[Federal Register Volume 64, Number 205 (Monday, October 25, 1999)]
[Rules and Regulations]
[Pages 57366-57372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27801]
[[Page 57366]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121 and 125
Government Contracting Programs
AGENCY: Small Business Administration.
ACTION: Interim rule with request for comments.
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SUMMARY: The Small Business Administration (SBA) is amending its
regulations to address contract bundling due to changes set forth in
the Small Business Reauthorization Act of 1997 (Pub. L. 105-135, 111
Stat. 2617). In addition, this rule restates SBA's current authority to
appeal to the head of a procuring agency decisions made by the agency
that SBA believes to adversely affect small businesses.
DATES: Effective Date: December 27, 1999.
Comment Date: Comments due on or before December 27, 1999.
ADDRESSES: Address comments to Linda G. Williams, Deputy Associate
Deputy Administrator for Government Contracting and Minority Enterprise
Development, U.S. Small Business Administration, 409 Third Street, SW,
Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT: Anthony Robinson, Office of Government
Contracting, (202) 205-6465.
SUPPLEMENTARY INFORMATION: Section 15(a) of the Small Business Act, 15
U.S.C. 644(a), authorizes SBA to appeal to the head of a procuring
agency certain decisions made by the agency that SBA believes adversely
affects small businesses. Section 413(b)(1) of Pub. L. 105-135
reinforced existing appeal rights and further defined section 15(a) of
the Small Business Act for ``an unnecessary or unjustified bundling of
contract requirements.'' It left intact, however, SBA's current appeal
rights. In this regard, the Joint Explanatory Statement of the bundling
provisions contained in Public Law 105-135 as set forth in the
Congressional Record specifically provided that ``(n)othing in [the
bundling amendments] is intended to amend or change in any way the
existing obligations imposed on a procuring activity or the authority
granted to the Small Business Administration under section 15(a) of the
Small Business Act.'' 143 Cong. Rec. S11522, S11526 (daily ed. Oct. 31,
1997).
On January 13, 1999, SBA published a proposed rule in the Federal
Register requesting public comments on implementation of sections 411-
417 of the Small Business Reauthorization Act of 1997 (Pub. L. 105-
135). See 64 FR 2153, Jan. 13, 1999. The statutory amendments recognize
that the consolidation of contract requirements may be necessary and
justified, in some cases. The rule requires that each Federal agency,
to the maximum extent practicable, take steps to avoid unnecessary and
unjustified bundling of contract requirements that preclude small
business participation as prime contractors. The rule also requires
each agency to eliminate obstacles to small business participation as
prime contractors.
The comment period for 64 FR 2153 closed on March 15, 1999. SBA
received 32 comments in response to the proposed rule. The comments are
comprised of 11 (34 percent) from Government agencies, 11 (34 percent)
from trade associations, 9 (28 percent) from small-businesses, and 1 (3
percent) from a large business.
SBA specifically requested comments on three difficult definitional
areas: (1) What constitutes substantial bundling?; (2) what constitutes
measurably substantial benefits as a justification for bundling?; and
(3) what quantifiable test constitutes substantial if reduction of
administrative or personnel costs is the sole basis for bundling? The
comments and recommendations received by SBA to these questions and to
other provisions of the proposed rule are discussed below in the
section-by-section analysis.
SBA also identifies in the section-by-section analysis below the
number of specific comments relating to particular provisions of the
rule. Not all comments received addressed the issues contained in the
proposed rule. For instance, several commenters identified a particular
provision, but spoke of the problems caused by bundling generally, and
not how the provision itself should be changed. Other commenters stated
that they agreed with or disagreed with a particular provision without
offering any reasoning or alternatives. Thus, SBA has not identified
every comment that it received in response to a particular provision
and responded to them.
Consistent with the statutory amendments, this rule defines
``bundling,'' identifies the circumstances under which such
``bundling'' may be necessary and justified, and permits SBA to appeal
bundling actions that it believes to be unnecessary and unjustified to
the head of the procuring agency. It also authorizes two or more small
businesses to form a contract team and for that team to be considered a
small business for purposes of a bundled procurement requirement,
provided that each small business partner to the teaming arrangement
individually qualifies as a small business under the SIC code for the
requirement. Finally, the rule restates SBA's current authority to
appeal to the head of an agency other procurement decisions made by
procuring activities that SBA believes will adversely affect small
business.
The rule reorganizes and amends 13 CFR 125.2 to more clearly
explain SBA's current rights under section 15(a) of the Small Business
Act. The rule sets forth a procuring activity's current
responsibilities to submit a proposed procurement to SBA for review
whenever the procurement includes in its statement of work goods or
services currently being performed by a small business and the
magnitude of the quantity or estimated dollar value of the proposed
procurement would render small business prime contract participation
unlikely. It also requires a procuring activity to submit a proposed
procurement to SBA for review where a proposed procurement for
construction seeks to package or consolidate discrete construction
projects. In addition, it authorizes SBA to appeal disagreements over
the suitability of a particular acquisition for a small business set-
aside first to the head of the contracting activity, and then to the
head of the agency. This authority is currently granted to SBA by
section 15(a) of the Small Business Act and was not affected by the
addition of new rights regarding ``bundling.'' This rule does not apply
to contracts to be awarded and performed entirely outside of the United
States.
In implementing the new statutory bundling provisions, the rule
also requires a procuring activity to submit a proposed procurement to
SBA for review whenever the procurement includes in its statement of
work a ``bundled'' requirement, and authorizes SBA to appeal to the
head of the contracting activity, and then to the head of the agency,
``bundled'' requirements that SBA believes are not necessary and
justified. Whenever the procurement includes in its statement of work a
``substantial bundling'' of contract requirements, Section 15(a)(3) of
the Small Business Act requires that the procuring activity document
the benefits to be derived from the bundled contract and to justify its
use.
The Small Business Act does not define ``substantial bundling.''
The SBA defines substantial bundling in this interim rule.
The rule also defines what constitutes ``measurably substantial
benefits'' for purposes of determining whether
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bundling is necessary and justified. The rule defines ``measurably
substantial benefits'' to include, in any combination, or in the
aggregate, cost savings; quality improvements that will save time,
improve, or enhance performance or efficiency; reduction in acquisition
cycle times; better terms and conditions; or any other benefits. In
assessing whether benefits would be achieved through bundling, the
analysis must compare the cost that was charged by small businesses for
the work that they performed and, where available, the cost that could
have been or could be charged by small businesses for the work not
previously performed by small business. To proceed with a bundled
procurement, a procuring activity must quantify the identified benefits
as noted herein and explain how their impact would be measurably
substantial.
The statute recognizes that in some circumstances bundling should
be permitted because of the benefits that flow to the Government as a
result of consolidation of requirements. Congress determined that those
benefits may overcome any impact on small business in certain
circumstances. The statutory language requires contracting officers to
demonstrate ``measurably substantial benefits'' and the Joint
Explanatory Statement calls for meaningful, enforceable controls to
preclude unnecessary and unjustified bundling. Pursuant to the statute,
there are two requirements that must be satisfied before items are
bundled. The benefits to be derived by the Government must be
``measurable'' and they must be ``substantial.'' In order to be
``measurable,'' the benefits must be quantifiable. Pursuant to the
statutory language, however, quantifiable benefits are not sufficient
to justify bundling unless they are also ``substantial.'' SBA developed
objective, quantifiable criteria for determining when a consolidation
of procurements will provide ``measurably substantial benefits,'' and,
thus, when bundling will be necessary and justified.
The proposed regulation (64 FR 2153) identified areas in which
there may be ``measurably substantial benefits,'' including cost
savings or price reduction; quality improvements that will save time or
improve or enhance performance or efficiency; reduction in acquisition
cycle times; or better terms and conditions. The proposed rule also
established specific criteria for measuring whether these benefits or
improvements, which are to be derived, are ``substantial.'' Those
criteria are maintained in this interim rule.
The proposed regulation (64 FR 2153) also reiterated the statutory
requirement that the reduction of administrative or personnel costs
alone cannot be a justification for bundling unless the administrative
or personnel costs are expected to be ``substantial'' in relation to
the dollar value of the procurement (including options) to be
consolidated. In determining whether the reduction of administrative or
personnel costs are ``substantial,'' the statute clearly required a
comparison between the administrative or personnel costs without
bundling to those anticipated with bundling. In response to public
comment, this interim rule implements a quantifiable test, outlined
below, for determining whether administrative or personnel cost savings
are expected to be ``substantial.''
SBA is concerned that bundled contracts will render small business
participation as prime contractors unlikely. Section 125.2(b)(5) of
this interim rule authorizes SBA's Procurement Center Representatives
(PCRs) to recommend alternative procurement methods to agencies to
provide prime contract opportunities. These strategies include, under
appropriate circumstances: (1) Breaking up the procurement into smaller
discrete procurements to render them suitable for small business set-
asides; (2) breaking out discrete components, where practicable, to be
set aside for small business; or (3) when issuing multiple awards
against a single solicitation, reserving one or more awards for small
companies.
Section by Section Analysis
SBA received 10 comments concerning proposed Sec. 121.103(f)(3).
This section authorizes an exclusion from SBA's affiliation rules for a
procurement that qualifies as a ``bundled'' requirement. Eight comments
were in strong support of this section. One comment thought that this
section should ``address the implications of past performance.'' SBA
believes that past performance should have no bearing on this
regulatory provision for several reasons. Section 121.103(f)(3) is a
size regulation. Past performance is more typically associated with
responsibility, or a firm's ability to perform a specific contract
opportunity. A firm's ability to perform a given contract, based on
capacity, past performance, or other responsibility criteria, does not
affect whether the concern is a small business or not. Moreover, this
provision is a size rule for joint ventures or teaming relationships. A
joint venture is normally a one-time association to perform a
particular contract. There most likely is not any past performance
history on the joint venture entity. In addition, one commenter
suggested that the proposed rule reference a number of existing FAR
provisions dealing with liability, consent to subcontracts, and
performance and payment bonds. SBA believes existing Federal
Acquisition Regulation (FAR) provisions are adequate for purposes of
this rule and sees no need to amend this section.
SBA received two comments concerning Sec. 125.2(a). One commenter
thought that a literal reading of this section requires all awards to
be made to small businesses. SBA first notes that the language
contained in the regulations repeats almost verbatim the statutory
language contained in section 15(a) of the Small Business Act. SBA does
not agree that language requires what the commenter suggests. The
statutory and regulatory language requires award to a small business
only where ``SBA and the procuring or disposal agency'' determine one
of four things to be present. If the procuring or disposal agency does
not agree that one of those circumstances exists and SBA does not
appeal that decision to the head of the agency, award need not be made
to a small business. Another commenter suggested extending the rule to
include nonprofit agencies contracting with the Government. SBA's size
regulations have historically defined a ``small business concern'' to
be a business entity organized for profit. This rule is not the
appropriate vehicle to consider changes to that longstanding position,
and SBA makes no changes in that regard.
SBA received no comments concerning Sec. 125.2(b)(1), which
generally discusses the duties of SBA PCRs. As such, Sec. 125.2(b)(1)
remains as proposed.
SBA received eight comments concerning Sec. 125.2(b)(2), which
requires the procuring agency to provide a copy of a proposed
acquisition strategy to the PCR 30 days prior to issuance or to the
Government Contracting Area Office if a PCR is not assigned to the
buying activity. This section is consistent with FAR 19.202-1(e)(1)
(Encouraging Small Business Participation). Most of the comments
expressed concern about possible delays in SBA's response. The
procedures and time frames for PCR response are set forth in FAR
19.402(c)(2) and FAR 19.505 (48 CFR 19.402 and 19.505) which SBA
believes are adequate. Therefore, the interim rule remains as proposed.
SBA received four comments concerning Sec. 125.2(b)(3) that
requires the procuring agency to give the PCR a written statement of
explanation and justification for bundling. The statement
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must explain why certain small business accommodations are not
possible. One commenter thought this section would be burdensome and
adds little value given the other criteria in the rule. Sections 411
through 417 of SBA's Reauthorization Act specifically require this
written justification. As such, it remains as proposed in this interim
rule.
SBA received one comment concerning Sec. 125.2(b)(4), which
requires PCRs to identify capable small businesses, including small
business teams, for particular requirements on bundled contracts. The
commenter suggested a 30-calendar-day requirement for such an
identification process to avoid or limit acquisition delays. Timeframes
regarding PCR actions are currently addressed in 48 CFR 19.5. This
section remains as proposed.
Six commenters endorsed the proposed change to Sec. 125.2(b)(5),
which provides the SBA's PCRs with a number of alternatives to
recommend to procurement officials who are considering the bundling of
contracts into one larger contract. These commenters also recommended
that proposed Sec. 125.2(b)(5) be modified to include the following two
additional alternatives: recommending the solicitation and resultant
contract specifically state the small business subcontracting goals
which are expected of the contractor awardee, and recommending that the
small business subcontracting goals be based on contract dollars versus
subcontract dollars. SBA finds that these suggestions have merit and
have incorporated them in this interim rule.
One commenter suggested a time frame to develop alternatives to
bundling. FAR 19.402(c)(2) already specifies the time frame.
SBA received three comments concerning Sec. 125.2(b)(6), which
authorizes a PCR to appeal to the head of the contracting activity and
subsequently to the secretary of the department, or the head of the
agency, in cases where there is disagreement between the PCR and the
contracting officer. One commenter suggested that this section be
clarified by stating that the appeal be initiated within 30 calendar
days of following receipt of the contracting activity's acquisition
strategy statement. SBA believes that existing provisions in FAR 19.505
adequately address this issue.
SBA received one comment concerning Sec. 125.2(b)(7), which
requires the PCR to work with the procuring activity's Small
Disadvantaged Business Utilization Specialists (SADBUS). The commenter
stated that term was changed to Small Business Specialist in 1997. This
term was changed by the Federal Acquisition Streamlining Act (FASA) in
1995. Accordingly SBA will incorporate the recommended change.
SBA received one comment concerning Sec. 125.2(d)(1), which defines
certain identified terms used in these regulations. The comment related
to the impact of the rule on simplified acquisitions and administrative
lead-time. Since the interim rule establishes a dollar value standard
for the determination of substantial bundling, this section need not be
changed from the proposed rule.
SBA received no comments concerning Sec. 125.2(d)(2), which
restates the statutory mandates. This section is not changed in this
interim rule.
SBA received 38 separate comments concerning Sec. 125.2(d)(3) and
its subsections. Paragraph (d)(3)(i) mandates market research to
determine whether bundling is necessary and justified. We believe that
the paragraph, as written, meets the congressional intent, and it will
remain as proposed. The comments received concerning
Sec. 125.2(d)(3)(iii)(A) were diverse, but none offered definitive
criteria from which to quantify measurably substantial benefits. SBA
has reconsidered its original proposal and has formulated a two tiered
approach to quantify measurably substantial benefits. In the first
approach, depending upon the estimated dollar value of the procurement
(including options), the contracting activity must quantify the
identified benefits and explain how their impact would be measurably
substantial. SBA has established percentages to quantify the benefits
which must be met. In the second approach, where the benefits do not
meet the thresholds established by SBA, the Assistant Secretaries with
responsibility for acquisition matters (Service Acquisition Executives)
or the Under Secretary of Defense for Acquisition and Technology (for
other Defense Agencies) in the Department of Defense, and the Deputy
Under Secretary or equivalent for civilian agencies can determine on a
non-delegable basis, that the consolidated requirement is critical to
the success of the agency's mission. The procedures in
Sec. 125.2(d)(3)(iii) (A) and (B) are not applicable to consolidated
procurements that are subject to the cost comparisons conducted in
accordance with OMB Circular A-76.
SBA received two comments concerning Sec. 125.2(d)(4), which
requires agencies, in cases of substantial bundling, to document their
procurement strategies and to include a determination that the
anticipated benefits justify the use of bundling. One commenter
believed that the rule should state that SBA will assist the
contracting officer in identifying less obvious obstacles to small
business participation. Because this is implicitly stated elsewhere in
the rule, SBA believes that re-statement here is unnecessary.
One commenter recommended deletion of Sec. 125.2(d)(4)(iii), as its
might be confusing. SBA believes that the provision is clear, and does
not change it from the proposed rule.
SBA received six comments concerning proposed Sec. 125.2(d)(5),
which specified values for small business evaluation criteria. Some
commenters believed that this proposal unduly involved the SBA in
another agency's contractor selection process. SBA believes that its
statutory mandate provides authority to require this evaluation
criteria. Accordingly, this section remains unchanged in this interim
rule.
SBA received eight comments on Sec. 125.6(g). This section provides
that when the small business members of a team submitting an offer are
exempt from affiliation, the performance of work requirements shall
apply to the cooperative effort of the team or joint venture, not its
individual members. Seven commenters recommended that for services,
this section should be strengthened to require that the cooperative
effort of the team or joint venture perform at least 70 percent of the
cost of the contract incurred for personnel. Changing the percentages
of work required by small businesses is beyond the scope of this rule.
Another commenter suggested clarifying language regarding
contractual obligations, similar to an earlier recommendation. SBA
finds this change unnecessary.
Defining Substantial Bundling
The SBA sought comments on appropriate ways to define substantial
bundling (for example, in terms of threshold contract value or a
threshold number of geographic locations and Standard Industrial
Classification (SIC) codes). Several commenters recommended that
substantial bundling not be defined and to leave determinations of
substantial bundling to the discretion of the contracting officer. The
supporting rationale for this approach is that if the Congress wanted
to define substantial bundling they would have done so in statute. The
absence of a clear-cut definition of substantial bundling, however,
creates a
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number of serious administrative issues, which, if unresolved, would
defeat congressional intent. SBA's approach is to provide a clear and
reasonable standard. For example, in evaluating the level of
substantial bundling, the Congress directed that the Federal
Procurement Data Center track bundling of contract awards at the five
million-dollar level. While SBA believes that this level is too low for
the purpose of defining ``substantial bundling,'' it demonstrates that
a single dollar standard for defining substantial bundling is
consistent with congressional intent. Several other commenters
supported an objective standard for determining what constitutes
``substantial bundling.''
Bundling is any contract consolidation that renders a contract
likely to be unsuitable for award to a small business concern due to
the aggregate dollar value of the anticipated award; the diversity,
size, or specialized nature of the elements of the performance
specified; the geographic dispersion of contract performance sites; or
any combination of these three criteria. SBA determined that the
aggregate dollar value of the anticipated award is the single most
important criteria for determining substantial bundling. The other
criteria, while significant, do not rise to the level of importance as
the aggregate dollar value of anticipated award. In addition, the other
criteria are generally correlated to high aggregate dollar levels.
As such, this interim rule defines substantial bundling as the
aggregation of two or more contracts whose combined average annual
value is at least $10 million. Typically, contracts are described in
terms of their total value over the life of the contract. Thus, for
example, a one-year contract with four one-year options with a value of
$10 million for the base year and each option year, would be considered
a $50 million contract. SBA determined that the $10 million substantial
bundling threshold will meet the statutory mandate to avoid unnecessary
and unjustified bundling of contract requirements that precludes small-
business participation as prime contractors. Establishing the $10
million threshold will not unduly burden federal agencies with the
administrative requirements of this regulation. Using the threshold,
contracting officers and the public can easily determine whether a
given consolidation of requirements constitutes substantial bundling.
For example, a consolidation of two contracts each with an average
value of $6 million into one contract with an average annual value of
$12 million constitutes substantial bundling.
Defining Measurably Substantial Benefits
When a procuring activity intends to proceed with a ``bundled''
requirement, it must document that the bundling is necessary and
justified. If it cannot do so, the procuring activity cannot go forward
with the consolidation. In order for bundling to be necessary and
justified, the consolidation must achieve ``measurably substantial
benefits.'' In its proposed rule, SBA specifically asked for comments
on how SBA could best objectively define this term. SBA received 11
comments regarding how ``measurable substantial benefits'' should be
defined. Of these eleven, four were from Federal Government agencies,
six from trade associations, and one from a small business firm.
Several commenters suggested that ``measurably substantial
benefits'' cannot be defined since the criteria set forth in the
legislation are not directly comparable. SBA recognizes the lack of
direct comparability in the criteria as commonly understood. However,
to meet Congressional intent, SBA has determined that for purposes of
this interim rule all anticipated benefits be expressed in dollars.
This will permit computation of benefits as a percentage of the total
anticipated contract award.
After considering all comments received, SBA concluded that
measurably substantial benefits must be expressed as a percentage of
the anticipated contract award value (including options). This is
necessary in order to facilitate comparisons among the varying benefits
to be derived. In other words, a reduction in cycle time must be
converted to a dollar value in order to be compared to the other
criteria such as cost savings. Without a common denominator such as
dollars, or percent of dollars, the careful analysis and justification
the law contemplates would not be possible. The inability to express
the various competing criteria without a common denominator would, in
effect, prevent evaluation. Several commenters offered a percentage
savings. Two recommended 25 percent and one recommended 20 percent. One
commenter advocated flexibility and did not propose a percentage. Even
though the commenters recommended a higher percentage than those
adopted by SBA in this interim rule, SBA believes that its approach
provides an appropriate balance between the efficiencies of larger
procurements and the socio-economic benefits derived through the use of
small businesses.
SBA determined that measurably substantial benefits should be
quantified using a two tiered approach: (1) Benefits equivalent to 10
percent if the contract value (including options) is $75 million or
less; or (2) benefits equivalent to 5 percent if the contract value
(including options) is over $75 million. The benefits may include cost
savings and/or price reduction, quality improvements that will save
time or improve or enhance performance or efficiency, reduction in
acquisition cycle times, better terms and conditions and any other
benefits that individually, in combination, or in the aggregate would
lead to the above benefits. The rule also permits the Assistant
Secretaries with responsibility for acquisition matters (Service
Acquisition Executives) or the Under Secretary of Defense for
Acquisition and Technology (for other Defense Agencies) in the
Department of Defense, and the Deputy Secretary or equivalent for
civilian agencies, on a non-delegable basis, to determine that a
bundled contract is necessary and justified when: (1) There are
benefits that do not meet the thresholds defined above but, in the
aggregate, are critical to the agency's mission success; and (2) the
procurement strategy provides for maximum practicable participation by
small businesses.
The procedures described above do not apply to consolidated
procurements that are subject to the cost comparisons conducted in
accordance with OMB Circular A-76.
SBA believes that this approach takes into consideration the
likelihood that savings will vary depending on the size of the
contract. SBA has no historical data on cost savings associated with
bundled contracts from which to determine a quantifiable measure.
However, SBA does maintain records on the value of bundled contracts
that we review. Based on data that SBA has collected over the past 4
years, it was determined that the majority of bundled contracts fell
within a range between $50 million and $75 million. We believe that the
highest percentage to quantify the benefits should be applied to
contracts of $75 million or less. At levels above $75 million, benefits
equivalent to 5 percent of the contract value (including options) would
still equate to measurably substantial benefits.
Defining Measurably Substantial Administrative or Personnel Cost
Savings
This interim rule reiterates the statutory requirement that the
reduction of administrative or personnel costs
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alone cannot be a justification for bundling unless the administrative
or personnel costs are expected to be ``substantial'' in relation to
the dollar value of the procurement (including options) to be
consolidated. In determining whether the reduction of administrative or
personnel costs are ``substantial,'' the statute clearly requires a
comparison between the administrative or personnel costs without
bundling to those anticipated with bundling. SBA is committed to
implementing a quantifiable test for determining whether administrative
or personnel cost savings are expected to be ``substantial.''
SBA specifically requested comments on how best to define
``substantial'' administrative or personnel cost savings. SBA received
six comments regarding defining ``measurably substantial administrative
or personnel cost savings,'' two from Federal agencies, three from
trade associations, and one from a small business concern. Several
commenters offered specific percentages to define substantial
administrative savings. Commenters suggested 10 percent, 20 percent and
25 percent. SBA determined that a saving of at least 10 percent of the
anticipated contract award (including options) will be deemed
substantial for purposes of this section.
Compliance With Executive Orders 12612, 12788 and 12866, the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and the
Paperwork Reduction Act (44 U.S.C. Chapter 3501 et seq.)
SBA certifies that this interim rule, if adopted in final form,
would not be a significant rule within the meaning of Executive Order
12866. The rule does not impose costs upon the businesses, which may be
affected by it. It is not likely to have an annual economic impact of
$100 million or more, result in a major increase in costs or prices, or
have a significant adverse effect on competition or the United States
economy.
SBA has determined that this interim rule may have a significant
beneficial economic impact on a substantial number of small entities
within the meaning of the Regulatory Flexibility Act, 5 U.S.C.
Secs. 601-612. The interim rule can potentially apply to all small
businesses that are performing or may want to perform on the prime
contract opportunities of the Federal Government. While there is no
precise estimate of the number of small entities or the extent of the
economic impact, SBA believes that a significant number of small
businesses would be affected. SBA has submitted a complete Initial
Regulatory Flexibility Analysis of this interim rule to the Chief
Counsel for Advocacy of the Small Business Administration. For a copy
of this analysis, please contact Anthony Robinson at (202) 205-6465.
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA certifies that this rule would not impose new reporting or record
keeping requirements, other than those required on the Government by
law.
For purposes of Executive Order 12612, SBA certifies that this rule
does not have any federalism implications warranting the preparation of
a Federalism Assessment.
For purposes of Executive Order 12778, the SBA certifies that this
rule is drafted, to the extent practicable, in accordance with the
standards set forth in section 2 of this order.
List of Subjects
13 CFR Part 121
Government procurement, Government property, Grant programs-
business, Individuals with disabilities, Loan programs-business, Small
businesses.
13 CFR Part 125
Government contracts, Government procurement, Reporting and
recordkeeping requirements, Small businesses, Technical assistance.
For the reasons stated in the preamble, SBA amends 13 CFR part 121
and 125 as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
1. The authority citation for 13 CFR part 121 is revised to read as
follows:
Authority: 15 U.S.C. 632(a), 634(b)(6), 637(a), 644(c), and
662(5); and Sec. 304, Pub. L. 103-403, 108 Stat. 4175, 4188.
2. Section 121.103, revise paragraphs (f)(3)(i) to read as follows:
Sec. 121.103 What is affiliation?
* * * * *
(f) * * *
(3) * * *
(i) A joint venture or teaming arrangement of two or more business
concerns may submit an offer as a small business for a Federal
procurement without regard to affiliation under paragraph (f) of this
section so long as each concern is small under the size standard
corresponding to the SIC code assigned to the contract, provided:
(A) The procurement qualifies as a ``bundled'' requirement, at any
dollar value, within the meaning of Sec. 125.2(d)(1)(i) of this
chapter; or
(B) The procurement is other than a ``bundled'' requirement within
the meaning of Sec. 125.2(d)(1)(i) of this chapter, and:
(1) For a procurement having a revenue-based size standard, the
dollar value of the procurement, including options, exceeds half the
size standard corresponding to the SIC code assigned to the contract;
or
(2) For a procurement having an employee-based size standard, the
dollar value of the procurement, including options, exceeds $10
million.
* * * * *
PART 125--GOVERNMENT CONTRACTING PROGRAMS
1. The authority citation for 13 CFR part 125 is revised to read as
follows:
Authority: 15 U.S.C. 634(b)(6), 637 and 644; 31 U.S.C. 9701,
9702.
2. In Sec. 125.2, redesignate paragraphs (a) and (b) as paragraphs
(b) and (c), respectively, revise newly designated paragraph (b), and
add new paragraphs (a) and (d) to read as follows:
Sec. 125.2 Prime contracting assistance.
(a) General. Small business concerns must receive any award or
contract, or any contract for the sale of Government property, that SBA
and the procuring or disposal agency determine to be in the interest
of:
(1) Maintaining or mobilizing the Nation's full productive
capacity;
(2) War or national defense programs;
(3) Assuring that a fair proportion of the total purchases and
contracts for property, services and construction for the Government in
each industry category are placed with small business concerns; or
(4) Assuring that a fair proportion of the total sales of
Government property is made to small business concerns.
(b) PCR and procuring activity responsibilities. (1) SBA
Procurement Center Representatives (PCRs) are generally located at
Federal agencies and buying activities which have major contracting
programs. PCRs review all acquisitions not set-aside for small
businesses to determine whether a set-aside is appropriate.
(2) A procuring activity must provide a copy of a proposed
acquisition strategy (e.g., Department of Defense Form 2579, or
equivalent) to the applicable PCR (or to the SBA Office of Government
Contracting Area Office serving the area in which the buying activity
is located if a PCR is not assigned to the procuring activity) at least
30 days prior to a solicitation's issuance whenever a proposed
acquisition strategy:
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(i) Includes in its description goods or services currently being
performed by a small business and the magnitude of the quantity or
estimated dollar value of the proposed procurement would render small
business prime contract participation unlikely;
(ii) Seeks to package or consolidate discrete construction
projects; or
(iii) Meets the definition of a bundled requirement as defined in
paragraph (d)(1)(i) of this section.
(3) Whenever any of the circumstances identified in paragraph
(b)(2) of this section exist, the procuring activity must also submit
to the applicable PCR (or to the SBA Office of Government Contracting
Area Office serving the area in which the buying activity is located if
a PCR is not assigned to the procuring activity) a written statement
explaining why:
(i) If the proposed acquisition strategy involves a bundled
requirement, the procuring activity believes that the bundled
requirement is necessary and justified under the analysis required by
paragraph (d)(3)(iii) of this section; or
(ii) If the description of the requirement includes goods or
services currently being performed by a small business and the
magnitude of the quantity or estimated dollar value of the proposed
procurement would render small business prime contract participation
unlikely, or if a proposed procurement for construction seeks to
package or consolidate discrete construction projects:
(A) The proposed acquisition cannot be divided into reasonably
small lots to permit offers on quantities less than the total
requirement;
(B) Delivery schedules cannot be established on a basis that will
encourage small business participation;
(C) The proposed acquisition cannot be offered so as to make small
business participation likely; or
(D) Construction cannot be procured as separate discrete projects.
(4) In conjunction with their duties to promote the set-aside of
procurements for small business, PCRs will identify small businesses
that are capable of performing particular requirements, including teams
of small business concerns for larger or bundled requirements (see
Sec. 121.103(f)(3) of this chapter).
(5)(i) If a PCR believes that a proposed procurement will render
small business prime contract participation unlikely, or if a PCR does
not believe a bundled requirement to be necessary and justified, the
PCR shall recommend to the procurement activity alternative procurement
methods which would increase small business prime contract
participation. Such alternatives may include:
(A) Breaking up the procurement into smaller discrete procurements;
(B) Breaking out one or more discrete components, for which a small
business set-aside may be appropriate; and
(C) Reserving one or more awards for small companies when issuing
multiple awards under task order contracts.
(i) Where bundling is necessary and justified, the PCR will work
with the procuring activity to tailor a strategy that preserves small
business prime contract participation to the maximum extent
practicable.
(ii)The PCR will also work to ensure that small business
participation is maximized through subcontracting opportunities. This
may include:
(A) Recommending that the solicitation and resultant contract
specifically state the small business subcontracting goals which are
expected of the contractor awardee; and
(B) Recommending that the small business subcontracting goals be
based on total contract dollars instead of subcontract dollars.
(6) In cases where there is disagreement between a PCR and the
contracting officer over the suitability of a particular acquisition
for a small business set-aside, whether or not the acquisition is a
bundled or substantially bundled requirement within the meaning of
paragraph (d) of this section, the PCR may initiate an appeal to the
head of the contracting activity. If the head of the contracting
activity agrees with the contracting officer, SBA may appeal the matter
to the secretary of the department or head of the agency. The time
limits for such appeals are set forth in 19.505 of the Federal
Acquisition Regulation (FAR) (48 CFR 19.505).
(7) PCRs will work with a procuring activity's Small Business
Specialist (SBS) to identify proposed solicitations that involve
bundling, and with the agency acquisition officials to revise the
acquisition strategies for such proposed solicitations, where
appropriate, to increase the probability of participation by small
businesses, including small business contract teams, as prime
contractors. If small business participation as prime contractors
appears unlikely, the SBS and PCR will facilitate small business
participation as subcontractors or suppliers.
* * * * *
(d) Contract bundling--(1) Definitions--(i) Bundled requirement or
bundling. The term ``bundled requirement or bundling'' refers to the
consolidation of two or more procurement requirements for goods or
services previously provided or performed under separate smaller
contracts into a solicitation of offers for a single contract that is
likely to be unsuitable for award to a small business concern due to:
(A) The diversity, size, or specialized nature of the elements of
the performance specified;
(B) The aggregate dollar value of the anticipated award;
(C) The geographical dispersion of the contract performance sites;
or
(D) Any combination of the factors described in paragraphs
(d)(1)(i) (A), (B), and (C).
(ii) Separate smaller contract: A separate smaller contract is a
contract that has previously been performed by one or more small
business concerns or was suitable for award to one or more small
business concerns.
(iii) Substantial bundling: Substantial bundling is any contract
consolidation, which results in an award whose average annual value is
$10 million or more.
(2) Requirement to foster small business participation: The Small
Business Act requires each Federal agency to foster the participation
of small business concerns as prime contractors, subcontractors, and
suppliers in the contracting opportunities of the Government. To comply
with this requirement, agency acquisition planners must:
(i) Structure procurement requirements to facilitate competition by
and among small business concerns, including small disadvantaged, 8(a)
and women-owned business concerns; and
(ii) Avoid unnecessary and unjustified bundling of contract
requirements that inhibits or precludes small business participation in
procurements as prime contractors.
(3) Requirement for market research. (i) In addition to the
requirements of paragraph (b)(2) of this section and before proceeding
with an acquisition strategy that could lead to a contract containing
bundled or substantially bundled requirements, an agency must conduct
market research to determine whether bundling of the requirements is
necessary and justified. During the market research phase, the
acquisition team should consult with the applicable PCR (or if a PCR is
not assigned to the procuring activity, the SBA Office of Government
Contracting Area Office serving the area in which the buying activity
is located).
(ii) The procuring activity must notify each small business which
is performing a contract that it intends to consolidate that
requirement with one or more other requirements at least 30
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days prior to the issuance of the solicitation for the bundled or
substantially bundled requirement. The procuring activity, at that
time, should also provide to the small business the name, phone number
and address of the applicable SBA PCR (or if a PCR is not assigned to
the procuring activity, the SBA Office of Government Contracting Area
Office serving the area in which the buying activity is located).
(iii) When the procuring activity intends to proceed with an
acquisition involving bundled or substantially bundled procurement
requirements, it must document the acquisition strategy to include a
determination that the bundling is necessary and justified, when
compared to the benefits that could be derived from meeting the
agency's requirements through separate smaller contracts.
(A) The procuring activity may determine a consolidated requirement
to be necessary and justified if, as compared to the benefits that it
would derive from contracting to meet those requirements if not
consolidated, it would derive measurably substantial benefits. The
procuring activity must quantify the identified benefits and explain
how their impact would be measurably substantial. The benefits may
include cost savings and/or price reduction, quality improvements that
will save time or improve or enhance performance or efficiency,
reduction in acquisition cycle times, better terms and conditions, and
any other benefits that individually, in combination, or in the
aggregate would lead to:
(1) Benefits equivalent to 10 percent if the contract value
(including options) is $75 million or less; or
(2) Benefits equivalent to 5 percent if the contract value
(including options) is over $75 million.
(B) Notwithstanding paragraph (d)(3)(iii)(A) of this section, the
Assistant Secretaries with responsibility for acquisition matters
(Service Acquisition Executives) or the Under Secretary of Defense for
Acquisition and Technology (for other Defense Agencies) in the
Department of Defense and the Deputy Secretary or equivalent in
civilian agencies may, on a non-delegable basis determine that a
consolidated requirement is necessary and justified when:
(1) There are benefits that do not meet the thresholds set forth in
paragraph (d)(3)(iii)(A) of this section but, in the aggregate, are
critical to the agency's mission success; and
(2) Procurement strategy provides for maximum practicable
participation by small business.
(C) Notwithstanding paragraph (d)(3)(iii)(A) and (B) of this
section, a consolidated requirement is necessary and justified when it
is subject to the cost comparison conducted in accordance with OMB
Circular A-76.
(D) The reduction of administrative or personnel costs alone shall
not be a justification for bundling of contract requirements unless the
administrative or personnel cost savings are expected to be
substantial, in relation to the dollar value of the procurement to be
consolidated (including options). To be substantial, such cost savings
must be at least 10 percent of the contract value (including options).
(E) In assessing whether cost savings and/or a price reduction
would be achieved through bundling, the procuring activity and SBA must
compare the price that has been charged by small businesses for the
work that they have performed and, where available, the price that
could have been or could be charged by small businesses for the work
not previously performed by small business.
(4) Substantial bundling. Where a proposed procurement strategy
involves a substantial bundling of contract requirements, the procuring
agency must, in the documentation of that strategy, include a
determination that the anticipated benefits of the proposed bundled
contract justify its use, and must include, at a minimum:
(i) The analysis for bundled requirements set forth in paragraph
(d)(3)(iii) of this section;
(ii) An assessment of the specific impediments to participation by
small business concerns as prime contractors that will result from the
substantial bundling;
(iii) Actions designed to maximize small business participation as
prime contractors, including provisions that encourage small business
teaming for the substantially bundled requirement; and
(iv) Actions designed to maximize small business participation as
subcontractors (including suppliers) at any tier under the contract or
contracts that may be awarded to meet the requirements.
(5) Significant subcontracting opportunity. (i) Where a bundled or
substantially bundled requirement offers a significant opportunity for
subcontracting, the procuring agency must designate the following
factors as significant factors in evaluating offers:
(A) A factor that is based on the rate of participation provided
under the subcontracting plan for small business in the performance of
the contract; and
(B) For the evaluation of past performance of an offeror, a factor
that is based on the extent to which the offeror attained applicable
goals for small business participation in the performance of contracts.
(ii) Where the offeror for such a bundled contract qualifies as a
small business concern, the procuring agency must give to the offeror
the highest score possible for the evaluation factors identified in
paragraph (d)(5)(i) of this section.
5. In Sec. 125.6, add new paragraph (g) to read as follows:
Sec. 125.6 Prime contractor performance requirements (limitations on
subcontracting).
* * * * *
(g) Where an offeror is exempt from affiliation under
Sec. 121.103(f)(3) of this chapter and qualifies as a small business
concern, the performance of work requirements set forth in this section
apply to the cooperative effort of the team or joint venture, not its
individual members.
Dated: October 19, 1999.
Aida Alvarez,
Administrator.
[FR Doc. 99-27801 Filed 10-22-99; 8:45 am]
BILLING CODE 8025-01-P
