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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: October 20, 2003

SUBJECT: Small Business Administration (SBA); Achievement of Subcontract Plan Goals

SOURCE: Federal Register, October 20, 2003, Vol. 68, No. 202, page 60015

AGENCIES: Small Business Administration (SBA)

ACTION: Proposed Rule

SYNOPSIS: The SBA is proposing to amend its regulations governing small business subcontracting to address comments received in response to SBA's proposed rule on contract bundling. This proposed rule provides a list of factors to consider in evaluating a prime contractor's performance and good-faith efforts to achieve the requirements in its subcontracting plan. Also, the proposed rule authorizes the use of goals in subcontracting plans, and past performance in meeting such goals, as a factor in source selection when placing orders against Federal Supply Schedules (FSS), government-wide acquisition contracts, and multi-agency contracts.

EDITOR'S NOTE: For more on SBA's final rule on contract bundling that generated the comments that produced this proposed rule, see today's FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 2001-17 and Small Business Administration (SBA); Contract Bundling."

DATES: Comments must be received on or before December 19, 2003.

ADDRESSES: Send comments to Dean Koppel, Assistant Administrator, Office of Policy and Research, 409 Third Street, SW, Mail Code: 6500, Washington, DC 20416; by e-mail to dean.koppel@sba.gov; or to http://www.regulations.gov; or by facsimile to 202-205-6390.

SUPPLEMENTAL INFORMATION: On January 31, 2003, SBA published a proposed rule to solicit comments on its proposal to implement several recommendations included in the Office of Management and Budget's October 2002 report entitled "Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business" (for more on the proposed SBA rule, 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").

Several commenters on 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 small business subcontracting plans, including examples of what types of conduct constitute "good-faith" efforts to comply with the goals specified in the subcontracting plans.

Small business subcontracting plans are required from large businesses awarded prime contracts in excess of $500,000 ($1,000,000 for construction of a public facility). The subcontracting plan must include dollar and percentage goals that reflect the maximum practicable utilization of small businesses as subcontractors or suppliers in the performance of the contract. A prime contractor that fails to make a good-faith effort to achieve the goals in its subcontracting plan can be terminated for default or assessed liquidated damages. Contracting officers also consider a contractor's good-faith efforts to achieve its subcontracting goals as an important factor in determining whether the contractor deserves an acceptable past performance rating.

"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," SBA states in the introduction of its final rule on contract bundling. "Many of the commenters recommended amendments that require further consideration to evaluate their likely effectiveness and impact on the procurement process. As a result, SBA is proposing a separate rule...to address many of these comments and suggestions, including the suggestion for more guidance in determining good faith compliance."

This proposed rule would reorganize and amend Title 13 of the Code of Federal Regulations (CFR), Part 125, Government Contracting Programs, Subpart 125.3, Subcontracting Assistance, as follows:

• Paragraph (a) would clarify that the purpose of the subcontracting assistance program is "to provide the maximum practicable subcontracting opportunities for small business concerns, including small business concerns owned and controlled by veterans, small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women." Also, it would make clear that the subcontracting assistance program implements the requirement that large prime contractors provide subcontracting plans.
  
  
• Paragraph (b)(1) would clarify the responsibilities of all prime contractors, "including small business prime contractors," that receive contracts exceeding the simplified acquisition threshold, to ensure that "small business concerns have the maximum practicable opportunity to participate in the performance of the contract, including subcontracts for subsystems, assemblies, components, and related services for major systems, consistent with the efficient performance of the contract..." However, this provision does not extend the requirement for subcontracting plans to small business concerns.
  
  Paragraph (b)(2) would list the following as examples of actions prime contractors may take to increase small business subcontracting opportunities:

        "(i) Breaking out contract work items into economically feasible units, as appropriate, to facilitate small business participation;
        "(ii) Conducting market research to identify small business subcontractors and suppliers through all reasonable means, such as performing on-line searches on SBA's PRO-Net (http://pro-net.sba.gov), posting Notices of Sources Sought and/or Requests for Proposal on SBA's SUB-Net (http://web.sba.gov/subnet/), and attending pre-bid conferences;
        "(iii) Soliciting small business concerns as early in the acquisition process as practicable to allow them sufficient time to submit a timely offer for the subcontract;
        "(iv) Providing interested small businesses with adequate and timely information about the plans, specifications, and requirements for performance of the prime contract to assist them in submitting a timely offer for the subcontract;
        "(v) Negotiating in good faith with interested small businesses;
        "(vi) Directing small businesses that need additional assistance to SBA;
        "(vii) Assisting interested small businesses in obtaining bonding, lines of credit, required insurance, necessary equipment, supplies, materials, or services; and
        "(viii) Utilizing the available services of small business associations; local, state, and federal small business assistance offices; and other organizations."

  SBA states in the introduction to this proposed rule that "the proposed guidance...is not intended to impose additional burdens or responsibilities on small businesses or to operate as a basis for denying a small business a contract award. Instead, SBA intends that the proposed guidance provide suggested measures for ensuring small business subcontracting opportunities in procurements."
  
  
• Paragraph (c) would be amended to address the additional responsibilities of large prime contractors:

        "(i) Submitting and negotiating before award an acceptable subcontracting plan that reflects maximum practicable utilization of small businesses in the performance of the contract as subcontractors or suppliers...
        "(ii) Making a good-faith effort to achieve the dollar and percentage goals and other elements in its subcontracting plan;
        "(iii) Submitting a timely, accurate, and complete SF-294, Subcontracting Report for Individual Contract, and SF-295, Summary Subcontract Report; or entering the same information into an electronic database approved by SBA;
        "(iv) Cooperating in the reviews of subcontracting plan compliance, including providing requested information and supporting documentation reflecting actual achievements and good-faith efforts to meet the goals and other elements in the subcontracting plan; and
        "(v) Providing pre-award written notification to unsuccessful small business offerors on all subcontracts over $100,000 for which a small business concern received a preference. The written notification must include the name and location of the apparent successful offeror and if the successful offeror is a small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, or women-owned small business."

  These requirements would not apply if:

        "(i) The prime contractor is a small business concern;
        "(ii) The prime contract or contract modification is a personal services contract;
        "(iii) The prime contract or contract modification will be performed entirely outside of any state, territory, or possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico; or
        "(iv) The modification is to a contract that did not originally contain the clause at [FAR] 52.219-8, Utilization of Small Business Concerns (or equivalent prior clauses)."

  (EDITOR'S NOTE: The requirement for a prime contractor to notify unsuccessful offerors would be increased from $10,000 to $100,000 to conform to the simplified acquisition threshold.)
  
  
• Paragraph (d) would address "evidence that a large business prime contractor has made a good-faith effort to comply with its subcontracting plan or other subcontracting responsibilities." Such evidence includes supporting documentation that "(1) The contractor performed the actions described in paragraph (b) of this section; or (2) other contractors awarded contracts of similar scope, size or dollar value have not achieved or exceeded the goals stated in their subcontracting plans, despite other evidence of their good-faith efforts to comply. The determination of the subcontracting plan compliance of other contractors may be based on available subcontracting past performance records and other information."
  
  
• New paragraph (e) would explain the role of SBA's Commercial Market Representatives (CMRs) in conducting Subcontracting Orientation and Assistance Reviews (SOARs) to assist prime contractors in understanding and complying with the requirements under the subcontracting assistance program.
  
  
• New paragraph (f) would provide the procedures for conducting on-site compliance reviews and follow-up reviews and validation of the SF-294 and SF-295. Paragraph (f) would further describe the existing rating process and the different procedures for conducting compliance reviews of prime contractors under a commercial plan. Finally, paragraph (f) would state that SBA is authorized to enter into agreements with other federal agencies and entities to conduct compliance reviews and otherwise further the objectives of the subcontracting program (copies of these agreements will be published on http://www.sba.gov/GC). (EDITOR'S NOTE: The introduction to this proposed rule states, "SBA has entered into one such agreement with the Defense Contracts Management Agency under a Memorandum of Understanding dated May 9, 2003.")
  
  
• New paragraph (g) would authorize contracting officials to use subcontracting plans as an "important" evaluation factor in the award of task and delivery orders against a Federal Supply Schedule, government-wide acquisition contract (GWAC), or multi-agency contract (MAC). "This evaluation may include any of the following: (1) the subcontracting to be performed on the specific requirement; (2) the goals negotiated in the commercial plan, if applicable; and (3) the contractor's past performance in meeting subcontracting goals in previous contracts."

SBA states that it is inviting comments on the proposed rule, "particularly on the provisions concerning the determination of good-faith efforts."

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

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