SBA amends 13 CFR part 121

and 125 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

1. The authority citation for 13 CFR part 121 is revised to read as

follows:

Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c), and

662(5); and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.

2. Section 121.103, revise paragraphs (f)(3)(i) to read as follows:

Sec. 121.103 What is affiliation?

* * * * *

(f) * * *

(3) * * *

(i) A joint venture or teaming arrangement of two or more business

concerns may submit an offer as a small business for a Federal

procurement without regard to affiliation under paragraph (f) of this

section so long as each concern is small under the size standard

corresponding to the SIC code assigned to the contract, provided:

(A) The procurement qualifies as a ``bundled'' requirement, at any

dollar value, within the meaning of Sec. 125.2(d)(1)(i) of this

chapter; or

(B) The procurement is other than a ``bundled'' requirement within

the meaning of Sec. 125.2(d)(1)(i) of this chapter, and:

(1) For a procurement having a revenue-based size standard, the

dollar value of the procurement, including options, exceeds half the

size standard corresponding to the SIC code assigned to the contract;

or

(2) For a procurement having an employee-based size standard, the

dollar value of the procurement, including options, exceeds $10

million.

* * * * *

PART 125--GOVERNMENT CONTRACTING PROGRAMS

1. The authority citation for 13 CFR part 125 is revised to read as

follows:

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

9702.

2. In Sec. 125.2, redesignate paragraphs (a) and (b) as paragraphs

(b) and (c), respectively, revise newly designated paragraph (b), and

add new paragraphs (a) and (d) to read as follows:

Sec. 125.2 Prime contracting assistance.

(a) General. Small business concerns must receive any award or

contract, or any contract for the sale of Government property, that SBA

and the procuring or disposal agency determine to be in the interest

of:

(1) Maintaining or mobilizing the Nation's full productive

capacity;

(2) War or national defense programs;

(3) Assuring that a fair proportion of the total purchases and

contracts for property, services and construction for the Government in

each industry category are placed with small business concerns; or

(4) Assuring that a fair proportion of the total sales of

Government property is made to small business concerns.

(b) PCR and procuring activity responsibilities. (1) SBA

Procurement Center Representatives (PCRs) are generally 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 is appropriate.

(2) A procuring activity must provide a copy of a proposed

acquisition strategy (e.g., Department of Defense Form 2579, or

equivalent) to the applicable PCR (or to the SBA Office of Government

Contracting Area Office serving the area in which the buying activity

is located if a PCR is not assigned to the procuring activity) at least

30 days prior to a solicitation's issuance whenever a proposed

acquisition strategy:

[[Page 57371]]

(i) Includes in its description goods or services currently being

performed by a small business and the magnitude of the quantity or

estimated dollar value of the proposed procurement would render small

business prime contract participation unlikely;

(ii) Seeks to package or consolidate discrete construction

projects; or

(iii) Meets the definition of a bundled requirement as defined in

paragraph (d)(1)(i) of this section.

(3) Whenever any of the circumstances identified in paragraph

(b)(2) of this section exist, the procuring activity must also submit

to the applicable PCR (or to the SBA Office of Government Contracting

Area Office serving the area in which the buying activity is located if

a PCR is not assigned to the procuring activity) a written statement

explaining why:

(i) If the proposed acquisition strategy involves a bundled

requirement, the procuring activity believes that the bundled

requirement is necessary and justified under the analysis required by

paragraph (d)(3)(iii) of this section; or

(ii) If the description of the requirement includes goods or

services currently being performed by a small business and the

magnitude of the quantity or estimated dollar value of the proposed

procurement would render small business prime contract participation

unlikely, or if a proposed procurement for construction seeks to

package or consolidate discrete construction projects:

(A) The proposed acquisition cannot be divided into reasonably

small lots to permit offers on quantities less than the total

requirement;

(B) Delivery schedules cannot be established on a basis that will

encourage small business participation;

(C) The proposed acquisition cannot be offered so as to make small

business participation likely; or

(D) Construction cannot be procured as separate discrete projects.

(4) In conjunction with their duties to promote the set-aside of

procurements for small business, PCRs will identify small businesses

that are capable of performing particular requirements, including teams

of small business concerns for larger or bundled requirements (see

Sec. 121.103(f)(3) of this chapter).

(5)(i) If a PCR believes that a proposed procurement will render

small business prime contract participation unlikely, or if a PCR does

not believe a bundled requirement to be necessary and justified, the

PCR shall recommend to the procurement activity alternative procurement

methods which would increase small business prime contract

participation. Such alternatives may include:

(A) Breaking up the procurement into smaller discrete procurements;

(B) Breaking out one or more discrete components, for which a small

business set-aside may be appropriate; and

(C) Reserving one or more awards for small companies when issuing

multiple awards under task order contracts.

(i) Where bundling is necessary and justified, the PCR will work

with the procuring activity to tailor a strategy that preserves small

business prime contract participation to the maximum extent

practicable.

(ii)The PCR will also work to ensure that small business

participation is maximized through subcontracting opportunities. This

may include:

(A) Recommending that the solicitation and resultant contract

specifically state the small business subcontracting goals which are

expected of the contractor awardee; and

(B) Recommending that the small business subcontracting goals be

based on total contract dollars instead of subcontract dollars.

(6) 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, whether or not the acquisition is a

bundled or substantially bundled requirement within the meaning of

paragraph (d) of this section, 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 the matter

to the secretary of the department or head of the agency. The time

limits for such appeals are set forth in 19.505 of the Federal

Acquisition Regulation (FAR) (48 CFR 19.505).

(7) PCRs will work with a procuring activity's Small Business

Specialist (SBS) to identify proposed solicitations that involve

bundling, and with the agency acquisition officials to revise the

acquisition strategies for such proposed solicitations, where

appropriate, to increase the probability of participation by small

businesses, including small business contract teams, as prime

contractors. If small business participation as prime contractors

appears unlikely, the SBS and PCR will facilitate small business

participation as subcontractors or suppliers.

* * * * *

(d) Contract bundling--(1) Definitions--(i) Bundled requirement or

bundling. The term ``bundled requirement or bundling'' refers to the

consolidation of two or more procurement requirements for goods or

services previously provided or performed under separate smaller

contracts into a solicitation of offers for a single contract that is

likely to be unsuitable for award to a small business concern due to:

(A) The diversity, size, or specialized nature of the elements of

the performance specified;

(B) The aggregate dollar value of the anticipated award;

(C) The geographical dispersion of the contract performance sites;

or

(D) Any combination of the factors described in paragraphs

(d)(1)(i) (A), (B), and (C).

(ii) Separate smaller contract: A separate smaller contract is a

contract that has previously been performed by one or more small

business concerns or was suitable for award to one or more small

business concerns.

(iii) Substantial bundling: Substantial bundling is any contract

consolidation, which results in an award whose average annual value is

$10 million or more.

(2) Requirement to foster small business participation: The Small

Business Act requires each Federal agency to foster the participation

of small business concerns as prime contractors, subcontractors, and

suppliers in the contracting opportunities of the Government. To comply

with this requirement, agency acquisition planners must:

(i) Structure procurement requirements to facilitate competition by

and among small business concerns, including small disadvantaged, 8(a)

and women-owned business concerns; and

(ii) Avoid unnecessary and unjustified bundling of contract

requirements that inhibits or precludes small business participation in

procurements as prime contractors.

(3) Requirement for market research. (i) In addition to the

requirements of paragraph (b)(2) of this section and before proceeding

with an acquisition strategy that could lead to a contract containing

bundled or substantially bundled requirements, an agency must conduct

market research to determine whether bundling of the requirements is

necessary and justified. During the market research phase, the

acquisition team should consult with the applicable PCR (or if a PCR is

not assigned to the procuring activity, the SBA Office of Government

Contracting Area Office serving the area in which the buying activity

is located).

(ii) The procuring activity must notify each small business which

is performing a contract that it intends to consolidate that

requirement with one or more other requirements at least 30

[[Page 57372]]

days prior to the issuance of the solicitation for the bundled or

substantially bundled requirement. The procuring activity, at that

time, should also provide to the small business the name, phone number

and address of the applicable SBA PCR (or if a PCR is not assigned to

the procuring activity, the SBA Office of Government Contracting Area

Office serving the area in which the buying activity is located).

(iii) When the procuring activity intends to proceed with an

acquisition involving bundled or substantially bundled procurement

requirements, it must document the acquisition strategy to include a

determination that the bundling is necessary and justified, when

compared to the benefits that could be derived from meeting the

agency's requirements through separate smaller contracts.

(A) The procuring activity may determine a consolidated requirement

to be necessary and justified if, as compared to the benefits that it

would derive from contracting to meet those requirements if not

consolidated, it would derive measurably substantial benefits. The

procuring activity must quantify the identified benefits and explain

how their impact would be measurably substantial. The benefits may

include cost savings and/or price reduction, quality improvements that

will save time or improve or enhance performance or efficiency,

reduction in acquisition cycle times, better terms and conditions, and

any other benefits that individually, in combination, or in the

aggregate would lead to:

(1) Benefits equivalent to 10 percent if the contract value

(including options) is $75 million or less; or

(2) Benefits equivalent to 5 percent if the contract value

(including options) is over $75 million.

(B) Notwithstanding paragraph (d)(3)(iii)(A) of this section, the

Assistant Secretaries with responsibility for acquisition matters

(Service Acquisition Executives) or the Under Secretary of Defense for

Acquisition and Technology (for other Defense Agencies) in the

Department of Defense and the Deputy Secretary or equivalent in

civilian agencies may, on a non-delegable basis determine that a

consolidated requirement is necessary and justified when:

(1) There are benefits that do not meet the thresholds set forth in

paragraph (d)(3)(iii)(A) of this section but, in the aggregate, are

critical to the agency's mission success; and

(2) Procurement strategy provides for maximum practicable

participation by small business.

(C) Notwithstanding paragraph (d)(3)(iii)(A) and (B) of this

section, a consolidated requirement is necessary and justified when it

is subject to the cost comparison conducted in accordance with OMB

Circular A-76.

(D) The reduction of administrative or personnel costs alone shall

not be a justification for bundling of contract requirements unless the

administrative or personnel cost savings are expected to be

substantial, in relation to the dollar value of the procurement to be

consolidated (including options). To be substantial, such cost savings

must be at least 10 percent of the contract value (including options).

(E) In assessing whether cost savings and/or a price reduction

would be achieved through bundling, the procuring activity and SBA must

compare the price that has been charged by small businesses for the

work that they have performed and, where available, the price that

could have been or could be charged by small businesses for the work

not previously performed by small business.

(4) Substantial bundling. Where a proposed procurement strategy

involves a substantial bundling of contract requirements, the procuring

agency must, in the documentation of that strategy, include a

determination that the anticipated benefits of the proposed bundled

contract justify its use, and must include, at a minimum:

(i) The analysis for bundled requirements set forth in paragraph

(d)(3)(iii) of this section;

(ii) An assessment of the specific impediments to participation by

small business concerns as prime contractors that will result from the

substantial bundling;

(iii) Actions designed to maximize small business participation as

prime contractors, including provisions that encourage small business

teaming for the substantially bundled requirement; and

(iv) Actions designed to maximize small business participation as

subcontractors (including suppliers) at any tier under the contract or

contracts that may be awarded to meet the requirements.

(5) Significant subcontracting opportunity. (i) Where a bundled or

substantially bundled requirement offers a significant opportunity for

subcontracting, the procuring agency must designate the following

factors as significant factors in evaluating offers:

(A) A factor that is based on the rate of participation provided

under the subcontracting plan for small business in the performance of

the contract; and

(B) For the evaluation of past performance of an offeror, a factor

that is based on the extent to which the offeror attained applicable

goals for small business participation in the performance of contracts.

(ii) Where the offeror for such a bundled contract qualifies as a

small business concern, the procuring agency must give to the offeror

the highest score possible for the evaluation factors identified in

paragraph (d)(5)(i) of this section.

5. In Sec. 125.6, add new paragraph (g) to read as follows:

Sec. 125.6 Prime contractor performance requirements (limitations on

subcontracting).

* * * * *

(g) Where an offeror is exempt from affiliation under

Sec. 121.103(f)(3) of this chapter and qualifies as a small business

concern, the performance of work requirements set forth in this section

apply to the cooperative effort of the team or joint venture, not its

individual members.

Dated: October 19, 1999.

Aida Alvarez,

Administrator.

[FR Doc. 99-27801 Filed 10-22-99; 8:45 am]

BILLING CODE 8025-01-P