[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Notices]
[Pages 35714-35718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17157]
[[Page 35713]]
_______________________________________________________________________
Part VII
Office of Management and Budget
Department of Defense
General Services
Administration
National Aeronautics and Space Administration
48 CFR Part 1, et al.
Small Business Administration
13 CFR Part 121, et al.
_______________________________________________________________________
Federal Acquisition Regulations for Small Disadvantaged Businesses;
Notice and Rules
Federal Register / Vol. 63, No. 125 / Tuesday, June 30, 1998 /
Notices
[[Page 35714]]
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OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
Small Disadvantaged Business Procurement; Reform of Affirmative
Action in Federal Procurement
AGENCY: Office of Federal Procurement Policy (OFPP), OMB.
ACTION: Notice of determination concerning price evaluation
adjustments.
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SUMMARY: The Federal Acquisition Regulation (FAR), 48 CFR Part 19,
contains regulations permitting eligible small disadvantaged businesses
(SDB's) to receive price evaluation adjustments in Federal procurement
programs. The FAR provides further that the Department of Commerce
(DOC) will determine the price evaluation adjustments available for use
in Federal procurement programs. The DOC, in the attached memorandum,
determines price evaluation adjustments (percentages) by Standard
Industrial Classification (SIC) major groups and regions that are
effective for new solicitations for the upcoming year. The DOC
memorandum describes the methodology for determining price evaluation
adjustments.
EFFECTIVE DATE: June 30, 1998.
FOR FURTHER INFORMATION CONTACT: Ms. Linda G. Williams, Deputy
Associate Administrator, Office of Federal Procurement Policy,
Telephone 202-395-3302. For information on the Commerce methodology,
contact Mr. Jeffrey Mayer, Director of Policy Development, Economics
and Statistics Administration, U.S. Department of Commerce, Telephone
202-482-1728.
SUPPLEMENTARY INFORMATION:
Procurement Mechanisms and Factors
FAR Subpart 19.11 provides for the use of price evaluation
adjustments for eligible SDBs. OFPP gives notice that the attached
Memorandum from the DOC determines that certain SIC major groups are
eligible for a price evaluation adjustment. The Memorandum also
includes factors for use on a regional basis in certain industries. FAR
Subpart 19.11 provides that these factors are authorized for use in new
solicitations issued on or after October 1, 1998, that allow for a
price evaluation adjustment.
Allan E. Brown,
Acting Administrator.
Attachment
Department of Commerce
Economics and Statistics Administration
Memorandum for Office of Federal Procurement Policy
From: Jeffrey L. Mayer, Director of Policy Development.
Subect: Price Evaluation Adjustments and Benchmarking Methodology.
Pursuant to new Federal Acquisition Regulation (FAR) 19.201(b),
transmitted herein is the Department of Commerce determination on the
price evaluation adjustments for use in Federal procurements and the
supporting benchmarking methodology.
I. Background
FAR 19.201(b) requires the Department of Commerce to determine
price evaluation adjustments for applicable standard industrial
classification (SIC) major groups. To establish price evaluation
adjustments, the Office of the Chief Economist and the Office of Policy
Development in the Economics and Statistics Administration of the
Department of Commerce (DOC) conducted an economic analysis to identify
industries eligible for price evaluation adjustments to implement the
Administration's proposal for reforming affirmative action in Federal
procurement programs.
DOC is responsible for: (i) developing the methodology for
calculating the benchmark limitations; (ii) developing the methodology
for calculating the size of the price evaluation adjustments that
should be employed in a given industry; and (iii) determining
applicable adjustments. In addition, DOC is charged with providing
information to the Small Business Administration for its use in
administering the 8(a) program.
II. Price Evaluation Adjustments
Based upon the methodology described below, DOC determines that a
price evaluation adjustment of ten percent be employed in the following
industries:
Industries Eligible for Ten Percent Price Evaluation Adjustment
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SIC major industry group Eligibility (*) Description of industry grouping
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Agriculture, Forestry, and Fishing
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01....................................... .................................. Agricultural production--crops.
02....................................... .................................. Agricultural production--
livestock.
07....................................... .................................. Agricultural services.
08....................................... .................................. Forestry.
09....................................... .................................. Fishing, hunting, & trapping.
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Mining
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10....................................... * Metal mining.
12....................................... * Coal mining.
13....................................... * Oil & gas extraction.
14....................................... * Extraction of nonmetallic
minerals, ex. Fuels.
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Construction
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15....................................... .................................. Building construction--general
contractors.
15....................................... * East North Central.
15....................................... * East South Central.
15....................................... * Middle Atlantic.
15....................................... .................................. Mountain.
15....................................... .................................. New England.
15....................................... .................................. Pacific.
15....................................... .................................. South Atlantic.
15....................................... .................................. West North Central.
15....................................... * West South Central.
[[Page 35715]]
16....................................... .................................. Heavy construction other than
buildings--contractors.
16....................................... .................................. East North Central.
16....................................... * East South Central.
16....................................... .................................. Middle Atlantic.
16....................................... .................................. Mountain.
16....................................... .................................. New England.
16....................................... .................................. Pacific.
16....................................... .................................. South Atlantic.
16....................................... .................................. West North Central.
16....................................... * West South Central.
17....................................... .................................. Construction--special trade
contractors.
17....................................... .................................. East North Central.
17....................................... .................................. East South Central.
17....................................... .................................. Middle Atlantic.
17....................................... .................................. Mountain.
17....................................... * New England.
17....................................... .................................. Pacific.
17....................................... .................................. South Atlantic.
17....................................... * West North Central.
17....................................... .................................. West South Central.
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Manufacturing
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20....................................... .................................. Food & kindred products.
21....................................... .................................. Tobacco products.
22....................................... * Textile mill products.
23....................................... * Apparel & other finished products
made from fabrics.
24....................................... * Lumber & wood products, ex.
Furniture.
25....................................... * Furniture & fixtures.
26....................................... * Paper & allied products.
27....................................... * Printing, publishing, & allied
industries.
28....................................... * Chemicals & allied products.
29....................................... * Petroleum refining & related
industries.
30....................................... * Rubber & miscellaneous plastics
products.
31....................................... * Leather & leather products.
32....................................... .................................. Stone, clay, glass, & concrete
products.
33....................................... .................................. Primary metal industries.
34....................................... * Fabricated metal products.
35....................................... .................................. Industrial & commercial machinery
& computer equipment.
36....................................... * Electronic & other electrical
equipment & components, ex.
Computers.
37....................................... * Transportation equipment.
38....................................... * Measuring, analyzing, &
controlling instruments;
photographic, medical & optical
goods; watches & clocks.
39....................................... * Miscellaneous manufacturing
industries.
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Transportation, Communications, Electric, Gas, Sanitary Services
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40....................................... .................................. Railroad transportation.
41....................................... * Local & suburban transit &
interurban highway passenger
transportation.
42....................................... * Motor freight transportation &
warehousing.
44....................................... * Water transportation.
45....................................... .................................. Transportation by air.
46....................................... * Pipelines, exc. natural gas.
47....................................... * Transportation services.
48....................................... * Communications.
49....................................... * Electric, gas, & sanitary
services.
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Wholesale Trade
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50....................................... * Wholesale trade--durable goods.
51....................................... * Wholesale trade--nondurable
goods.
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Retail Trade
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52....................................... * Building materials, hardware,
garden supply, & mobile home
dealers.
53....................................... * General Merchandise stores.
54....................................... * Food stores.
55....................................... * Automotive dealers & gasoline
service stations.
56....................................... * Apparel & accessory stores.
57....................................... * Home furniture, furnishings, &
equipment stores.
58....................................... * Eating & drinking places.
59....................................... * Miscellaneous retail.
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[[Page 35716]]
Finance, Insurance, and Real Estate
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60....................................... * Depository institutions.
61....................................... * Nondepository adjustment
institutions.
62....................................... * Security & commodity brokers,
dealers, exchanges, & services.
63....................................... * Insurance carriers.
64....................................... * Insurance agents, brokers, &
services.
65....................................... * Real estate.
67....................................... * Holding & other investment
offices.
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Services
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70....................................... * Hotels, rooming houses, camps, &
other lodging places.
72....................................... .................................. Personal services.
73....................................... * Business services.
75....................................... * Automotive repair, services, &
parking.
76....................................... * Miscellaneous repair services.
78....................................... .................................. Motion pictures.
79....................................... .................................. Amusement & recreation services.
80....................................... * Health services.
81....................................... .................................. Legal services.
82....................................... * Educational services.
83....................................... .................................. Social services.
84....................................... .................................. Museums, art galleries, &
botanical & zoological gardens
86....................................... .................................. Membership organizations.
87....................................... * Engineering, accounting,
research, management, & related
services.
88....................................... .................................. Private households.
89....................................... * Miscellaneous services.
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III. Benchmarking Methodology
DOC's methodology is designed to ensure that the price adjustments
authorized by the reforms are narrowly tailored to remedy
discrimination. The methodology includes four steps. First, DOC
identified firms that are ``ready and willing'' to supply the federal
government. Second, DOC calculated the federal government's utilization
of each ready and willing firm as the FY 1996 net contract obligations
awarded by federal agencies to each ready and willing firm. Third, DOC
estimated the capacity of each ready and willing firm to supply the
federal government. Finally, DOC compared SDB shares of utilization and
capacity held by ready and willing firms in each Contracting Arena
1 and recommended that the price evaluation adjustments be
implemented where SDB share of industry utilization falls short of SDB
share of industry capacity.
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\1\ A firm's Contracting Arena is the industry grouping in which
it bid, was awarded a contract, or had 8(a) certification and (in
the case of construction companies) the Census Division where it was
located. In most cases, the industry grouping is the two digit
Standard Industrial Classification major industry group. The
following related major industry groups were regrouped together for
purposes of applying the benchmarking methodology because otherwise
the regression analysis (described below) for at least one of the
constituent major industry groups would have had what DOC deemed to
be an insufficient number of firms (that is, less than 30 degrees of
freedom): agriculture (SIC Major Industry Groups 01, 02, 07);
forestry and fishing (08, 09); mining (10, 12, 13, 14); rubber,
misc. plastic products, and leather products (30, 31); local
transit, interurban highway passenger transportation, and misc.
transportation services (41, 47); pipelines and utilities (46, 49);
retail trade other than eating and drinking places (53, 54, 55, 56,
57,59); and finance, insurance, and real estate (60, 61, 62, 63, 64,
65, 67). We could make no satisfactory aggregation for several major
industry groups (21, 40, 72, 78, 79, 81, 84, 86, 88) that would
allow analysis with a sufficient number of firms.
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A. Data
DOC set four major criteria for choosing the data needed to
estimate the benchmark limitations:
The data should be as current as possible;
The data should include information on a large number of
firms, including SDBs;
The data should identify firms that are ready and willing
to supply the federal government;
The data should permit the direct comparison of capacity
and utilization for the same year.
No existing data sets, such as the Survey of Minority-Owned
Business Enterprises (conducted by the U.S. Bureau of the Census), were
designed to meet these criteria. Consequently, DOC identified three
sets of firms as ready and willing to supply the federal government in
FY 1996.2 These sets are:
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\2\ Unique ``firms'' were identified by their Taxpayer
Identification Numbers (TIN) and the Contracting Arenas in which
they participated in federal contracting. Firms with missing or
defective TINs or Contracting Arena information were not included in
the unified data set. A firm can be any for-profit company, non-
profit organization, or a state or local government establishment
that bid for a federal contract, or a company certified in the 8(a)
program. Finally, some firms were included more than once if they
participated in federal contracting in more than one Contracting
Arena.
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1. Bidders from a sample of competitive procurements (over $25,000)
in FY 1996. DOC implemented a survey of federal contracting officers,
who were asked to identify the firms that bid in a random sample of
16,616 procurements (the survey had a response rate of 76 percent). The
sample of procurements was drawn from a sampling frame consisting of
all new, competitive, multi-bid contracts awarded by major federal
agencies.3 The sampling frame was extracted from the Federal
Procurement Data System (FPDS) for prime contract actions worth more
than $25,000.4 The sampling frame
[[Page 35717]]
was stratified by the two, three, or four-digit Standard Industrial
Classification (SIC) codes corresponding to the major activity covered
by each contract. For SIC 15, SIC 16 and SIC 17 (i.e., construction
industries), the sampling frame was further stratified by the nine
multi-state Census Divisions in which the contractor was located. Each
sampled contract had a sample weight equal to the reciprocal of its
probability of being sampled. All firms responding to the solicitation
resulting in the contract in the sample were included in the resulting
bidders' data set.
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\3\ The agencies were all 14 cabinet agencies, plus EPA, GSA,
NASA, and TVA, which together accounted for 98.8 percent of the
value of all procurement contracts over $25,000 in FY 1996.
\4\ Awards under contracts valued at $25,000 or less (and
individual contract actions worth $25,000 or less and awarded by
DOD) accounted for only 7.2 percent of all federal contract awards
in FY 1996. The FPDS does not include detailed data on individual
contracts worth $25,000 or less, making it impossible to include
these contracts in DOC's analysis. Since the SDB share of the sub-
$25,000 awards was only 3.3 percent, while the SDB share of awards
over $25,000 was 5.8 percent, omitting the sub-$25,000 awards (where
usage of 8(a) contracting is negligible) does not under-estimate SDB
utilization.
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2. All firms that won all other types of new contracts (over
$25,000) in FY 1996, i.e., firms identified in the FY 1996 FPDS that
were the sole bidder on new, competitive contracts, and firms awarded
new contracts in FY 1996 through noncompetitive
contracting.5
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\5\ Firms listed under GSA and VA schedules in FY 1996 and that
did not appear elsewhere in the FY 1996 data were not included in
DOC's analysis; total orders under these schedules accounted for
only 1.6 percent of contract awards greater than $25,000 in FY 1996.
DOC found that omitting these firms had no effect on its findings.
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3. All firms certified as active and eligible for 8(a) contracts by
the Small Business Administration in FY 1996, whether or not the firms
won new contracts in FY 1996.
To prevent duplication, DOC matched the three data sets by the
firms' Taxpayer Identification Numbers and the Contracting Arenas in
which they participated in federal contracting. Each firm that appeared
in data sets (2) or (3) was given a sample weight of 1.0, as these
firms were sampled with certainty. DOC recomputed the sample weights
for each firm that appeared more than once in data set (1), but not in
data sets (2) and (3), as the inverse of the joint probability of being
selected, where the probability of each solicitation that resulted in a
contract being selected was independent.6 The resulting
``Ready and Willing Data Set'' had no firms with duplicate Taxpayer
Identification Numbers in the same Contracting Arena.7
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\6\ Competitive contracts were sampled without replacement for
purposes of collecting data on bidders, so the probability of
selecting one contract is independent of the probability of
selecting another. However, since many firms bid for more than one
contract, bidders were sampled with replacement.
\7\ Some firms in the Ready and Willing Data Set did not
consistently identify their SDB status. DOC based its decision on
which SDB designation to accept as follows:
All 8(a) certified firms were assumed to be SDBs;
If a firm was not 8(a) certified, then it was
considered SDB if it self-certified as SDB on any offer in the
bidders' sample;
If a firm was in neither the 8(a) certified data set
nor in the bidders' data set, then its SDB status was assumed to be
the most frequently appearing status that appeared for the firm in
the FPDS.
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DOC then matched the firms in the Ready and Willing Data Set by
their Taxpayer Identification Numbers to data on firm age,8
annual payroll, and for-profit status for all payroll taxpaying legal
entities included in the Census Bureau's 1995 Standard Statistical
Establishment List (SSEL), which consists of all establishments in the
United States. The SSEL was also used to fill in the state where
construction firms were located, if the Ready and Willing Data Set was
missing that information.9
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\8\ More precisely, each firm's age was derived from a variable
in the SSEL that indicated the year that the TIN first appeared in
the SSEL, the earliest effective year being 1975, when Census first
began keeping track of when firms appeared in the data set.
\9\ Any estimates that used SSEL data were subject to the Census
Bureau's Title 13 disclosure rules and must be accompanied by this
standard notice:
``The research described in this memorandum was conducted while
the authors were research associates at the Center for Economic
Studies, U.S. Bureau of the Census. Research results and conclusions
expressed are those of the authors and do not necessarily indicate
concurrence by the Bureau of the Census or the Center for Economic
Studies.''
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B. Computing SDB Share of Utilization
DOC matched firms in the Ready and Willing Data Set to the FPDS, by
their Taxpayer Identification Numbers and Contracting Arenas to obtain
the total net contract obligations actually awarded (``utilization'')
to these firms in FY 1996. The resulting data set is called the
``Utilization Data Set.'' DOC then computed the SDB share of
utilization in a Contracting Arena by dividing the weighted sum of
utilization of SDB firms in the Contracting Arena by the weighted sum
of utilization of all firms the Contracting Arena (regardless of SDB
status), where the weights were the sample weights in the Ready and
Willing Data Set.
C. Estimating SDB Share of Capacity
DOC defined a firm's capacity to fulfill federal contracts as the
geometric mean value of federal contracting work a contractor of a
given size and age handles, in a given Contracting Arena. The method
for estimating capacity is as follows:
1. Using the Utilization Data Set, the natural logarithm of
utilization was regressed on the following variables for for-profit
firms in each Contracting Arena with positive utilization:
A constant term;
Firm age in 1996 (measured as the natural logarithm of
number of years since the firm first appeared in the SSEL);
A dummy variable if the firm first appeared in the SSEL
before 1975;
The natural logarithm of 1995 payroll (measured in
thousands of dollars);
Interaction terms between the natural logarithm of payroll
and the two age variables;
A dummy variable if the firm certified that it met the
Small Business Administration's definition of a small business in that
Contracting Arena.
2. Using the Utilization Data Set, the mean natural logarithm of
utilization was computed separately for two groups of firms in each
Contracting Arena:
Firms missing one or more of the regressors listed in step
1 above;
Non-profit and government establishments.
This was done so that we would not have to drop these firms from
our analysis and possibly bias our estimates. Not-for-profit and
government entities do not fit well into our basic regression model,
since payroll data are probably not a true measure of resource limits
for a government establishment and because non-profit organizations may
behave differently from for-profit firms participating in federal
contracting.
3. The mean natural logarithm of utilization for firms of a given
size and age was estimated for each of the for-profit firms with
complete data in the Ready and Willing Data Set by computing their
predicted utilization using the regression coefficients estimated in
step 1 above and the corresponding characteristics of ready and willing
firms (i.e., their payroll, age, and small business status).
4. The mean natural logarithm of utilization for profit-making
firms with missing data and for non-profit/government entities in the
Ready and Willing Data Set was set equal to the corresponding means
computed in step 2 above.
5. The estimates of mean natural logarithm of utilization were
exponentiated to convert them to dollar amounts; these were each firm's
``capacity'' to fulfill federal contracts.
6. Weighted sums of the capacity estimates were then computed for
SDBs and for all firms in each Contracting Arena, where the weights
were the sample weights described in section III.A. above.
7. The benchmark limitations (i.e., SDB share of industry capacity
held by firms ready and willing to fulfill federal contracts) in each
Contracting Arena is equal to the ratio of the weighted sum of SDB
capacities to the weighted sum of capacities of all firms in the
Contracting Arena.
[[Page 35718]]
In this way, DOC's method for estimating capacity converts the
number of ready and willing firms that contract with the federal
government to aggregate expected value of the amount (in dollars) of
federal contracting that ready and willing firms potentially could
fulfill. The method adjusts raw firm counts to reflect observable
characteristics widely believed to be associated with the quantity of
federal contracting work that a firm is able to manage.
IV. Estimating the Size of the Price Evaluation Adjustment
Based on the Defense Department's experience with its price
evaluation adjustment, DOC determined that a price evaluation
adjustment of ten percent would not raise the SDB share of utilization
above the SDB share of capacity held by firms ready and willing to
fulfill federal contracts in any industry (and regions, in the case of
the construction sector). Accordingly, DOC determined that there were
no industries (and regions, in the case of the construction sector)
where a price evaluation adjustment greater than 0 percent and less
than ten percent would be appropriate.
V. Basis for DOC's Determinations
DOC compared the benchmark limitations for each Contracting Arena
to the SDB shares of actual utilization in each Contracting Arena. DOC
determined that a price adjustment be used in those Contracting Arenas
where it can be shown that SDBs have a greater share of capacity than
the federal government is using, i.e., where the benchmark limitations
exceed SDB shares of actual utilization.10
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\10\ In effect, the benchmarking methodology measures gaps in
contracting awards to SDBs that are unrelated to size and age
differences with non-SDBs. The methodology does not attempt to
estimate SDB share of industry capacity to fulfill federal contracts
in the absence of all current and past discrimination. In other
words, to the extent that differences in size, age, or number of
firms reflect discrimination against small, disadvantaged
businesses, this analysis does not take direct account of such
discrimination, which may be substantial.
[FR Doc. 98-17157 Filed 6-26-98; 8:45 am]
BILLING CODE 3110-01-P
