[Federal Register Volume 64, Number 8 (Wednesday, January 13, 1999)]
[Proposed Rules]
[Pages 2153-2157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-560]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 121 and 125
Government Contracting Programs
AGENCY: Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The Small Business Administration (SBA) proposes to add
regulatory language addressing contract bundling, due to changes set
forth in sections 411-417 of the Small Business Reauthorization Act of
1997 (Public Law 105-135). 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. The statutory amendments recognize that the
consolidation of contract requirements may be necessary and justified,
in some cases, but require that each Federal agency, to the maximum
extent practicable, take steps to avoid unnecessary and unjustified
bundling of contract requirements that precludes small business
participation as prime contractors as well as to eliminate obstacles to
small business participation as prime contractors. Section 414 of
Public Law 105-135 requires that the Federal Procurement Data System
(FPDS) be modified to collect data regarding bundling of contracts when
a contracting officer anticipates that the resulting contract price
will exceed $5 million, including options. The SBA will confer with the
Federal Procurement Data Center and analyze the data reported in the
FPDS on all bundled contracts expected to exceed $5 million in order to
determine the impact on small business resulting from contract bundling
and generate a report on the extent to which individual agencies are
engaging in the practice of contract bundling.
DATES: Submit comments on or before March 15, 1999.
ADDRESSES: Address comments concerning this proposed rule to Judith
Roussel, Associate Administrator for Government Contracting, U.S. Small
Business Administration, 409 Third Street, SW., Mail Code 6250,
Washington, DC, 20416.
[[Page 2154]]
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 to
adversely affect small businesses, including proposed procurements that
include ``goods or services currently being performed by a small
business'' and which are in a ``quantity or estimated dollar value the
magnitude of which renders small business prime contract participation
unlikely.'' Section 413(b)(1) of Pub. L. 105-135 added an appeal right
to 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).
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 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 ``bundled'' requirements, 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 not to be 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 must
document that the benefits to be derived from the bundled contract
justify its use.
The Small Business Act does not define ``substantial bundling.''
SBA seeks public comments on appropriate ways to define substantial
bundling (e.g., in terms of a threshold contract value, or a threshold
number of geographic locations and SIC codes).
The rule defines what ``measurably substantial benefits'' are for
purposes of determining whether 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 quantifiably substantial benefits. In assessing whether cost
savings would be achieved through bundling, the analysis must compare
the cost that has been charged by small businesses for the work that
they have 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. In order to proceed with a bundled
procurement a procuring activity must quantify the identified benefits
and explain how their impact would be substantial.
The statute recognizes that in some circumstances bundling should
be permitted because of the benefits that flow to the Government
because of it. Congress has made a determination that those benefits
overcome any impact on small business in certain circumstances.
However, it is also clear from the statutory language requiring
contracting officers to demonstrate ``measurably substantial benefits''
and from the Joint Explanatory Statement cited above that Congress
intends that meaningful controls should be in place that are capable of
enforcement to preclude unnecessary and unjustified bundling. Pursuant
to the statute, there are two requirements that must be satisfied. 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.'' As an example, OMB Circular A-76
sets forth a measure of substantial savings when determining whether
the government will convert to or from in-house or contracted
performance of certain commercial support activities. SBA is committed
to developing objective and 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 identifies 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 does not
however, set forth specific criteria for measuring whether these
benefits or improvements, which are to be derived, are ``substantial.''
SBA specifically requests comments on appropriate measurements that
PCRs may use to gauge whether or not a benefit is ``substantial.''
The proposed regulation also reiterates the statutory requirement
that the reduction of administrative or personnel costs alone cannot be
a justification for bundling unless the
[[Page 2155]]
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. As with defining
substantial benefits. SBA is committed to implementing a quantifiable
test for determining whether administrative or personnel cost savings
are expected to be ``substantial.'' SBA specifically requests comments
on how best to define ``substantial'' administrative or personnel cost
savings.
SBA is concerned that bundled contracts will render small business
participation as prime contractors unlikely. SBA has proposed in
Sec. 125.2(b)(5), that its Procurement Center Representatives (PCR), in
recommending alternative procurement methods to agencies, 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. SBA invites the public to offer suggestions
on other creative strategies which may enhance small business
participation as prime contractors.
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 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 rule may have a significant beneficial
economic impact on a substantial number of small entities with the
meaning of the Regulatory Flexibility Act, 5 U.S.C. SS 601-612. The
proposed 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. In Fiscal Year 1996, all categories of small
businesses were responsible for 314,965, or 68 percent, of the total
number of contract actions in excess of $25,000. 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 proposed 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 set forth above, SBA proposes to amend Title 13,
Code of Federal Regulations (CFR), as follows:
PART 121--[AMENDED]
1. The authority citation for 13 CFR part 121 continues 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 is amended by revising paragraph (f)(3)(i) to
read as follows:
Sec. 121.103 What is affiliation?
* * * * *
(f) Affiliation based on joint venture arrangements. * * *
(3) Exclusion from affiliation. (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--[AMENDED]
3. The authority citation for 13 CFR part 125 continues to read as
follows:
Authority: 15 U.S.C. 634(b)(6), 637 and 644; 31 U.S.C. 9701,
9702.
4. Section 125.2 is amended by redesignating paragraphs (a) and (b)
as paragraphs (b) and (c), respectively, by revising newly designated
paragraph (b), and by adding 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 be 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
[[Page 2156]]
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:
(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 may 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) When issuing multiple awards under task order contracts,
reserving one or more awards for small companies.
(ii) 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.
(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 and
Disadvantaged Business Utilization Specialist (SADBUS) 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 SADBUS 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.
(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 days prior
to the issuance of the solicitation for the bundled or substantially
bundled requirement. The procuring activity, at that time, should
[[Page 2157]]
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 substantial. Measurably substantial benefits
include any one, or more, of the following in any combination, or in
the aggregate:
(1) Cost savings and/or price reduction;
(2) Quality improvements that will save time or improve or enhance
performance or efficiency;
(3) Reduction in acquisition cycle times;
(4) Better terms and conditions; or
(5) Any other quantifiably substantial benefits.
(B) 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).
(C) 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. Section 125.6 is amended by adding the following new paragraph
(g) at the end thereof:
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: December 22, 1998.
Aida Alvarez,
Administrator.
[FR Doc. 99-560 Filed 1-12-99; 8:45 am]
BILLING CODE 8025-01-P
