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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: October 20, 2003

SUBJECT: Federal Acquisition Circular (FAC) 2001-17 and Small Business Administration (SBA); Contract Bundling

SOURCE: Federal Register, October 20, 2003, Vol. 68, No. 202, pages 59999 and 60006

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), National Aeronautics and Space Administration (NASA), and Small Business Administration (SBA)

ACTION: Final Rules

SYNOPSIS: The FAR and SBA's regulations are amended to implement the recommendations of the Office of Federal Procurement Policy (OFPP) in its report "Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business."

EDITOR'S NOTE: "Bundling" is defined in FAR 2.101, Definitions, as "consolidating two or more requirements for supplies or services, previously provided or performed under separate smaller contracts, into a solicitation for a single contract that is likely to be unsuitable for award to a small business concern due to (1) the diversity, size, or specialized nature of the elements of the performance specified; (2) the aggregate dollar value of the anticipated award; (3) the geographical dispersion of the contract performance sites; or (4) any combination of the factors..."

For more on the proposed FAR and SBA rules, see the January 31, 2003, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Regulation (FAR) and Small Business Administration (SBA); Contract Bundling."

For more on "Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business," see the October 30, 2002, FEDERAL CONTRACTS DISPATCH "Office of Federal Procurement Policy (OFPP); Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business."

For more on SBA's proposed rule on subcontract plan achievements that was in response to comments on its proposed contract bundling rule, see today's FEDERAL CONTRACTS DISPATCH "Small Business Administration (SBA); Achievement of Subcontract Plan Goals."

DATES: The effective date for both the FAR and SBA final rules is October 20, 2003.

FOR FURTHER INFORMATION CONTACT: For FAC 2001-17, Rhonda Cundiff, Procurement Analyst, 202-501-0044. For the SBA final rule: Dean Koppel, Assistant Administrator, Office of Policy and Research, 202-401-8150, or by e-mail to dean.koppel@sba.gov.

SUPPLEMENTAL INFORMATION: On October 29, 2002, OFPP submitted to the president the report "Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business." Among the rcommendations in the report were:

• Clarify the definition of contract bundling in the FAR and SBA regulations to require contract bundling reviews by the agency Office of Small and Disadvantaged Business Utilization (OSDBU) for task and delivery orders under multiple award contract vehicles.
  
  
• Modify the FAR and SBA regulations to require contract bundling reviews of proposed acquisitions above an agency-specific threshold of between $2 million and $7 million.
  
  
• Modify the FAR and SBA regulations to require agencies to specifically identify alternative acquisition strategies that involve less bundling when an agency contemplates a bundled contract above the threshold between $2 million and $7 million. Where a bundled contract is used for an acquisition above the specified threshold, a written justification for using a bundled contract should identify these alternative strategies and the rationale for choosing a particular strategy over alternatives that could involve less bundling."
  
  
• Amend the FAR to require agencies to use contractor compliance with subcontracting plans as an evaluation factor for future contract awards, and to require agencies to strengthen oversight of contractor efforts to comply with subcontracting plans.
  
  
• Revise SBA regulations to facilitate early development of teams of small business contractors to compete for upcoming bundled procurements.

To implement these actions, proposed rules to amend the FAR and SBA regulations were published on January 31, 2003. Forty-three sets of comments were submitted in response to the FAR proposed bundling rule and 26 comments were submitted in response to the SBA regulations proposed bundling rule. As a result of the comments, the FAR proposed rule is adopted as proposed with a minor addition, and the SBA proposed rule is adopted with minor changes.

The following are the major changes being made to the FAR and SBA's regulations:

FAR

• The definition of "bundling" in FAR 2.101, Definitions, is revised to define a "single contract" as including: "(i) an indefinite quantity contract awarded to two or more sources under a single solicitation for the same or similar supplies and services (see FAR 16.504(c) [Indefinite-Quantity Contracts]); and (ii) an order placed against an indefinite quantity contract under a (A) Federal Supply Schedule contract; or (B) task-order contract or delivery-order contract awarded by another agency (i.e., governmentwide acquisition contract or multi-agency contract)."
  
  EDITOR'S NOTE: This requirement does not apply to orders placed against an agency's own multiple award contracts. The introduction to FAC 2001-17 states, "The [Civilian Agency Acquisition and Defense Acquisition Regulations] Councils do not agree that an agency's orders against its own contract should be subject to additional bundling reviews. The underlying multiple award contract of an agency is subject to the requirements for small business specialist (SBS) and procurement center representative (PCR) review for contract bundling and small business participation. Unlike FSS [Federal Supply Schedule] orders, theoretically, the SBS and PCR reviews of an agency's proposed acquisition strategy or plan for its multiple award contract should encompass that agency's anticipated orders under that contract. Consequently, the agency's own orders presumably were made part of the underlying PCR and SBS review. It would therefore be duplicative to require yet another bundling review of each individual order the agency places against its already reviewed multiple award contract."
  
  
• A new paragraph (d)(1) is added to FAR 7.104, General Procedures, which requires the acquisition planner to coordinate the acquisition plan or strategies with the small business specialist (SBS) when the strategy contemplates award of a contract or order meeting the agency dollar amounts in new FAR 7.104(d)(2), unless the contract or order is entirely reserved or set-aside for small business under FAR Part 19, Small Business Programs. Paragraph (d)(1) requires the SBS to notify the agency OSDBU if the proposed acquisition strategy involves contract bundling that the agency has not identified as bundled or includes unnecessary or unjustified bundling of requirements.
  
  
• New FAR 7.104(d)(2)(i) requires that the acquisition strategy be coordinated with the SBS in accordance with FAR 7.104(d)(1) if the estimated contract or order value is $7 million or more for DOD, $5 million or more for NASA, GSA, and the Department of Energy, and $2 million or more for all other agencies. Paragraph (d)(2)(ii) goes on to state, "If the strategy contemplates the award of multiple contracts or orders, the thresholds in paragraph (d)(2)(i) of this section apply to the cumulative maximum potential value, including options, of the contracts and orders."
  
  EDITOR'S NOTE: This applies to all contracts and orders over the thresholds, not just bundled acquisitions, "unless the contract or order is entirely reserved or set-aside for small business."
  
  
• Paragraph (b)(1) of FAR 7.105, Contents of Written Acquisition Plans, is revised to add "When the proposed acquisition strategy involves bundling, identify the incumbent contractors and contracts affected by the bundling." (EDITOR'S NOTE: This change was not included in the proposed rule, but made as a result of a comment.)
  
  
• In paragraphs (b)(1), (b)(2),(d), and (e) of FAR 7.107, Additional Requirements for Acquisitions Involving Bundling, the words "or order" are added after "contract" so it reads"estimated contract or order value."
  
  
• FAR 7.107(e) is further amended to revise the "substantial bundling" definition to "any bundling that results in a contract or order that meets the dollar amounts specified in [FAR] 7.104(d)(2)." Previously, the "substantial bundling" definition had been "any bundling that results in a contract or order with an average annual value of $10 million or more."
  
  
• New FAR 7.107(e)(6) requires the acquisition strategy to "identify alternative strategies that would reduce or minimize the scope of the bundling, and the rationale for not choosing those alternatives."
  
  
• Paragraph (a)(1) of FAR 8.404, Using Schedules, is revised to state that the requirement in paragraph (e)(1)(iii) of FAR 19.202-1, Encouraging Small Business Participation in Acquisitions, applies to orders placed against Federal Supply Schedules (see below). Also, FAR 8.404(a)(2) is revised to add that orders placed under an FSS contract must comply with all FAR requirements for a bundled contract when the order meets the definition of "bundled contract" in FAR 2.101.
  
  
• Paragraph (c)(2) of FAR 10.001, Policy, is revised to add the words "or 30 days prior to placing an order without a solicitation" so that it now states, "At least 30 days before release of the solicitation or 30 days prior to placing an order without a solicitation..." (EDITOR'S NOTE: Paragraph (c)(2) requires that affected incumbent small businesses be notified of the government's intention to bundle the requirement "at least 30 days before..." Note that this requirement applies to all bundled contracts and orders regardless of dollar amount, not merely those above the applicable threshold in FAR 7.104(d)(2)(i).)
  
  
• Paragraph (a)(7) of FAR 16.505, Ordering, is revised to state that orders placed under a task-order or delivery-order contract awarded by another agency must comply with all FAR requirements for a bundled contract when the order meets the definition of "bundled contract" in FAR 2.101.
  
  
• New paragraph (d)(11) is added to FAR 19.201, General Policy, to require the OSDBU to "conduct periodic reviews to assess the (i) extent to which small businesses are receiving a fair share of federal procurements, including contract opportunities under the programs administered under the Small Business Act; (ii) adequacy of contract bundling documentation and justifications; and (iii) actions taken to mitigate the effects of necessary and justified contract bundling on small businesses." The OSDBU is required to submit a copy of its assessment to the agency head and the SBA administrator.
  
  
• To FAR 19.202, Specific Policies, is added a requirement that agencies establish procedures, including dollar thresholds, for review of acquisitions by the OSDBU as to whether a particular acquisition should be awarded under FAR Subpart 19.5, Small Business Programs (that is, small business set-asides), FAR Subpart 19.8, Contracting with the Small Business Administration (The 8(a) Program), or FAR Subpart 19.13, Historically Underutilized Business Zone (HUBZone) Program.
  
  
• Paragraph (e)(1)(iii) of FAR 19.202-1, Encouraging Small Business Participation in Acquisitions, is amended to require the contracting officer to provide to the SBA PCR (when the acquisition involves bundling) and the OSDBU (when the acquisition involves substantial bundling) "all information relative to the justification of contract bundling, including the acquisition plan or strategy and, if the acquisition involves substantial bundling, the information identified in [FAR] 7.107(e)."
  
  
• Paragraph (a) of FAR 42.1502, Policy, which addresses evaluations of contractor performance, is amended to add the following as the last sentence: "These procedures shall require an assessment of contractor compliance with the goals identified in the small business subcontracting plan when the contract includes the clause at [FAR] 52.219-9, Small Business Subcontracting Plan."

SBA Regulations (Title 13 of the Code of Federal Regulations (CFR), Part 125, Government Contracting Programs, Section 125.2, Prime Contracting Assistance)

The revisions to 13 CFR 125.2 parallel those made to the FAR for the most part. The following are the changes being made to SBA's regulations that have no counterpart in the FAR changes:

• Paragraph (b)(1) is revised to require PCRs to identify alternative strategies to maximize the participation of small businesses in the procurement when they review acquisitions not set-aside for small businesses. Previously, paragraph (b)(1) provided only that PCRs must review acquisitions not set-aside for small businesses to determine whether a set-aside would be appropriate.
  
  
• Paragraph (b)(6)(iii)(C) (formerly paragraph (b)(5)(iii)(C)) is revised to clarify that the SBA PCRs, as part of their responsibility to ensure that small business participation is maximized through subcontracting opportunities, may review an agency's oversight of its subcontracting programs, including its overall and individual assessment of contractor compliance. It requires PCRs to "work to ensure that small business participation is maximized through teaming arrangements and 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; (B) recommending that the small business subcontracting goals be based on total contract dollars instead of subcontract dollars; and (C) reviewing an agency's oversight of its subcontracting program, including its overall and individual assessment of a contractor's compliance with its small business subcontracting plans."
  
  
• Paragraph (b)(8) (formerly paragraph (b)(7)) is revised to clarify that PCRs must work with the SBS and agency OSDBU as early in the acquisition process as practicable to identify acquisitions involving bundling. It requires PCRs, the SBS, and the OSDBU to recommend the restructuring of acquisitions as necessary to increase small business prime contract participation through small business teams.
  
  EDITOR'S NOTE: Several of those responding to SBA's proposed rule identified the need for more guidance on evaluating large prime contractor performance and efforts to achieve the goals specified in their subcontracting plans, including examples of what types of conduct constitute "good-faith" efforts to comply with subcontracting plans.
  
  SBA agrees "that effective procedures to mitigate the effects of contract bundling on small businesses necessitates more stringent requirements for monitoring compliance with subcontracting plans to ensure that small businesses receive the maximum practical opportunity to participate as subcontractors in large federal contracts." Therefore, SBA is publishing a separate rule to address this and other comments and suggestions, including the suggestion for more guidance in determining good faith compliance -- see today's FEDERAL CONTRACTS DISPATCH "Small Business Administration (SBA); Achievement of Subcontract Plan Goals."

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

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