Policy Letter 99-X on Promoting Subcontracting Opportunities and Administering Subcontracting Plans

OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy

Policy Letter 99-X on Promoting Subcontracting Opportunities and

Administering Subcontracting Plans

AGENCY: Executive Office of the President, Office of Management and

Budget (OMB), Office of Federal Procurement Policy (OFPP).

ACTION: OFPP is requesting comments on a policy letter supplementing

the Federal Acquisition Regulation (FAR) to further promote

subcontracting opportunities for small, small disadvantaged, and women-

owned small business concerns.

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SUMMARY: This policy letter supersedes and cancels OFPP Policy Letters

80-1, 80-2, and 80-4. It supplements FAR coverage of subcontracting

opportunities for small, small disadvantaged, and women-owned small

business concerns. The current trend toward contract consolidation may

impact these small business concerns' ability to compete as prime

contractors. We are issuing this policy letter to enhance

subcontracting opportunities for such concerns.

COMMENT DATE: Comments must be received on or before June 1, 1999.

ADDRESSES: Please submit comments to Deidre A. Lee, Administrator,

Office of Federal Procurement Policy, Old Executive Office Building,

Room 352, Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Linda Williams at 202-395-3302.

Deidre A. Lee,

Administrator.

Policy Letter 99-X to the Heads of Executive Departments and

Establishments

Subject: Policy on Promoting Subcontracting Opportunities and

Administering Subcontracting Plans

1. Purpose. This directive supplements Federal Acquisition

Regulation (FAR) coverage of subcontracting plans required by

section 8(d) of the Small Business Act (15 U.S.C. 637(d)) as amended

by the Federal Acquisition Streamlining Act of 1994 (FASA).

2. Supersession Information. This Policy Letter supersedes and

cancels OFPP Policy Letter 80-1, ``P.L. 95-507, Section 211,

Subcontracting: Agency Coordination with the Small Business

Administration Resident Procurement Center Representatives,'' dated

January 24, 1980; OFPP Policy Letter 80-2, ``Regulatory Guidance on

Section 211 of Public Law 95-507,'' dated April 29, 1980; Supplement

No. 1 to Policy Letter 80-2, dated May 29, 1981; and OFPP Policy

Letter 80-4, ``Women's Business Enterprise Program,'' dated April

29, 1980.

3. Authority. This Policy Letter is issued pursuant to section 6

of the Office of Federal Procurement Policy Act, as amended, 41

U.S.C. 405.

4. Definitions.

a. The definitions of commercial plan, failure to make a good

faith effort to comply with the subcontracting plan, individual

contract plan, master plan, small business concern, small business

subcontractor, small disadvantaged business concern, and women-owned

small business concern have the same meaning as that provided by FAR

Part 19.

b. The term commercial item has the same meaning as that

provided by FAR section 2.101.

c. The term subcontract has the same meaning as that provided by

FAR section 19.701. However, purchases from a corporation, company

or division of a prime contractor that are affiliates as defined in

13 C.F.R. 121.103 are not considered ``subcontracts.''

5. Policy. This document establishes policies for promoting

subcontracting opportunities and administering subcontracting plans

for small business, small disadvantaged business, and women-owned

small business concerns. Nothing in this Policy Letter precludes an

agency from establishing additional requirements regarding

subcontracting plans.

6. Solicitation and Subcontracting Plan Requirements.

a. Determining the Need for a Subcontracting Plan. In addition

to the requirements contained at FAR section 19.705-2, the

solicitation shall inform prospective offerors that the estimated

value of indefinite delivery contracts/task order and delivery order

contracts will be used to determine if a subcontracting plan is

required.

b. Reviewing the Subcontracting Plan. In addition to the

procedures contained at FAR section 19.705-4, contracting officers

shall take the following actions:

(1) Require an offeror that proposes lower goals than the target

goals stated in the solicitation to explain why it cannot achieve

the stated goals.

(2) Advise offerors of the availability of the following sources

of information on potential small, small disadvantaged, and women-

owned small business concern subcontractors:

(a) The U.S. Small Business Administration (SBA) Procurement

Marketing and Access Network (PRONet) ( http://pro-net.sba.gov/), a

free on-line internet-based search engine that provides access to

the profiles of more than 170,000 small businesses.

(b) The Department of Commerce, Minority Business Development

Agency's (MBDA) Phoenix Data Base or the Opportunity Data Base at

www.mbda.gov.

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(c) State, county, and city government minority business

offices.

(d) Small, minority, and women business associations.

(e) Local chambers of commerce.

(f) DOD's Centralized Contractor Registration Data Base.

(3) Encourage offerors to synopsize in the Commerce Business

Daily (CBD) or advertise in trade newspapers, journals, or other

communication media.

(4) Require offerors to identify other contracts that had

subcontracting plans. Contact the contracting officers who

administered those earlier plans to determine whether the objectives

were realized and required reports were submitted on time. Overall

compliance should be considered, not merely whether the goals were

met.

(5) Ensure that subcontracting master plans meet the following

conditions:

(a) The SBA procurement center representative has been given an

opportunity to comment on the master plan and,

(b) The subcontract goals for small, small disadvantaged, and

women-owned small business concerns are specifically set forth in

each contract or modification.

(6) Follow the requirements of FAR clause 52.219.9 entitled

``Small, Small Disadvantaged and Women-Owned Small Business

Subcontracting Plan'' if the award is expected to exceed $500,000

($1 million for construction of a public facility), unless the

acquisition is reserved for small business concerns, no

subcontracting opportunities exist, the contract 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, or the contract is with Federal Prison Industries or

the blind or severely disabled and is awarded under the provisions

of the Javits-Wagner-O'Day Act. The clause shall apply to all other

entities including large businesses; state and local governments;

non-profit organizations; public utilities; educational

institutions, including Historically Black Colleges and Universities

(HBCUs), Minority Institutions (MIs), and foreign-owned firms that

receive federal contracts if the portion of the contract to be

performed in the United States exceeds the above thresholds.

However, subcontracting plans are not required from HBCUs and MIs

that receive contract awards above the thresholds from the

Department of Defense (DOD), the Coast Guard, and the National

Aeronautics and Space Administration (NASA).

(7) Ensure that small disadvantaged and women-owned small

business concern dollars are included in the small business

category. This means, for example, that a small disadvantaged

business concern owned by a woman is counted as a small business

concern, a small disadvantaged business concern, and a women-owned

small business concern.

(8) Ensure that the actual achievements on the SF 294,

Subcontracting Report for Individual Contracts, are reported on the

same basis as the goals set forth in the contract.

(9) When subcontractors are required to adopt subcontracting

plans (see FAR section 19.704(a)(9)), require offerors to review,

approve, and monitor their subcontractors' compliance with such

plans. Copies of subcontractors' plans must be retained by the prime

contractor until subcontract completion. A ``certificate of

compliance'' or statement from the subcontractor that it has a

subcontracting plan does not satisfy this requirement.

c. Award of Contracts or Contract Modifications.

(1) The Small Business Act treats contracts and modifications

separately. The following policies apply to contract modifications

other than options. If a subcontracting plan is not required at the

time of award because the contract value is below the threshold, a

subcontracting plan will not be required even if a subsequent

modification increases the contract value to an amount exceeding the

threshold. The only exception to this rule is when the contract

modification itself exceeds the threshold. Moreover, it is not

necessary to obtain another subcontracting plan for a modification

exceeding the applicable threshold if the contract already includes

a subcontracting plan. However, the original plan must be modified

to adjust the goals to account for the new effort.

(2) The following policies apply to contractors and

subcontractors that no longer meet the size or ownership criteria

for a small, small disadvantaged, or women-owned small business

concern as a result of growth, a buy-out, or a merger during the

period of contract performance:

(a) A subcontracting plan is not required of any former small

business prime contractor that, during contract performance, no

longer meets the definition of a small business concern. Similarly,

the requirement to submit periodic reports does not apply. However,

a subcontracting plan is required if a prime contractor erroneously

considered itself small at the time of contract award. Under this

circumstance, the contracting officer should request a

subcontracting plan from the contractor and the responsibility to

submit periodic reports applies.

(b) A prime contractor may continue to report subcontract

dollars as a small, small disadvantaged, or women-owned small

business concern award for the duration of the subcontract,

including all option years.

d. Contract Awards Involving Commercial Plans.

(1) Commercial plans, as described in FAR section 19.704(d), are

useful for companies that normally rely on their existing network of

suppliers for all of their business and do not enter into specific

subcontracts to fill Government contracts. Commercial plans may

apply to the production of the offeror's entire company, or may be

limited to a corporation, company, division, plant or product line.

(2) Commercial plans are recognized as one way to reduce the

burden of government-unique requirements for companies that provide

commercial items under Government contracts and subcontracts.

(3) Agencies shall inform prospective offerors in solicitations

expected to trigger the requirements for a subcontracting plan of

the opportunity for them and/or their subcontractors to develop

commercial plans if they are supplying commercial items.

(4) Offerors shall state if there is a pre-approved plan and for

which item(s) and/or service(s) the plan has been approved.

(5) The contracting officer shall obtain a copy of the plan and

approval document from a contractor who has a commercial plan

previously approved by another agency's contracting activity or

another federal agency.

e. Contract Administration of Subcontracting Plans. In addition

to the requirements at FAR section 19.706, administrative

contracting officers shall:

(1) Monitor a contractor's compliance with the SF 294 report

requirements. The SF 294 is used to evaluate the contractor's

progress toward meeting the subcontracting goals established in an

individual contract plan. The contracting officer shall pay

particular attention to reviewing the SF 294 required at contract

completion. The SF 294 is not required for contracts with an

approved commercial plan.

(2) Ensure receipt of and review the SF 295 (Summary

Subcontracting Report). The SF 295 is used to evaluate the

contractor's progress toward meeting the subcontracting goals in

commercial plans. The SF 295 also is used for both commercial plans

and individual plans to summarize all subcontract awards under

contracts with a particular federal agency.

7. Best Practices. For purposes of this Policy Letter, best

practices are practical techniques gained from experience that

agencies may use to improve subcontracting plans. The best practices

are not mandatory and should not form the basis for Inspector

General or other audit reviews.

a. Subcontract Plan Evaluation.

(1) DOD, Coast Guard, and NASA regulations require that the

subcontracting plan be a factor in evaluating bids or competitive

proposals (10 U.S.C. 2323(h)(2)) under solicitations that require a

plan. Other agencies may use this approach as appropriate. For

example, the offeror's subcontracting plan may be a separate factor/

subfactor in complex, large dollar negotiated acquisitions, or

consolidated procurements, where substantial subcontracting

opportunities exist. As a separate evaluation factor/subfactor

(apart from the offeror's technical, management, and cost proposal),

the subcontracting plan should account for a meaningful percentage

or weight of the total evaluation. In cases where small businesses

are bidding against large contractors and small businesses are not

required to have a plan, contracting officers shall give small

businesses a rating equal to the maximum points available for those

evaluation factors/subfactors.

(2) Agencies should define the parameters by which a

subcontracting plan will be evaluated. The parameters may include

the following:

(a) The extent to which the plan expresses definitive

commitments to subcontracting with small, small disadvantaged, and

women-owned small business concerns. Greater credit may be given to

an offeror who identifies the names of the intended small, small

disadvantaged, and women-owned small business concerns with the

initial submission of its plan, and/or provides

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``letters of commitment'' to subcontract with such firms.

(b) The extent to which the plan provides a significant share of

subcontracting dollars to small, small disadvantaged, and women-

owned small business concerns.

(c) The quality of the offeror's overall plan, including its

goals and methods for achieving those goals.

(d) For individual contract plans, the offeror's procedures for

reviewing, approving, and monitoring its subcontractors' compliance

with subcontracting plans.

(e) The extent to which the offeror utilizes small business

incumbents with proven performance records as subcontractors under

consolidated contracts for services. Utilizing incumbents allows the

government to retain institutional knowledge, and small businesses

to continue providing quality services at advantageous prices.

(f) For mission-specific contracts such as high technology and

research, the extent to which the offeror plans to award

subcontracts for other than routine support services.

(g) The extent to which prime contractors have excelled in

achieving subcontracting goals or participated in a Mentor Protege

Program.

b. Use of Past Performance in Source Selection.

(1) The contracting officer may obtain information from the

cognizant contract administration office concerning an offeror's

past performance with respect to subcontracting with small, small

disadvantaged, and women-owned small business concerns. In addition,

the contracting officer may seek the advice of the agency's small

business representative and/or check with the SBA Area Director for

Government Contracting or the Defense Contract Management Command to

determine the offeror's current subcontracting performance rating.

(2) In evaluating past performance, the contracting officer may

consider the following:

(a) The extent to which goals were achieved on contracts

completed during the current fiscal year and the two previous fiscal

years, with greater weight assigned to those contracts completed

most recently.

(b) The extent to which the offeror's subcontracting efforts

were consistent with its subcontracting plan or the extent to which

the offeror made a good faith effort to comply with its plan.

(c) The extent to which the offeror required its large business

subcontractors to adopt similar plans under the contract flow-down

requirement.

(d) The extent to which an offeror complied with the timely and

accurate submission of the required SF 294 and SF 295.

(e) The extent to which the offeror participates in a Mentor

Protege Program.

c. Awards and Incentives.

(1) Contracting activities, in conjunction with Heads of Offices

of Small and Disadvantaged Business Utilization, may establish an

awards program for contracting officials and prime contractors who

do an outstanding job of promoting small, small disadvantaged, and

women-owned small business concerns as subcontractors. Recognition

may be in the form of plaques, certificates, monetary awards, etc.

The awards program may, among other things, recognize:

(a) Prime contractors that exceed all of their subcontracting

goals;

(b) Contracting officials who are exemplary in administering and

enforcing compliance with subcontracting plans, and

(c) Small business and contracting specialists who demonstrate

outstanding outreach efforts to promote the use of small, small

disadvantaged, and women-owned small business concerns as

subcontractors.

(2) In addition to an awards program, contracting activities may

consider incentives such as:

(a) In contracts containing the Liquidated Damages clause at FAR

section 52.219-16, requiring that a certain percentage of the

contract value be subcontracted to small business concerns. If the

percentage is not met, the contracting activity may assess

liquidated damages.

(b) Making the administration and enforcement of subcontracting

plans a critical factor in the contracting officer's performance

appraisal.

(c) Negotiating alternative payment schedules with prime

contractors that offer to provide substantial subcontracting

opportunities to small, small disadvantaged, and women-owned small

business concerns. This incentive also could be applied to prime

contractors that agree to mentor small business concerns under a

Mentor Protege Program.

(d) Reducing inspection, monitoring, and auditing of

subcontracting compliance for prime contractors that have an

outstanding past performance record. For example, a contractor that

receives an outstanding rating on a subcontracting compliance review

could receive a follow-up review the next year that consists of a

statistical desk audit only. The SBA has authorized its field office

staff to exempt outstanding contractors from a formal compliance

review for three years as long as the SF 295 shows no deterioration

in the dollars awarded to small, small disadvantaged, and women-

owned small business concerns during that period.

d. Goals.

(1) The contracting officer may use target goals in

solicitations to inform potential offerors of what the Government

expects in an acceptable subcontracting plan.

(2) The contracting officer may specify subcontracting

percentage goals to increase small, small disadvantaged, and women-

owned business concern participation in newly consolidated contracts

for non-commercial items/services. The percentages may be determined

on a contract-by-contract basis based on market research and

requests for information from potential offerors and potential small

business subcontractors.

(3) In addition to the statutory goals for small, small

disadvantaged, and women-owned small business concerns, which are

based on the projected value of the prime and subcontract awards

proposed by the offeror, the contracting officer may also establish

subcontracting goals based on the overall value of the procurement.

(Note: In some cases, this may not be a realistic approach. The

dollar value of the contract may have no effect on the potential for

subcontracting.)

(4) The contracting officer may consider increasing the small,

small disadvantaged, and women-owned small business concern

participation goals commensurate with the size of the contract. For

example, the larger the degree of contract aggregation, the higher

the goals for small, small disadvantaged and women-owned small

business concern participation may be set.

8. Responsibilities. The Federal Acquisition Regulatory Council

shall ensure that the policies established herein are incorporated

in the FAR within 210 days from the date this Policy Letter is

published in final form in the Federal Register. Promulgation of

final regulations within that 210-day period shall be considered

issuance in a ``timely manner'' as prescribed in 41 U.S.C. 405(b).

9. Information Contact. Questions regarding this Policy Letter

should be directed to Linda Williams, Deputy Associate

Administrator, Office of Federal Procurement Policy, 725 17th

Street, NW, Washington, DC 20503, telephone 202-395-3302, facsimile

202-395-5105.

10. Judicial Review. This Policy Letter only provides policy

guidance to agencies in the exercise of their discretion concerning

Federal contracting. It does not interpret the Constitution or any

law. It is not intended to create any legal right or any basis on

which to sue the United States or its representatives.

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

the date of issuance.

[FR Doc. 99-8122 Filed 4-1-99; 8:45 am]

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