2024-12501. Federal Acquisition Regulation: Subcontracting to Puerto Rican and Covered Territory Small Businesses

AGENCY:

Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

ACTION:

Proposed rule.

SUMMARY:

DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulation (FAR) to implement regulatory changes made by the Small Business Administration to add incentives for certain United States territories under the Small Business Administration mentor-protégé program.

DATES:

Interested parties should submit written comments to the Regulatory Secretariat Division at the address shown below on or before August 6, 2024 to be considered in the formation of the final rule.

ADDRESSES:

Submit comments in response to FAR Case 2023-001 to the Federal eRulemaking portal at https://www.regulations.gov by searching for “FAR Case 2023-001”. Select the link “Comment Now” that corresponds with “FAR Case 2023-001”. Follow the instructions provided on the “Comment Now” screen. Please include your name, company name (if any), and “FAR Case 2023-001” on your attached document. If your comment cannot be submitted using https://www.regulations.gov, call or email the points of contact in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions.

Instructions: Please submit comments only and cite “FAR Case 2023-001” in all correspondence related to this case. Comments received generally will be posted without change to https:// ,www.regulations.gov, including any personal and/or business confidential information provided. Public comments may be submitted as an individual, as an organization, or anonymously (see frequently asked questions at https://www.regulations.gov/​faq). To confirm receipt of your comment(s), please check https://www.regulations.gov, approximately two to three days after submission to verify posting.

FOR FURTHER INFORMATION CONTACT:

For clarification of content, contact Ms. Carrie Moore, Procurement Analyst, at 571-300-5917, or by email at [e-mail]. For information pertaining to status, publication schedules, or alternate instructions for submitting comments if https://www.regulations.gov cannot be used, contact the Regulatory Secretariat Division at 202-501-4755 or [e-mail]. Please cite FAR Case 2023-001.

SUPPLEMENTARY INFORMATION:

I. Background

DoD, GSA, and NASA are proposing to amend the FAR to implement regulatory changes made by the Small Business Administration (SBA) in its final rule published on October 16, 2020, at 85 FR 66146, to implement paragraphs (a) and (d) of section 861 of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115-232). Paragraphs (a) and (d) of section 861 amended 15 U.S.C. 632(ee) and 15 U.S.C. 657r(a) to add Puerto Rico to the list of territories from which small businesses are eligible for preferential treatment under the SBA mentor-protégé program.

In addition, this rule implements SBA's final rule published on August 19, 2022, at 87 FR 50925, to implement-paragraphs (a) and (c) of section 866 of the NDAA for FY 2021 (Pub. L. 116-283). Paragraphs (a) and (c) of section 866 amended 15 U.S.C. 632(ff) and 15 U.S.C. 657r(a) to add the U.S. Virgin Islands, American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands (CNMI) to the list of territories from which small businesses are eligible for preferential treatment under the SBA mentor-protégé programs. Section 866 also defines a “covered territory business” as a small business concern that has its principal office located in one of the following: (1) the U.S. Virgin Islands; (2) American Samoa; (3) Guam; and (4) CNMI. Sections 861 and 866 created two new incentives for SBA's small business mentor-protégé Program for mentor-protégé pairs in which the protégé has its principal office located in the Commonwealth of Puerto Rico or is a covered territory business. Specifically, such a mentor that subcontracts to its protégé is able to receive positive consideration for the mentor's past performance evaluation and is able to apply costs incurred for training provided to its protégé to its subcontracting plan goals.

In addition, this rule implements changes SBA made to its regulations to clarify that subcontracting plans are not required from firms owned by an Alaska Native Corporation (ANC) because they are treated as small business concerns according to statute; and to clarify that prime contractors may rely on a subcontractor's representations of its size and socioeconomic status unless the prime contractor has reason to doubt the representations.

II. Discussion and Analysis

The proposed changes to the FAR and the rationale are summarized as follows:

—Modify FAR 19.702, 42.1501, and FAR clause 52.219-9, Small Business Subcontracting Plan, to implement SBA's regulations at 13 CFR 125.9(d)(6) to provide two new incentives for SBA's mentor-protégé program as follows: A mentor that subcontracts to its protégé that has its principal office located in Puerto Rico or that is a covered territory business may receive positive consideration for the mentor's past performance evaluation, and the mentor may apply costs incurred for training provided to its protégé toward the mentor's subcontracting plan goals. This rule also proposes to modify FAR 2.101 to add a definition of covered territory business to implement SBA's regulations at 13 CFR 125.1.

—Modify FAR 19.702 to implement SBA's regulations at 13 CFR 125.3(b)(2) to clarify that subcontracting plans are not required from entities that are treated as small business concerns by statute, such as ANCs.

—Modify FAR 19.703 and FAR clauses 52.219-8, Utilization of Small Business Concerns, and 52.219-9 to implement SBA's regulations at 13 CFR 121.404(e) to clarify that a contractor may rely upon a subcontractor's representations of its size and socioeconomic status unless the contractor has reason to question the representations.

III. Applicability to Contracts at or Below the Simplified Acquisition Threshold (SAT) and for Commercial Products (Including Commercially Available Off-the-Shelf (COTS) Items) or for Commercial Services

This rule amends the clauses at FAR 52.212-5, 52.213-4, 52.219-8, and 52.219-9. However, this rule does not change the applicability of these clauses, which continue to apply to contracts valued at or below the SAT, or on contracts for commercial products, including COTS items, or commercial services. This rule proposes to apply paragraphs (a) and (d) of section 861 of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115-232), and paragraphs (a) and (c) of section 866 of the NDAA for FY 2021 (Pub. L. 116-283), to acquisitions at or below the SAT and to acquisitions for commercial products, including COTS items, and commercial services, as the two new incentives for SBA's mentor-protégé program are available to all contractors in the program, regardless of the dollar value of the contract awarded or the commercial nature of the products and services procured.

A. Applicability to Contracts at or Below the Simplified Acquisition Threshold

41 U.S.C. 1905 governs the applicability of laws to acquisitions at or below the SAT. Section 1905 generally limits the applicability of new laws when agencies are making acquisitions at or below the SAT, but provides that such acquisitions will not be exempt from a provision of law under certain circumstances, including when the Federal Acquisition Regulatory Council (FAR Council) makes a written determination and finding that it would not be in the best interest of the Federal Government to exempt contracts and subcontracts in amounts not greater than the SAT from the provision of law. The FAR Council intends to make a determination to apply this statute to acquisitions at or below the SAT.

B. Applicability to Contracts for the Acquisition of Commercial Products and Commercial Services, Including Commercially Available Off-the-Shelf (COTS) Items

41 U.S.C. 1906 governs the applicability of laws to contracts for the acquisition of commercial products and commercial services, and is intended to limit the applicability of laws to contracts for the acquisition of commercial products and commercial services. Section 1906 provides that if the FAR Council makes a written determination that it is not in the best interest of the Federal Government to exempt commercial contracts, the provision of law will apply to contracts for the acquisition of commercial products and commercial services.

41 U.S.C. 1907 states that acquisitions of COTS items will be exempt from certain provisions of law unless the Administrator for Federal Procurement Policy makes a written determination and finds that it would not be in the best interest of the Federal Government to exempt contracts for the procurement of COTS items.

The FAR Council intends to make a determination to apply this statute to acquisitions for commercial products and commercial services. The Administrator for Federal Procurement Policy intends to make a determination to apply this statute to acquisitions for COTS items.

IV. Expected Impact of the Rule

This proposed rule is expected to benefit mentors with an SBA-approved mentor-protégé agreement that subcontract to covered territory small businesses and small businesses that have their principal office located in the Commonwealth of Puerto Rico. These benefits are expected to extend to covered territory small businesses and small businesses located in the Commonwealth of Puerto Rico, as mentors may be incentivized to enter into SBA-approved mentor-protégé agreements with such small businesses and issue subcontracts to them.

V. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 (as amended by E.O. 14094) and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

VI. Regulatory Flexibility Act

DoD, GSA, and NASA do not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612, because this rule provides incentives to mentors with SBA-approved mentor-protégé agreements that subcontract to its protégé that has its primary office located in the Commonwealth of Puerto Rico or is a covered territory small business; therefore, the number of small entities that may be impacted is limited. However, an Initial Regulatory Flexibility Analysis (IRFA) has been performed and is summarized as follows:

DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulation (FAR) to implement regulatory changes made by the Small Business Administration (SBA) in its final rule published on October 16, 2020, at 85 FR 66146, to implement paragraphs (a) and (d) of section 861 of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115-232). Paragraphs (a) and (d) of section 861 amended 15 U.S.C. 632(ee) and 15 U.S.C. 657r(a) to add Puerto Rico to the list of territories from which small businesses are eligible for preferential treatment under the SBA mentor-protégé program. In addition, this rule implements SBA's final rule published on August 19, 2022, at 87 FR 50925 to implement paragraphs (a) and (c) of section 866 of the NDAA for FY 2021 (Pub. L. 116-283). Paragraphs (a) and (c) of section 866 amended 15 U.S.C. 632(ff) and 15 U.S.C. 657r(a) to add the U.S. Virgin Islands, American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands (CNMI) to the list of territories from which small businesses are eligible for preferential treatment under the SBA mentor-protégé programs. Section 866 also defines a “covered territory business” as a small business concern that has its principal office located in one of the following: (1) the U.S. Virgin Islands; (2) American Samoa; (3) Guam; and (4) CNMI. Sections 861 and 866 created two new incentives for SBA's small business mentor-protégé program for mentor-protégé pairs in which the protégé has its principal office located in the Commonwealth of Puerto Rico or is a covered territory business. Specifically, such a mentor that subcontracts to its protégé is able to receive positive consideration for the mentor's past performance evaluation and is able to apply costs incurred for training provided to its protégé to its subcontracting plan goals.

The objective of this rule is to implement SBA's final rules published on October 16, 2020, at 85 FR 66146, and on August 19, 2022, at 87 FR 50925, which created two new incentives for SBA's small business mentor-protégé program for mentor-protégé pairs in which the protégé has its principal office located in the Commonwealth of Puerto Rico or is a covered territory business. Such a mentor that subcontracts to its protégé is able to receive positive consideration for the mentor's past performance evaluation and is able to apply the costs incurred for training provided to its protégé to its subcontracting plan goals. Promulgation of the FAR is authorized by 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 20113. The legal basis for this rule is as stated in the preceding paragraph.

This proposed rule will impact small businesses whose principal office is located in the Commonwealth of Puerto Rico or that are covered territory businesses that enter into SBA-approved mentor-protégé agreements. In its final rule, SBA identified 219 small businesses across the covered territories that had contracted with the Federal Government in FY 2021. In addition and according to the System for Award Management, there are 4,483 small businesses in the Commonwealth of Puerto Rico that are currently engaged in business with the Government. Although a total of 4,702 small businesses were identified, the number of small entities that may be impacted by this proposed rule cannot be estimated more precisely as the number of entities that may enter into SBA-approved mentor-protégé agreements is unknown.

The proposed rule does not impose any new reporting, recordkeeping, or other compliance requirements for small entities.

The proposed rule does not duplicate, overlap, or conflict with any other Federal rules.

There are no known significant alternative approaches to the proposed rule.

The Regulatory Secretariat Division has submitted a copy of the IRFA to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the IRFA may be obtained from the Regulatory Secretariat Division. DoD, GSA, and NASA invite comments from small business concerns and other interested parties on the expected impact of this proposed rule on small entities.

DoD, GSA, and NASA will also consider comments from small entities concerning the existing regulations in subparts affected by the rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 610 (FAR Case 2023-001), in correspondence.

VII. Paperwork Reduction Act

This rule does not contain any information collection requirements that require the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

List of Subjects in 48 CFR Parts 2, 19, 42, and 52

Government procurement.

William F. Clark,

Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-wide Policy.

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 2, 19, 42, and 52 as set forth below:

1. The authority citation for 48 CFR parts 2, 19, 42, and 52 continues to read as follows:

Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 20113.

PART 2—DEFINITIONS OF WORDS AND TERMS

2. Amend section 2.101 by adding in alphabetic order the definition “Covered territory business” to read as follows:

2.101

Definitions.

* * * * *

Covered territory business, as defined at 15 U.S.C. 632(ff) and 13 CFR 125.1, means a small business concern that has its principal office located in the United States Virgin Islands, American Samoa, Guam, or the Commonwealth of the Northern Mariana Islands.

* * * * *

PART 19—SMALL BUSINESS PROGRAMS

3. Amend section 19.702 by revising paragraph (b)(1) and adding paragraph (e) to read as follows:

19.702

Statutory requirements.

* * * * *

(b) * * *

(1) From small business concerns, including entities that are treated as small business concerns by statute for certain purposes ( e.g., ANCs, see 43 U.S.C. 1626(e) and 13 CFR 125.3(b)(2));

* * * * *

(e) In accordance with 15 U.S.C. 657r(a), a mentor with an SBA-approved mentor-protégé agreement (see 13 CFR 125.9) that provides a subcontract to its protégé may apply the costs incurred for training it provides to its protégé toward its subcontracting plan goals, provided that protégé is a covered territory business or that protégé has its principal office located in the Commonwealth of Puerto Rico.

4. Amend section 19.703 by revising paragraphs (a)(2)(i) and (a)(2)(ii) introductory text to read as follows:

19.703

Eligibility requirements for participating in the program.

(a) * * *

(2)(i) Unless the prime contractor has reason to question the representation, it may accept a subcontractor's written representations of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, or a women-owned small business, if the subcontractor represents that the size and socioeconomic status representation with its offer are current, accurate, and complete as of the date of the offer for the subcontracts; or

(ii) Unless the prime contractor has reason to question the representation, it may accept a subcontractor's representation of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, or a women-owned small business in the System for Award Management (SAM) if—

* * * * *

PART 42—CONTRACT ADMINISTRATION AND AUDIT SERVICES

5. Amend section 42.1501 by revising paragraph (a)(5) to read as follows:

42.1501

General.

(a) * * *

(5) Complying with the requirements of the small business subcontracting plan (see 19.705-7(b)), including favorable consideration of a mentor with an SBA-approved mentor-protégé agreement (see 13 CFR 125.9) that subcontracts to its protégé, and that protégé is a covered territory business or that protégé's principal office is located in the Commonwealth of Puerto Rico (see 15 U.S.C. 657r(a));

* * * * *

PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES

6. Amend section 52.212-5 by—

a. Revising the date of the clause;

b. Removing from paragraph (b)(20) “(FEB 2024)” and adding “(DATE)” in its place;

c. Removing from paragraphs (b)(21)(i) and (v) “(SEP 2023)” and adding “(DATE)” in their places, respectively;

d. In Alternate II:

i. Revising the date of the Alternate; and

ii. Removing from paragraph (e)(1)(ii)(H) “(FEB 2024)” and adding “(DATE)” in its place.

The revisions read as follows:

52.212-5

Contract Terms and Conditions Required To Implement Statutes or Executive Orders—Commercial Products and Commercial Services.

* * * * *

Contract Terms and Conditions Required To Implement Statutes or Executive Orders—Commercial Products and Commercial Services (DATE)

* * * * *

Alternate II (DATE). * * *

* * * * *

7. Amend section 52.213-4 by—

a. Revising the date of the clause; and

b. Removing from paragraph (a)(2)(vii) “(FEB 2024)” and adding “(DATE)” in its place.

The revision reads as follows:

52.213-4

Terms and Conditions—Simplified Acquisitions (Other Than Commercial Products and Commercial Services).

* * * * *

Terms and Conditions—Simplified Acquisitions (Other Than Commercial Products and Commercial Services) (DATE)

* * * * *

8. Amend section 52.219-8 by revising the date of the clause and paragraphs (e)(1) and (2) introductory text to read as follows:

52.219-8

Utilization of Small Business Concerns.

* * * * *

Utilization of Small Business Concerns (DATE)

* * * * *

(e)(1) Unless the Contractor has reason to question the representation, it may accept a subcontractor's written representations of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, or a women-owned small business if the subcontractor represents that the size and socioeconomic status representations with its offer are current, accurate, and complete as of the date of the offer for the subcontract.

(2) Unless the Contractor has reason to question the representation, it may accept a subcontractor's representations of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, or a women-owned small business in the System for Award Management (SAM) if—

* * * * *

9. Amend section 52.219-9 by—

a. Revising the date of the clause;

b. Revising paragraphs (c)(2)(i), (c)(2)(ii) introductory text, and (d)(1) introductory text;

c. In Alternate IV:

i. Revising the date of the Alternate; and

ii. Revising paragraphs (c)(2)(i), (c)(2)(ii) introductory text, (d)(1) introductory text, and (d)(15).

The revisions read as follows:

52.219-9

Small Business Subcontracting Plan.

* * * * *

Small Business Subcontracting Plan (DATE)

* * * * *

(c) * * *

(2)(i) Unless the Contractor has reason to question the representations, it may accept a subcontractor's written representations of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, or a women-owned small business if the subcontractor represents that the size and socioeconomic status representations with its offer are current, accurate, and complete as of the date of the offer for the subcontract.

(ii) Unless the Contractor has reason to question the representations, it may accept a subcontractor's representations of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, or a women-owned small business in the System for Award Management (SAM) if—

* * * * *

(d) * * *

(1) Separate goals, expressed in terms of total dollars subcontracted, and as a percentage of total planned subcontracting dollars, for the use of small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns as subcontractors. For individual subcontracting plans, and if required by the Contracting Officer, goals shall also be expressed in terms of percentage of total contract dollars, in addition to the goals expressed as a percentage of total subcontract dollars. The Offeror shall include all subcontracts that contribute to contract performance, and may include a proportionate share of products and services that are normally allocated as indirect costs. In accordance with 15 U.S.C. 657r(a), an Offeror that is a mentor with an SBA-approved mentor-protégé agreement (see 13 CFR 125.9) that provides a subcontract to its protégé may apply the costs incurred for training it provides to its protégé toward its subcontracting plan goals, provided that protégé is a covered territory business or that protégé has its principal office located in the Commonwealth of Puerto Rico. In accordance with 43 U.S.C. 1626—

* * * * *

(15) Assurances that the Contractor will pay its small business subcontractors on time and in accordance with the terms and conditions of the underlying subcontract, and notify the contracting officer when the prime contractor makes either a reduced or an untimely payment to a small business subcontractor (see 52.242-5).

* * * * *

Alternate IV (DATE). * * *

(c) * * *

(2)(i) Unless the Contractor has reason to question the representations, it may accept a subcontractor's written representations of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, or a women-owned small business if the subcontractor represents that the size and socioeconomic status representations with its offer are current, accurate, and complete as of the date of the offer for the subcontract.

(ii) Unless the Contractor has reason to question the representations, it may accept a subcontractor's representations of its size and socioeconomic status as a small business, small disadvantaged business, veteran-owned small business, service-disabled veteran-owned small business, or a women-owned small business in the System for Award Management (SAM) if—

* * * * *

(d) * * *

(1) Separate goals, expressed in terms of total dollars subcontracted and as a percentage of total planned subcontracting dollars, for the use of small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns as subcontractors. For individual subcontracting plans, and if required by the Contracting Officer, goals shall also be expressed in terms of percentage of total contract dollars, in addition to the goals expressed as a percentage of total subcontract dollars. The Contractor shall include all subcontracts that contribute to contract performance, and may include a proportionate share of products and services that are normally allocated as indirect costs. In accordance with 15 U.S.C. 657r(a), a Contractor that is a mentor with an SBA-approved mentor-protégé agreement (see 13 CFR 125.9) that provides a subcontract to its protégé may apply the costs incurred for training it provides to its protégé toward its subcontracting plan goals, provided that protégé is a covered territory business or that protégé has its principal office located in the Commonwealth of Puerto Rico. In accordance with 43 U.S.C. 1626—

* * * * *

10. Amend section 52.244-6 by—

a. Revising the date of the clause; and

b. Removing from paragraph (c)(1)(x) “(FEB 2024)” and adding “(DATE)” in its place.

The revision reads as follows:

52.244-6

Subcontracts for Commercial Products and Commercial Services.

* * * * *

Subcontracts for Commercial Products and Commercial Services (DATE)

* * * * *