96-1157. Government Contracting Assistance  

  • [Federal Register Volume 61, Number 21 (Wednesday, January 31, 1996)]
    [Rules and Regulations]
    [Pages 3310-3316]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-1157]
    
    
    
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    SMALL BUSINESS ADMINISTRATION
    13 CFR Part 125
    
    
    Government Contracting Assistance
    
    AGENCY: Small Business Administration.
    
    ACTION: Final rule.
    
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    SUMMARY: In response to President Clinton's Government-wide regulatory 
    reform initiative, the Small Business Administration (SBA) has 
    completed a page-by-page, line-by-line review of all of its existing 
    regulations to determine which should be revised or eliminated. This 
    rule would eliminate seven sections which are currently contained in 13 
    CFR Part 125 pertaining to SBA's procurement assistance programs. The 
    Part will be retitled Government Contracting Assistance.
    
    EFFECTIVE DATE: This rule is effective on March 1, 1996.
    
    FOR FURTHER INFORMATION CONTACT: John W. Klein, Chief Counsel for 
    Special Programs, at (202) 205-6645.
    
    SUPPLEMENTARY INFORMATION: Part 125 of chapter I of title 13 of the 
    Code of Federal Regulations sets forth the policies and procedures by 
    which SBA regulates Government contracting. On November 27, 1995 (60 FR 
    58276), SBA published a proposed rule in the Federal Register to 
    reorganize part 125, eliminating seven sections and streamlining other 
    sections. SBA proposed minor, but substantive, rule changes--notably, 
    removing Walsh-Healey determinations from the Certificate of Competency 
    process; increasing the threshold over which a contracting officer 
    could appeal the award of a Certificate of Competency to Headquarters 
    from $25,000 to $100,000, and clarifying that prospective limitations 
    on subcontracting applied to base year contracts, irrespective of 
    option years.
        SBA received sixteen timely comments to this proposed revision. 
    Eleven of the comments were directed at proposed Sec. 125.4, which 
    concerns Government property sale assistance. One was directed at the 
    proposed elimination of Sec. 125.10, the Procurement Automated Source 
    System (PASS). The remainder raised objections to proposed Sec. 125.6, 
    dealing with subcontracting limitations.
        SBA proposed a streamlined section on government property sales at 
    Sec. 125.4. The proposed section described the purpose of the 
    Government property sales assistance program; described what the 
    program does; described what sorts of economic activities are covered 
    by the program; and referred the reader to the appropriate sections in 
    Part 121 to obtain the size standards for the program. This section 
    replaces present Sec. 125.8, which recites the size standards in 
    detail, describes who in SBA is responsible for administering the 
    program, sets forth what interagency agreements SBA has concerning the 
    program and with whom, sets forth the form number of the applicable 
    certification, describes penalties for contract breach, and sets forth 
    the program's ``emphasis'', not only in the present but in the past as 
    well.
        Eight of the eleven comments discussing this section expressed the 
    mistaken belief that the proposed revision would eliminate all 
    references to the Government property sales assistance program. All 
    eleven of the comments expressed concern that in the absence of the 
    current detailed regulation, the general public, the timber industry 
    and employees of the Federal Government would lack sufficient 
    information to properly utilize the program. Some of these commenters 
    expressed concern that in the absence of the particulars of present 
    Sec. 125.8, other agencies having interagency agreements with the SBA 
    would be unaware of their responsibilities under those agreements. 
    Conversely, other commenters were concerned that the proposed revision 
    would somehow ``signal'' those other agencies that they were no longer 
    bound by their agreements. Some commenters were concerned that without 
    a regulation which assigns specific duties to specific SBA employees, 
    SBA would soon eliminate those employees. Finally, one commenter claims 
    that were SBA not to designate in the Code of Federal Regulations which 
    employees were to carry out which responsibilities under the Government 
    property sales assistance program, SBA would be in violation of the 
    Freedom of Information Act (5 U.S.C. 552).
        SBA has considered all of these comments, but believes that 
    Sec. 125.4 as proposed is an appropriate regulation. Current Sec. 125.8 
    has little useful information for either interested small businesses or 
    for federal agencies conducting sales under the program. The statutory 
    language replicated in current Sec. 125.8 is among the most general in 
    the entire Small Business Act, guaranteeing only that a ``fair'' 
    proportion of sales and leases be given to small businesses. The bare 
    recitation of which agencies have Interagency Agreements with SBA which 
    relate to the Government Property Sales Assistance Program provides no 
    useful information to the interested small business. The contents of 
    those agreements, which may be obtained from the Small Business 
    Administration upon request, may be of help, but they are not printed 
    in the present regulation, and to include them in the Code of Federal 
    Regulations would be impractical. The agencies themselves, of course, 
    know what the agreements require them to do, and a regulation is not 
    needed to create enforceability.
        SBA's own obligations under the Government Property Sales 
    Assistance Program remain unaffected by removing specific references to 
    which SBA employee performs which task. Descriptions of duties of 
    employees and other internal management matters need not be contained 
    in regulations.
        The size standards relevant to the timber set-aside program will be 
    restated, with more clarity, in new Secs. 121.506-121.508 of this 
    chapter. A proposed rule revising Part 121 of these regulations was 
    published on November 24, 1995, and will become final when this rule 
    becomes effective. There is no substantive change to the size standard.
        SBA disagrees with the contention that the Freedom of Information 
    Act requires that SBA set forth in regulation the responsibilities of 
    the property sales industrial representative, as the current regulation 
    does. FOIA merely requires that agencies publish descriptions of their 
    organization, not that they publish specific responsibilities for 
    specific staff. Moreover, FOIA merely requires that this publication be 
    in the Federal Register, not in regulations.
        One commenter urges that Sec. 125.10 be retained if its deletion 
    ``in any way diminishes the quality, availability, or emphasis for this 
    program.'' The 
    
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    deletion of this regulation will have none of these adverse effects.
        Three of the commenters objected to proposed Sec. 125.6(e), which 
    would measure a small business offeror's compliance with subcontracting 
    limitation percentages on the basis of the work it will perform during 
    the base contract period only, regardless of the work it does during 
    contract option years.
        The commenters argued that SBA's proposed regulation was contrary 
    to the legislative intent behind the statute, which was to apply the 
    subcontracting limitations to the anticipated length of the contract, 
    rather than to individual task orders. One of the commenters also 
    argued that such a regulation would make it particularly difficult for 
    small businesses to bid in high-tech fields, where the common practice 
    of the industry is to subcontract large portions of the contract at the 
    beginning phases and to gradually perform more and more of the work in-
    house. Another commenter also pointed out that the proposed rule was 
    inconsistent with Sec. 17.206(a) of the Federal Acquisition Regulation 
    (48 CFR Sec. 17.206(a)), which requires purchasing agencies to evaluate 
    proposals over their full length, rather than simply the base year.
        Unfortunately, the mere existence of option years in a contract is 
    not necessarily dispositive of the question of the anticipated length 
    of that contract. Some agencies offer contracts with short base periods 
    and many option years as the best way to protect the agency's 
    interests, without any real expectation that the awardee will perform 
    the contract for the full period. It would defeat the purpose of 
    Sec. 644(o) to permit, for example, an award to a concern which ends up 
    subcontracting most of the performance during the actual period of 
    performance on the basis of its promise to perform with its own 
    personnel during option years which are never awarded.
        However, SBA agrees that where the purchasing activity awards the 
    contract on the basis of an evaluation of more than the base period, 
    SBA should accept this evaluation as evidence of the anticipated length 
    of the contract. Accordingly, SBA has modified new Sec. 125.6(e) so 
    that where a proposal is evaluated on the basis of more than the base 
    year, the contract awardee must perform the statutory minimum over the 
    period of time upon which the evaluation is made. In all other 
    instances, the contract awardee must perform the statutory minimum over 
    the base period.
        Another commenter objected to the language of Sec. 125.6(a), which 
    sets forth the subcontracting limitations, where applicable, for each 
    type of procurement. This commenter contended that the language of 
    present Sec. 124.314, which sets forth subcontracting limitations on 
    8(a) concerns, is more clear. SBA disagrees. SBA believes the wording 
    of Sec. 125.6 merely eliminates unnecessary wording. No substantive 
    difference is intended.
        One commenter asked why proposed Sec. 125.6(a)(2), which 
    establishes a 50% performance of work requirement for contractors for 
    supplies (other than procurement from a regular dealer in such 
    supplies) establishes no performance or work requirement for regular 
    dealers. SBA believes that the statute imposes no requirement on 
    regular dealers to perform any percentage of the work.
        A commenter noted that the language of proposed Sec. 125.6(b), 
    which establishes the definition of certain accounting terms for 
    purposes of complying with the limitations on subcontracting, may be 
    too burdensome for small business offerors who normally have less 
    formal accounting procedures. SBA does not consider it unduly 
    burdensome for small business offerors to employ these terms. The terms 
    need defining in a consistent way and the definitions are not overly 
    complex.
        Two commenters noted that in many instances small business offerors 
    have not made at the time of their offer the decisions they need to 
    make in order to determine how much of the contract they intend to 
    subcontract. SBA must respect the need of federal agencies to determine 
    the eligibility of small business bidders by a date certain. In the 
    instance of a sealed bid, the contracting officer must be able to 
    determine whether a bidder is responsible at the time of bid opening 
    and, if it is not, must be able to move on to the next bidder. 
    Similarly, in the instance of a negotiated procurement, the small 
    business offeror will have substantially completed its subcontracting 
    intentions by the time it makes its best and final offer, and must be 
    able to commit to compliance with statutory limitations on 
    subcontracting at that point.
        A commenter noted proposed Sec. 125.6(d) treated subcontracting 
    limitations as a responsibility, rather than a size, issue and stated 
    that this decision would raise questions as to whether the proposed 
    regulation was a renunciation of the ostensible subcontractor rule 
    found in Sec. 121.401(l)(4). SBA has decided to treat limitations on 
    subcontracting as a responsibility matter because it relates to how a 
    contractor intends to perform a specific contract and is analogous to 
    traditional responsibility issues such as capacity and credit. 
    Moreover, treating the issue in this way places the obligation to 
    question compliance with the contracting officer, and insures that the 
    contracting agency will be consulted before a negative determination is 
    overruled by SBA. This new rule will not affect the ostensible 
    subcontractor rule, which is being restated in new Sec. 121.103(f)(3). 
    Size protests will continue to be processed where the protester alleges 
    an anticipated awardee exceeds the applicable size standard due to a 
    joint venture relationship with a purported subcontractor, regardless 
    of whether the limitations on subcontracting percentages will be met by 
    the awardee.
        Another comment was an objection to the provision of Sec. 125.6(f), 
    which provides that work which a concern intends to subcontract to 
    subsidiaries and affiliates would not count as work performed by the 
    concern. The commenter points out that SBA does not treat the affiliate 
    as a separate entity for purposes of size determination and argues that 
    it is inconsistent to treat the affiliate as a separate entity for 
    purposes of subcontracting. The commenter also points out that an 
    applicant can easily defeat this restriction by bidding as a joint 
    venture with its affiliate.
        SBA believes that the governing statute, 15 U.S.C. 644(o), urges 
    this result. That statute refers to ``employees of the concern'' 
    (contracts for services) and ``the concern will perform work'' 
    (contracts for supplies). SBA regulations define a ``concern'' as ``a 
    business entity organized for profit * * * (which) may be in the legal 
    form of an individual proprietorship, partnership, corporation, joint 
    venture, association, trust or a cooperative * * *.'' (13 CFR 121.403).
        An offeror and its affiliates are separate legal entities. Even if 
    the statute were construed to permit a different rule, SBA believes a 
    regulation defining ``concern'' differently for different purposes 
    could be burdensome and confusing. While it is true that SBA aggregates 
    for size purposes the employees or revenues of subsidiaries or 
    affiliates of a concern, SBA does not treat the different legal 
    entities as having merged or lost their separate identities in terms of 
    ownership, management, assets and liabilities. To credit work performed 
    by a subsidiary or an affiliate as work performed by the concern itself 
    would be inconsistent with this approach.
        Finally, two commenters inquired as to how SBA or a contracting 
    officer can 
    
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    determine an offeror's compliance with subcontracting restrictions 
    before an award. As a responsibility matter, the contracting officer 
    will determine whether an offeror intends to comply and if so, whether 
    it is capable of complying. SBA may then review adverse determinations. 
    If award occurs, the contracting officer will have a continuing 
    responsibility to monitor contract performance to assure compliance 
    with contract terms, including subcontracting limitations.
        In addition to modifying the provision governing the period of time 
    considered for measuring compliance with statutory subcontracting 
    limitations, the final rule makes minor changes from the proposed rule 
    in order to further streamline the part. SBA has removed the list of 
    ``additional responsibilities'' assigned to commercial marketing 
    representatives (CMRs) set forth in proposed Sec. 125.3(e). CMRs will 
    be assigned responsibilities in addition to their matching tasks as the 
    need arises. SBA has also deleted the last sentence of proposed 
    Sec. 125.6(b)(4), which was inadvertently included in the proposed 
    regulation. The treatment of leasing utility distribution facilities in 
    the context of this section is still under review. SBA also corrected 
    an inadvertent error contained in the proposed rule as to the 
    eligibility of kit assemblers for a certificate of competency 
    (Sec. 125.5(b)(1)(v)(B) of the proposed rule). The final rule will 
    continue SBA's policy of making COCs available to kit assemblers 
    regardless of the size of the manufacturer where the procurement is 
    unrestricted, and of making COCs available to kit assemblers on small 
    business set-asides only where they provide components manufactured 
    only by domestic small businesses. SBA has also removed language in 
    that subparagraph relating to the treatment of components manufactured 
    by directed sources where the sources are large businesses. Under 
    current regulations, contracting agencies must first obtain a waiver of 
    the nonmanufacturing rule from SBA before they may direct large 
    business sources in a small business set-aside. Accordingly, there is 
    no need to include additional language governing directed sources.
    
    Compliance With Executive Orders 12612, 12778, and 12866, the 
    Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork 
    Reduction Act (44 U.S.C. Ch. 35)
    
        SBA certifies that this rule will not have a significant economic 
    impact on a substantial number of small entities within the meaning of 
    Executive Order 12866 or the Regulatory Flexibility Act, 5 U.S.C. 601, 
    et seq. This rule eliminates seven sections of SBA's regulations that 
    SBA has determined to be obsolete, unnecessary, or duplicative. The 
    remaining regulations have been rewritten for clarity and ease of use. 
    No contracting opportunities for small business will be affected by 
    this rule. Therefore, 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 U.S. 
    economy.
        For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
    certifies that this rule contains no new reporting or recordkeeping 
    requirements.
        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, SBA certifies that this rule 
    is drafted, to the extent practicable, in accordance with the standards 
    set forth in Section 2 of that Order.
    
    List of Subjects in 13 CFR Part 125
    
        Government contracts, Government procurement, Reporting and 
    recordkeeping requirements, Small businesses, Technical assistance.
        Accordingly, pursuant to the authority set forth in Section 4 of 
    Public Law 101-515 (104 Stat. 2140), Section 610(a) of Public Law 100-
    202 (101 Stat. 1329-39), sections 5(b)(6), 8 and 15 of the Small 
    Business Act, 72 Stat. 384, as amended (15 U.S.C. 631, et seq.), 31 
    U.S.C. 9701, 9702, SBA hereby revises Part 125 of Title 13 of the Code 
    of Federal Regulations to read as follows:
    
    PART 125--GOVERNMENT CONTRACTING PROGRAMS
    
    Sec.
    125.1  Programs included.
    125.2  Prime contracting assistance.
    125.3  Subcontracting assistance.
    125.4  Government property sales assistance.
    125.5  Certificate of Competency program.
    125.6  Prime contractor performance requirements (limitations on 
    subcontracting).
    
        Authority: 15 U.S.C. 634(b)(6), 637, and 644; 31 U.S.C. 9701, 
    9702.
    
    
    Sec. 125.1  Programs included.
    
        The regulations in this part relate to the Government contracting 
    assistance programs of SBA. There are four main programs: Prime 
    contracting assistance; Subcontracting assistance; Government property 
    sales assistance; and the Certificate of Competency program. The 
    objective of the programs is to assist small businesses in obtaining a 
    fair share of Federal Government contracts, subcontracts, and property 
    sales.
    
    
    Sec. 125.2  Prime contracting assistance.
    
        (a) Traditional PCR responsibilities. (1) SBA Procurement Center 
    Representatives (PCRs) are 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 would be appropriate. 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, 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 to the secretary of the department or head of the agency. 
    The procedures and time limits for such appeals are set forth in 
    Sec. 19.505 of the Federal Acquisition Regulation (FAR) (48 CFR 
    19.505).
        (2) PCRs review and evaluate the small business programs of Federal 
    agencies and buying activities and make recommendations for 
    improvement. They also recommend small business, small women-owned 
    business, and small disadvantaged business sources for use by 
    contracting activities and assist these businesses in obtaining Federal 
    contracts and subcontracts. Other authorized duties of a PCR are set 
    forth in the FAR in 48 CFR 19.402(c) and in the Small Business Act (the 
    Act) in Section 15(a) (15 U.S.C. 644(a)).
        (b) BPCR responsibilities. (1) SBA is required by section 403 of 
    Public Law 98-577 (15 U.S.C. 644(l)) to assign a breakout PCR (BPCR) to 
    major contracting centers. A major contracting center is a center that, 
    as determined by SBA, purchases substantial dollar amounts of other 
    than commercial items, and which has the potential to achieve 
    significant savings as a result of the assignment of a BPCR.
        (2) BPCRs advocate full and open competition in the Federal 
    contracting process and recommend the breakout for competition of items 
    and requirements which previously have not been competed. They may 
    appeal the failure by the buying activity to act favorably on a 
    recommendation in accord with the appeal procedures set forth in 
    Sec. 19.505 of the FAR (48 CFR 19.505). BPCRs also review restrictions 
    and obstacles to competition and make recommendations for improvement. 
    Other authorized functions of a BPCR are set forth in 48 CFR 19.403(c) 
    of the 
    
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    FAR and Section 15(l) of the Act (15 U.S.C. 644(l)).
    
    
    Sec. 125.3  Subcontracting assistance.
    
        (a) The purpose of the subcontracting assistance program is to 
    achieve maximum utilization of small business by major prime 
    contractors. The Act requires other-than-small firms awarded contracts 
    that offer subcontracting possibilities by the Federal Government in 
    excess of $500,000, or $1 million for construction of a public 
    facility, to submit a subcontracting plan to the contracting agency. 
    The FAR sets forth the requirements for subcontracting plans in 48 CFR 
    part 19, subpart 19.7, and 48 CFR 52.219-9.
        (b) Upon determination of the successful subcontract offeror, but 
    prior to award, the prime contractor must inform each unsuccessful 
    subcontract offeror in writing of the name and location of the apparent 
    successful offeror. This is applicable to all subcontracts over 
    $10,000.
        (c) SBA Commercial Market Representatives (CMRs) facilitate the 
    process of matching large prime contractors with small, small 
    disadvantaged, and small women-owned subcontractors. CMRs identify, 
    develop, and market small businesses to the prime contractors and 
    assist the small firms in obtaining subcontracts.
        (d) Each CMR has a portfolio of prime contractors and conducts 
    periodic compliance reviews and needs assessments of the companies in 
    this portfolio. CMRs are also required to perform opportunity 
    development and source identification. Opportunity development means 
    assessing the current and future needs of the prime contractors. Source 
    identification means identifying those small, small disadvantaged, and 
    small women-owned firms which can fulfill the needs assessed from the 
    opportunity development process.
    
    
    Sec. 125.4  Government property sales assistance.
    
        (a) The purpose of SBA's Government property sales assistance 
    program is to:
        (1) Insure that small businesses obtain their fair share of all 
    Federal real and personal property qualifying for sale or other 
    competitive disposal action; and
        (2) Assist small businesses in obtaining Federal property being 
    processed for disposal, sale, or lease.
        (b) SBA property sales assistance primarily consists of two 
    activities:
        (1) Obtaining small business set-asides when necessary to insure 
    that a fair share of Government property sales are made to small 
    businesses; and
        (2) Providing advice and assistance to small businesses on all 
    matters pertaining to sale or lease of Government property.
        (c) The program is intended to cover the following categories of 
    Government property:
        (1) Sales of timber and related forest products;
        (2) Sales of strategic material from national stockpiles;
        (3) Sales of royalty oil by the Department of Interior's Minerals 
    Management Service;
        (4) Leases involving rights to minerals, petroleum, coal, and 
    vegetation; and
        (5) Sales of surplus real and personal property.
        (d) SBA has established specific small business size standards and 
    rules for the sale or lease of the different kinds of Government 
    property. These provisions are contained in Secs. 121.501 through 
    121.514 of this chapter.
    
    
    Sec. 125.5  Certificate of Competency Program.
    
        (a) General. (1) The Certificate of Competency (COC) Program is 
    authorized under section 8(b)(7) of the Small Business Act. A COC is a 
    written instrument issued by SBA to a Government contracting officer, 
    certifying that one or more named small business concerns possess the 
    responsibility to perform a specific Government procurement (or sale) 
    contract. The COC Program is applicable to all Government procurement 
    actions. For purposes of this Section, the term ``United States'' 
    includes its territories, possessions, and the Commonwealth of Puerto 
    Rico.
        (2) A contracting officer must, upon determining an apparent low 
    small business offeror to be nonresponsible, refer that small business 
    to SBA for a possible COC, even if the next low apparently responsible 
    offeror is also a small business.
        (3) A small business offeror referred to SBA as nonresponsible may 
    apply to SBA for a COC. Where the applicant is a non-manufacturing 
    offeror on a supply contract, the COC applies to the responsibility of 
    the non-manufacturer, not to that of the manufacturer.
        (b) COC Eligibility. (1) The offeror seeking a COC has the burden 
    of proof to demonstrate its eligibility for COC review. To be eligible 
    for the COC program, a firm must meet the following criteria:
        (i) It must qualify as a small business concern under the size 
    standard applicable to the procurement. Where the solicitation fails to 
    specify a size standard or Standard Industrial Classification (SIC) 
    code, SBA will assign the appropriate size standard to determine COC 
    eligibility. SBA determines size eligibility as of the date described 
    in Sec. 121.404 of this chapter.
        (ii) A manufacturing, service, or construction concern must 
    demonstrate that it will perform a significant portion of the proposed 
    contract with its own facilities, equipment, and personnel. The 
    contract must be performed or the end item manufactured within the 
    United States.
        (iii) A non-manufacturer making an offer on a small business set-
    aside contract for supplies must furnish end items that have been 
    manufactured in the United States by a small business. A waiver of this 
    requirement may be requested under Secs. 121.1301 through 121.1305 of 
    this chapter for either the type of product being procured or the 
    specific contract at issue.
        (iv) A non-manufacturer making an offer on an unrestricted 
    procurement or a procurement utilizing simplified acquisition threshold 
    procedures with a cost that does not exceed $25,000 must furnish end 
    items manufactured in the United States to be eligible for a COC.
        (v) An offeror intending to provide a kit consisting of finished 
    components or other components provided for a special purpose, is 
    eligible if:
        (A) It meets the Size Standard for the SIC code assigned to the 
    procurement;
        (B) Each component comprising the kit was manufactured in the 
    United States; and
        (C) In the case of a set-aside, each component comprising the kit 
    was manufactured by a small business under the size standard applicable 
    to the component provided. A waiver of this requirement may be 
    requested under Secs. 121.1301 through 121.1305 of this chapter.
        (2) SBA will determine a concern ineligible for a COC if the 
    concern, or any of its principals, appears in the ``Parties Excluded 
    From Federal Procurement Programs'' section found in the U.S. General 
    Services Administration Office of Acquisition Policy Publication: List 
    of Parties Excluded From Federal Procurement or Nonprocurement 
    Programs. If a principal is unable to presently control the applicant 
    concern, and appears in the Procurement section of the list due to 
    matters not directly related to the concern itself, responsibility will 
    be determined in accordance with paragraph (f)(2) of this section.
        (3) An eligibility determination will be made on a case-by-case 
    basis, where a concern or any of its principals appears in the 
    Nonprocurement Section of the publication referred to in paragraph 
    (b)(2) of this section. 
    
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        (c) Referral of nonresponsibility determination to SBA. (1) A 
    contracting officer who determines that an apparently successful 
    offeror that has certified itself to be a small business with respect 
    to a specific Government procurement lacks any element of 
    responsibility (including competency, capability, capacity, credit, 
    integrity or tenacity or perseverance) must refer the matter in writing 
    to the SBA Government Contracting Area Office (Area Office) serving the 
    area in which the headquarters of the offeror is located. The referral 
    must include a copy of the following:
        (i) Solicitation;
        (ii) Offer submitted by the concern whose responsibility is at 
    issue for the procurement (its Best and Final Offer for a negotiated 
    procurement);
        (iii) Abstract of Bids, where applicable, or the Contracting 
    Officer's Price Negotiation Memorandum;
        (iv) Preaward survey, where applicable;
        (v) Contracting officer's written determination of 
    nonresponsibility;
        (vi) Technical data package (including drawings, specifications, 
    and Statement of Work); and
        (vii) Any other justification and documentation used to arrive at 
    the nonresponsibility determination.
        (2) Contract award must be withheld by the contracting officer for 
    a period of 15 working days (or longer if agreed to by SBA and the 
    contracting officer) following receipt by the appropriate Area Office 
    of a referral which includes all required documentation.
        (3) The COC referral must indicate that the offeror has been found 
    responsive to the solicitation, and also identify the reasons for the 
    nonresponsibility determination.
        (d) Application for COC. (1) Upon receipt of the contracting 
    officer's referral, the Area Office will inform the concern of the 
    contracting officer's negative responsibility determination, and offer 
    it the opportunity to apply to SBA for a COC by a specified date.
        (2) The COC application must include all information and 
    documentation requested by SBA and any additional information which the 
    firm believes will demonstrate its ability to perform on the proposed 
    contract. The application should be returned as soon as possible, but 
    no later than the date specified by SBA.
        (3) Upon receipt of a complete and acceptable application, SBA may 
    elect to visit the applicant's facility to review its responsibility. 
    Where a service or construction contract will be performed outside the 
    United States, SBA will rely solely on documentation and other relevant 
    information obtained within the United States. SBA personnel may obtain 
    clarification or confirmation of information provided by the applicant 
    by directly contacting suppliers, financial institutions, and other 
    third parties upon whom the applicant's responsibility depends.
        (e) Incomplete applications. If an application for a COC is 
    materially incomplete or is not submitted by the date specified by SBA, 
    SBA will close the case without issuing a COC and will notify the 
    contracting officer and the concern with a declination letter.
        (f) Reviewing an application. (1) The COC review process is not 
    limited to the areas of nonresponsibility cited by the contracting 
    officer. SBA may, at its discretion, independently evaluate the COC 
    applicant for all elements of responsibility, but it may presume 
    responsibility exists as to elements other than those cited as 
    deficient. SBA may deny a COC for reasons of nonresponsibility not 
    originally cited by the contracting officer.
        (2) A small business will be rebuttably presumed nonresponsible if 
    any of the following circumstances are shown to exist:
        (i) Within three years before the application for a COC, the 
    concern, or any of its principals, has been convicted of an offense or 
    offenses that would constitute grounds for debarment or suspension 
    under FAR subpart 9.4 (48 CFR part 9, subpart 9.4), and the matter is 
    still under the jurisdiction of a court (e.g., the principals of a 
    concern are incarcerated, on probation or parole, or under a suspended 
    sentence); or
        (ii) Within three years before the application for a COC, the 
    concern or any of its principals has had a civil judgment entered 
    against it or them for any reason that would constitute grounds for 
    debarment or suspension under FAR subpart 9.4 (48 CFR part, subpart 
    9.4).
        (g) Decision by Area Director (``Director''). After reviewing the 
    information submitted by the applicant and the information gathered by 
    SBA, the Area Director will make a determination, either final or 
    recommended as set forth in the following chart:
    
    ------------------------------------------------------------------------
                                     SBA official or         Finality of    
                                       office with        decision; options 
         Contracting actions        authority to make      for contracting  
                                        decision              agencies      
    ------------------------------------------------------------------------
    $100,000 or less, or in       Director may approve  Final. The Director 
     accordance with Simplified    or deny.              will notify both   
     Acquisition Threshold                               applicant and      
     procedures.                                         contracting agency 
                                                         in writing of the  
                                                         decision.          
    Between $100,000 and $25      (1) Director may      (1) Final.          
     million.                      deny.                                    
                                  (2) Director may      (2) Contracting     
                                   approve, subject to   agency may proceed 
                                   right of appeal and   under paragraph (h)
                                   other options.        or paragraph (i) of
                                                         this section.      
    Exceeding $25 million.......  (1) Director may      (1) Final.          
                                   deny.                                    
                                  (2) Director must     (2) Contracting     
                                   refer to SBA          agency may proceed 
                                   Headquarters          under paragraph (j)
                                   recommendation for    of this section.   
                                   approval.                                
    ------------------------------------------------------------------------
    
        (h) Notification of intent to issue on a contract with a value 
    between $100,000 and $25 million. Where the Director determines that a 
    COC is warranted, he or she will notify the contracting officer of the 
    intent to issue a COC, and of the reasons for that decision, prior to 
    issuing the COC. At the time of notification, the contracting officer 
    has the following options:
        (1) Accept the Director's decision to issue the COC and award the 
    contract to the concern. The COC issuance letter will then be sent, 
    including as an attachment a detailed rationale of the decision; or
        (2) Ask the Director to suspend the case for one of the following 
    purposes:
        (i) To forward a detailed rationale for the decision to the 
    contracting officer for review within a specified period of time;
        (ii) To afford the contracting officer the opportunity to meet with 
    the Area Office to review all documentation contained in the case file;
        (iii) To submit any information which the contracting officer 
    believes SBA has not considered (at which time, SBA will establish a 
    new suspense date mutually 
    
    [[Page 3315]]
    agreeable to the contracting officer and SBA); or
        (iv) To permit resolution of an appeal by the contracting agency to 
    SBA Headquarters under paragraph (i) of this section.
        (i) Appeals of Area Director determinations. For COC actions with a 
    value exceeding $100,000, contracting agencies may appeal a Director's 
    decision to issue a COC to SBA Headquarters by filing an appeal with 
    the Area Office processing the COC application. The Area Office must 
    honor the request to appeal if the contracting officer agrees to 
    withhold award until the appeal process is concluded. Without such an 
    agreement from the contracting officer, the Director must issue the 
    COC. When such an agreement has been obtained, the Area Office will 
    immediately forward the case file to SBA Headquarters.
        (1) The intent of the appeal procedure is to allow the contracting 
    agency the opportunity to submit to SBA Headquarters any documentation 
    which the Area Office may not have considered.
        (2) SBA Headquarters will furnish written notice to the Director, 
    Office of Small and Disadvantaged Business Utilization (OSDBU) at the 
    secretariat level of the procuring agency (with a copy to the 
    contracting officer), that the case file has been received and that an 
    appeal decision may be requested by an authorized official at that 
    level. If the contracting agency decides to file an appeal, it must 
    notify SBA Headquarters through its Director, OSDBU, within 10 working 
    days (or a time period agreed upon by both agencies) of its receipt of 
    the notice under paragraph (h) of this section. The appeal and any 
    supporting documentation must be filed within 10 working days (or a 
    different time period agreed to by both agencies) after SBA receives 
    the request for a formal appeal.
        (3) The SBA Associate Administrator for Government Contracting (AA/
    GC) will make a final determination, in writing, to issue or to deny 
    the COC.
        (j) Decision by SBA Headquarters where contract value exceeds $25 
    million. (1) Prior to taking final action, SBA Headquarters will 
    contact the contracting agency at the secretariat level or agency 
    equivalent and afford it the following options:
        (i) Ask SBA Headquarters to suspend the case so that the agency can 
    meet with Headquarters personnel and review all documentation contained 
    in the case file; or
        (ii) Submit to SBA Headquarters for evaluation any information 
    which the contracting agency believes has not been considered.
        (2) After reviewing all available information, the AA/GC will make 
    a final decision to either issue or deny the COC. If the AA/GC's 
    decision is to deny the COC, the applicant and contracting agency will 
    be informed in writing by the Area Office. If the decision is to issue 
    the COC, a letter certifying the responsibility of the firm will be 
    sent to the contracting agency by Headquarters and the applicant will 
    be informed of such issuance by the Area Office. Except as set forth in 
    paragraph (l) of this section, there can be no further appeal or 
    reconsideration of the decision of the AA/GC.
        (k) Notification of denial of COC. The notification to an 
    unsuccessful applicant following either an Area Director or a 
    Headquarters denial of a COC will briefly state all reasons for denial 
    and inform the applicant that a meeting may be requested with 
    appropriate SBA personnel to discuss the denial. Upon receipt of a 
    request for such a meeting, the appropriate SBA personnel will confer 
    with the applicant and explain the reasons for SBA's action. The 
    meeting does not constitute an opportunity to rebut the merits of the 
    SBA's decision to deny the COC, and is for the sole purpose of giving 
    the applicant the opportunity to correct deficiencies so as to improve 
    its ability to obtain future contracts either directly or, if 
    necessary, through the issuance of a COC.
        (l) Reconsideration of COC after issuance. (1) An approved COC may 
    be reconsidered and possibly rescinded, at the sole discretion of SBA, 
    where an award of the contract has not occurred, and one of the 
    following circumstances exists:
        (i) The COC applicant submitted false or omitted materially adverse 
    information;
        (ii) New materially adverse information has been received relating 
    to the current responsibility of the applicant concern; or
        (iii) The COC has been issued for more than 60 days (in which case 
    SBA may investigate the firm's current circumstances).
        (2) Where SBA reconsiders and reaffirms the COC the procedures 
    under paragraph (h) of this section do not apply.
        (m) Effect of a COC. By the terms of the Act, a COC is conclusive 
    as to responsibility. Where SBA issues a COC on behalf of a small 
    business with respect to a particular contract, contracting officers 
    are required to award the contract without requiring the firm to meet 
    any other requirement with respect to responsibility.
        (n) Effect of Denial of COC. Denial of a COC by SBA does not 
    preclude a contracting officer from awarding a contract to the referred 
    firm, nor does it prevent the concern from making an offer on any other 
    procurement.
        (o) Monitoring performance. Once a COC has been issued and a 
    contract awarded on that basis, SBA may monitor contractor performance.
    
    
    Sec. 125.6  Prime contractor performance requirements (limitations on 
    subcontracting).
    
        (a) In order to be awarded a full or partial small business set-
    aside contract, an 8(a) contract, or an unrestricted procurement where 
    a concern has claimed a 10 percent small disadvantaged business (SDB) 
    price evaluation preference, a small business concern must agree that:
        (1) In the case of a contract for services (except construction), 
    the concern will perform at least 50 percent of the cost of the 
    contract incurred for personnel with its own employees.
        (2) In the case of a contract for supplies or products (other than 
    procurement from a regular dealer in such supplies or products), the 
    concern will perform at least 50 percent of the cost of manufacturing 
    the supplies or products (not including the costs of materials).
        (3) In the case of a contract for general construction, the concern 
    will perform at least 15 percent of the cost of the contract with its 
    own employees (not including the costs of materials).
        (4) In the case of a contract for construction by special trade 
    contractors, the concern will perform at least 25 percent of the cost 
    of the contract with its own employees (not including the cost of 
    materials).
        (b) Definitions. The following definitions apply to this section:
        (1) Cost of the contract. All allowable direct and indirect costs 
    allocable to the contract, excluding profit or fees.
        (2) Cost of contract performance incurred for personnel. Direct 
    labor costs and any overhead which has only direct labor as its base, 
    plus the concern's General and Administrative rate multiplied by the 
    labor cost.
        (3) Cost of manufacturing. Those costs incurred by the firm in the 
    production of the end item being acquired. These are costs associated 
    with the manufacturing process, including the direct costs of 
    fabrication, assembly, or other production activities, and indirect 
    costs which are allocable and allowable. The cost of materials, as well 
    as the profit or fee from the contract, are excluded.
        (4) Cost of materials. Includes costs of the items purchased, 
    handling and 
    
    [[Page 3316]]
    associated shipping costs for the purchased items (which includes raw 
    materials), off-the-shelf items (and similar proportionately high-cost 
    common supply items requiring additional manufacturing or incorporation 
    to become end items), special tooling, special testing equipment, and 
    construction equipment purchased for and required to perform on the 
    contract. In the case of a supply contract, the acquisition of services 
    or products from outside sources following normal commercial practices 
    within the industry are also included.
        (5) Off-the-shelf item. An item produced and placed in stock by a 
    manufacturer, or stocked by a distributor, before orders or contracts 
    are received for its sale. The item may be commercial or may be 
    produced to military or Federal specifications or description. Off-the-
    shelf items are also known as Nondevelopmental Items (NDI).
        (6) Personnel. Individuals who are ``employees'' under Sec. 121.106 
    of this chapter.
        (7) Subcontracting. That portion of the contract performed by a 
    firm, other than the concern awarded the contract, under a second 
    contract, purchase order, or agreement for any parts, supplies, 
    components, or subassemblies which are not available off-the-shelf, and 
    which are manufactured in accordance with drawings, specifications, or 
    designs furnished by the contractor, or by the government as a portion 
    of the solicitation. Raw castings, forgings, and moldings are 
    considered as materials, not as subcontracting costs. Where the prime 
    contractor has been directed by the Government to use any specific 
    source for parts, supplies, components subassemblies or services, the 
    costs associated with those purchases will be considered as part of the 
    cost of materials, not subcontracting costs.
        (c) SBA will determine compliance with the Prime Contractor 
    Performance Requirements as of the following dates:
        (1) In a sealed bid procurement, as of the date the bid was 
    submitted;
        (2) In a negotiated procurement, as of the date the concern submits 
    its best and final offer. If a concern is determined not to be in 
    compliance at the time it submits its best and final offer, it may not 
    come into compliance later for that procurement by revising its 
    subcontracting plan.
        (d) Compliance will be considered an element of responsibility and 
    not a component of size eligibility.
        (e) The period of time used to determine compliance will be the 
    period of performance which the evaluating agency uses to evaluate the 
    proposal or bid. If the evaluating agency fails to articulate in its 
    solicitation the period of performance it will use to evaluate the 
    proposal or bid, the base contract period, excluding options, will be 
    used to determine compliance. In indefinite quantity contracts, 
    performance over the guaranteed minimum will be used to determine 
    compliance unless the evaluating agency articulates a different period 
    of performance which it will use to evaluate the proposal or bid in its 
    solicitation.
        (f) Work to be performed by subsidiaries or other affiliates of a 
    concern is not counted as being performed by the concern for purposes 
    of determining whether the concern will perform the required percentage 
    of work.
        (g) The procedures of Sec. 125.5 apply where the contracting 
    officer determines non-compliance, the procurement is a full or partial 
    small business set-aside or an SDB has claimed a preference, and refers 
    the matter to SBA for a COC determination.
    
        Dated: January 19, 1996.
    Philip Lader,
    Administrator.
    [FR Doc. 96-1157 Filed 1-30-96; 8:45 am]
    BILLING CODE 8025-01-P
    
    

Document Information

Effective Date:
3/1/1996
Published:
01/31/1996
Department:
Small Business Administration
Entry Type:
Rule
Action:
Final rule.
Document Number:
96-1157
Dates:
This rule is effective on March 1, 1996.
Pages:
3310-3316 (7 pages)
PDF File:
96-1157.pdf
CFR: (15)
13 CFR 19.505)
13 CFR 125.6(b)(4)
13 CFR 644(o)
13 CFR 125.4
13 CFR 125.5
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