Federal Acquisition Regulation; Purchases From Federal Prison Industries-Requirement for Market Research, 18954-18958 [05-6865]

Agencies

• General Services Administration
• National Aeronautics and Space Administration
• DEPARTMENT OF DEFENSE

[Federal Register Volume 70, Number 68 (Monday, April 11, 2005)]
[Rules and Regulations]
[Pages 18954-18958]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-6865]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 8 and 25

[FAC 2005-03; FAR Case 2003-023; Item I]
RIN 9000-AJ91


Federal Acquisition Regulation; Purchases From Federal Prison 
Industries--Requirement for Market Research

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

ACTION: Interim rule with request for comments.

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[[Page 18955]]

SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on an interim 
rule amending the Federal Acquisition Regulation (FAR) to implement 
Section 637 of Division H of the Consolidated Appropriations Act, 2005. 
Section 637 provides that no funds made available under the 
Consolidated Appropriations Act for fiscal year 2005, or under any 
other Act for fiscal year 2005 and each fiscal year thereafter, shall 
be expended for purchase of a product or service offered by Federal 
Prison Industries, Inc., unless the agency making the purchase 
determines that the offered product or service provides the best value 
to the buying agency, pursuant to Governmentwide procurement 
regulations issued pursuant to 41 U.S.C. 421(c)(1) that impose 
procedures, standards, and limitations of 10 U.S.C. 2410n.

DATES: Effective Date: April 11, 2005.
    Comment Date: Interested parties should submit comments to the FAR 
Secretariat at the address shown below on or before June 10, 2005 to be 
considered in the formulation of a final rule.

ADDRESSES: Submit comments identified by FAC 2005-03, FAR case 2003-
023, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web Site: https://www.acqnet.gov/far/ProposedRules/
proposed.htm. Click on the FAR case number to submit comments.
     E-mail: farcase.2003-023@gsa.gov. Include FAC 2005-03, FAR 
case 2003-023, in the subject line of the message.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann 
Duarte, Washington, DC 20405.
    Instructions: Please submit comments only and cite FAC 2005-03, FAR 
case 2003-023, in all correspondence related to this case. All comments 
received will be posted without change to https://www.acqnet.gov/far/
ProposedRules/proposed.htm, including any personal information 
provided.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat at (202) 501-4755, 
for information pertaining to status or publication schedules. The TTY 
Federal Relay Number for further information is 1-800-877-8973. For 
clarification of content, contact Ms. Linda Nelson, Procurement 
Analyst, at (202) 501-1900. Please cite FAC 2005-03, FAR case 2003-023.

SUPPLEMENTARY INFORMATION:

A. Background

    Section 637 of Division H of the Consolidated Appropriations Act, 
2005 (Public Law 108-447), provides that none of the funds made 
available under that or any other Act for fiscal year 2005 and each 
fiscal year thereafter shall be expended for the purchase of a product 
or service offered by Federal Prison Industries, Inc. (FPI), unless the 
agency making the purchase determines that the offered product or 
service provides the best value to the buying agency pursuant to 
Governmentwide procurement regulations issued pursuant to 41 U.S.C. 
421(c)(1) that impose procedures, standards, and limitations of 10 
U.S.C. 2410n. Section 637 of Division F of the Consolidated 
Appropriations Act, 2004 (Public Law 108-199), contained a similar 
requirement that applied only to fiscal year 2004 funds.
    DoD, GSA, and NASA published an interim rule at 69 FR 16147 on 
March 26, 2004, to implement the fiscal year 2004 appropriations act 
provision. Twelve sources submitted comments on the interim rule. A 
discussion of the comments is provided below. This second interim rule 
incorporates changes made as a result of public comments, and as a 
result of the fiscal year 2005 appropriations act provision that 
establishes a permanent requirement for use of best value procedures 
when purchasing FPI products. Differences between the March 26, 2004, 
interim rule and this second interim rule are addressed in the 
discussion of Comments 1, 2, 5, 9, 13, and 18 below.
    In addition, a change has been made at FAR 8.605 to clarify that 
purchase from FPI is not mandatory when an agency is acquiring items 
that the FPI Board of Directors has determined that FPI offers 
exclusively on a competitive basis. It should be noted that the 
requirements of FAR 8.602(b) apply only to items of supply offered by 
FPI subject to its mandatory source status. FAR 8.602(b) does not apply 
to purchase of a service or to purchase of any item of supply that FPI 
has been authorized by its Board of Directors to offer exclusively on a 
competitive (non-mandatory) basis. With regard to a purchase of such an 
item or any service offered by FPI, FPI must be an otherwise eligible 
offeror pursuant to the applicable solicitation. For example, FPI would 
not be eligible to participate in a solicitation to acquire a service, 
if the competition has been restricted to small business concerns in 
accordance with FAR Subpart 19.5.
    Discussion of Comments:
    1. Comment: For a solicitation that is normally posted on 
FedBizOpps, is the contracting officer required to send a copy of the 
solicitation to FPI or is FPI responsible for checking FedBizOpps and 
responding just like any other vendor?
    Councils' response: If a solicitation is posted on FedBizOpps, the 
contracting officer need not send a separate copy to FPI. Paragraph 
(b)(4)(ii) of section 8.602 of the rule has been revised to clarify 
this procedure.
    2. Comment: Is FPI subject to the terms and conditions of the 
clauses in any given solicitation, and is FPI required to complete the 
representations and certifications included with the solicitation?
    Councils' response: Offers from FPI must be evaluated in accordance 
with the item description or specifications and evaluation factors in 
the solicitation. However, purchases from FPI must be made using the 
ordering procedures at https://www.unicor.gov. Therefore, FPI need not 
complete the representations and certifications included with the 
solicitation. If an agency determines that purchase from FPI will 
provide the best value to the Government after issuance of a 
competitive solicitation, the agency must make the purchase in 
accordance with FPI's ordering procedures. Sections 8.602(b)(4)(ii) and 
8.602(b)(4)(iii)(A) have been revised, and new paragraphs at 
8.602(b)(4)(iv) and 8.602(b)(4)(v) have been added to clarify this 
procedure.
    3. Comment: The rule presently excludes purchases at or below 
$2,500 from market research requirements, if the purchase is made from 
a source other than FPI. Purchases from FPI at or below $2,500 should 
also be excluded from market research requirements.
    Councils' response: FAR 8.605 exempts purchases at or below $2,500 
from FPI mandatory source requirements. However, if an agency chooses 
to make a purchase at or below $2,500 from FPI, the agency must first 
conduct market research, to comply with Section 637 of Division H of 
the Consolidated Appropriations Act, 2005. Section 637 prohibits the 
expenditure of any funds for purchase of a product or service from FPI, 
unless the agency making the purchase determines that the FPI product 
or service provides the best value to the Government in accordance with 
10 U.S.C. 2410n, which contains market research requirements.
    4. Comment: Contracting officers are hesitating to use these new 
procedures

[[Page 18956]]

because they are not officially published in the FAR.
    Councils' response: The interim rule containing these new 
procedures became effective upon publication on March 26, 2004. The 
procedures have been mandatory for use by contracting officers since 
that date.
    5. Comment: This new regulation can only be effective if it is made 
permanent.
    Councils' response: In accordance with Section 637 of Division H of 
the Consolidated Appropriations Act, 2005, the requirements of the rule 
have been made permanent. Therefore, the rule has been amended at FAR 
8.602(a), 8.602(b), and 8.605(a), and former paragraph (e) of FAR 8.602 
has been removed to reflect this change.
    6. Comment: Why include FPI in the solicitation process after the 
contracting officer has determined the FPI item to be noncomparable?
    Councils' response: Section 637 requires that purchase of FPI 
products be made in accordance with the procedures, standards, and 
limitations of 10 U.S.C. 2410n. 10 U.S.C. 2410n requires that (1) if an 
FPI product is not comparable to products available from the private 
sector, the product must be purchased through competitive procedures or 
a multiple award contract; and (2) in conducting such a competition or 
making such a purchase, the purchasing agency must consider a timely 
offer from FPI.
    7. Comment: To ensure proper implementation of this rule, the FAR 
Council and agency contracting officials should monitor information 
disseminated to contracting officers by aggressive FPI marketing 
agents.
    Councils' response: The comment is outside the scope of this FAR 
rule.
    8. Comment: Inclusion of FPI in FAR clauses for small business set-
asides negatively impacts our nation's small entrepreneurs by 
subjecting them to unfair competition. Set-asides are designed to 
afford small businesses the maximum practicable opportunity to 
participate in the performance of federal government contracts.
    Councils' response: 10 U.S.C. 2410n(b) requires agencies to include 
FPI in the competition if an FPI product is found to be non-comparable 
to products available from the private sector. 10 U.S.C. 2410(g) 
defines ``competitive procedures'' to include small business set-
asides. Therefore, FPI may participate in small business set-asides in 
only those situations where an FPI product has been found to be non-
comparable to private sector products, and the subsequent competition 
is limited to FPI and small business concerns. For those items of 
supply where FPI is found to be comparable, FPI's mandatory source 
status would apply.
    9. Comment: The final rule should emphasize the two-step nature of 
the procedures at FAR 8.602(b) or at least add the definition of 
``comparable'' to FAR Subpart 8.6.
    Councils' response: This second interim rule contains a new 
paragraph 8.602(b)(4)(iv) to emphasize that, if an FPI product is 
determined to be non-comparable to products available from the private 
sector, a best value determination must be made after conducting a 
competition that includes FPI. A definition of ``comparable'' in FAR 
Subpart 8.6 is considered unnecessary, as ``comparable'' is used 
throughout the FAR with its common dictionary meaning.
    10. Comment: There needs to be clarification on how to structure a 
contract for administrative convenience. Regardless of whether a 
product is provided to the Government directly or indirectly, a 
comparability determination and competitive procedures are required any 
time products offered for sale by FPI are purchased for a Government 
agency. For instance, agencies are not permitted by law to procure 
office furniture as part of a consolidated or prime contract for the 
construction or renovation of a building, if such a contracting method 
is used to preclude the necessity for a comparability determination or 
competitive procedures pursuant to Section 637. If FPI is found to be 
comparable, or is the competitive choice, the agency is required to 
purchase from FPI, regardless of the procurement method. In such cases, 
the purchase would need to be made directly by the agency, following 
the requirements of Section 637.
    Councils' response: Special procedures regarding structuring of 
contracts are considered unnecessary with regard to this rule. 
Consolidation of requirements merely to avoid a comparability 
determination or competitive procedures pursuant to Section 637 would 
be improper, as would any other action taken to circumvent statutory or 
regulatory requirements. However, consolidation, where appropriate, 
appears to be consistent with 10 U.S.C. 2410n(e), which addresses the 
issue of subcontracting and specifically prohibits the Government from 
requiring a contractor to use FPI as a subcontractor or supplier. In 
such cases, therefore, it is the responsibility of the agency to ensure 
compliance with the requirements of this interim rule if the 
procurement involves items of supply on FPI's Schedule.
    11. Comment: The impact of this rule on small business concerns 
that supply goods and services to FPI will be negative.
    Councils' response: This issue is addressed in the Initial 
Regulatory Flexibility Analysis for this second interim rule.
    12. Comment: Section 637 is temporary legislation. However, the 
following sections of the rule are drafted in such a way as to imply 
permanence: Section 8.607, which prohibits agencies from requiring use 
of FPI as a subcontractor; Section 8.605(f), which provides an 
exception to FPI's mandatory source status for services; and Section 
19.502-1, which removes FPI from the examples of required sources of 
supply. This is erroneous and must be corrected. In fact, the propriety 
of Section 8.607 of the rule is questioned in its entirety. Section 637 
is directed toward determining that the FPI product provides the best 
value to the buying agency. Prohibitions on the use of FPI as a 
subcontractor are not germane to this determination. Hence, there is no 
legislative authorization for imposing section 8.607 on civilian 
agencies.
    Councils' response: (1) In accordance with Section 637 of Division 
H of the Consolidated Appropriations Act, 2005, this legislative 
requirement is now permanent.
    (2) Section 8.607 has been appropriately included in this FAR rule. 
It implements 10 U.S.C. 2410n, which was made applicable to civilian 
agencies by the Consolidated Appropriations Acts for fiscal years 2004 
and 2005.
    (3) FPI is not a mandatory source for services, as indicated in the 
order of priorities at FAR 8.002(a)(2).
    (4) Removal of FPI from the list of examples at FAR 19.502-1 
prevents potential conflict within the regulation, but has no impact on 
FPI's mandatory source status.
    13. Comment: The interim rule has deleted the following sections: 
Section 8.602(b), which encourages maximum practicable purchase of FPI-
manufactured supplies that are not listed in the Schedule and FPI 
services that are listed in the Schedule; Section 8.602(c), which 
encourages agencies to suggest the addition of items to the Schedule; 
Section 8.603(b), which addresses the conformity of FPI supplies and 
services to Federal specifications, and the content and availability of 
FPI's Schedule; and Section 8.605(b), which specifies that purchases 
from other sources because of a lower price are not

[[Page 18957]]

normally authorized. These sections should be fully applicable upon 
expiration of Section 637 and, therefore, should be restored.
    Councils' response: (1) In accordance with Section 637 of Division 
H of the Consolidated Appropriations Act, 2005, this legislative 
requirement is now permanent.
    (2) This second interim rule includes a statement at 8.601(e) that 
encourages agencies to purchase FPI supplies and services to the 
maximum extent practicable. The text previously in Sections 8.602(c) 
and 8.603(b) is considered unnecessary for inclusion in the FAR, except 
for the text on availability of FPI's schedule, which has been 
relocated to Section 8.601(d).
    (3) The text previously in Section 8.605(b) is no longer applicable 
as a result of the resolution of the FPI Board of Directors, in 
accordance with the information at https://www.unicor.gov, that FPI will 
grant waivers in all cases where the private sector provides a lower 
price for a comparable product that FPI does not meet.
    14. Comment: Clarify the applicability of price evaluation 
preferences for HUBZone small business concerns and small disadvantaged 
business concerns when evaluating an offer from FPI that had been found 
noncomparable initially.
    Councils' response: The clauses at FAR 52.219-4 and 52.219-23 
provide notice and procedures for use of a price evaluation factor for 
HUBZone small business concerns and small disadvantaged business 
concerns, respectively. These are not set-aside procedures that exclude 
other potential offerors. FPI would be treated the same as any other 
eligible offeror not entitled to the benefit of the price evaluation 
factor. Therefore, no clarification in this area is needed.
    15. Comment: To reflect the requirements of 18 U.S.C. 4122, Section 
8.601(c) of the rule should be changed as follows:
    From: ``FPI diversifies its supplies and services to minimize 
adverse impact on private industry.''
    To: ``FPI's statute requires FPI to diversify its supplies and 
services to minimize adverse impact on private industry.''
    Councils' response: The recommended change is considered 
unnecessary. FPI's statute (18 U.S.C. 4121-4128) is referenced in 
section 8.601(b) of the rule.
    16. Comment: Since Section 637 appears to be intended to open the 
procurement process, there should be no set-asides for JWOD products if 
FPI is unable to meet the threshold for price, quality, and delivery. 
The JWOD agency should have the right to participate in the open 
bidding process under this rule as with industry and FPI.
    Councils' response: The procedures in section 8.602(d) of the rule, 
regarding purchase from JWOD participating nonprofit agencies employing 
people who are blind or severely disabled, apply only in limited 
situations where FPI grants an advance waiver that permits JWOD 
agencies to provide a portion of the Government's requirements for 
certain items. In these situations, FPI does not ``offer'' the portion 
reserved for JWOD agencies. This existing practice has been addressed 
in the rule to avoid any negative impact to JWOD participating 
nonprofit agencies.
    17. Comment: It is unclear under sections 8.602 and 8.605 whether a 
sole source award to other than FPI, without notifying and considering 
a timely offer from FPI, is permitted when acquiring supplies totaling 
over $2,500 within the United States after the FPI item has been 
determined to be non-comparable.
    Councils' response: Even if FPI's product has been determined, as a 
result of market research, to be non-comparable to an item available 
from the private sector, FPI would still be regarded as a responsible 
source for purposes of conducting competition and, in accordance with 
FAR 8.602(b)(4), must be given an opportunity to compete.
    18. Comment: Sections 8.602(b) and 8.602(c) seem to conflict with 
FAR 8.605. FAR 8.602(c) states that 8.602(b) does not apply if an 
exception in 8.605 applies, but 8.605(a) requires compliance with 
8.602(b) procedures.
    Councils' response: For clarification, FAR 8.602(c) has been 
revised to exclude the reference to FAR 8.605(a).
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., applies to 
this interim rule. The Councils have prepared an Initial Regulatory 
Flexibility Analysis (IRFA), which is summarized as follows:
    This interim rule amends the FAR to implement the Consolidated 
Appropriations Act, 2005, Division H, Section 637 (Public Law 108-
447). The Act imposes the procedures, standards, and limitations of 
10 U.S.C. 2410n, which requires market research before purchasing a 
product listed in the FPI catalog, to determine whether the FPI 
product is comparable to products available from the private sector 
that best meet the agency's needs in terms of price, quality, and 
time of delivery. If the FPI product is not comparable, the agency 
must use competitive procedures to acquire the product or must make 
an individual purchase under a multiple award contract. In 
conducting such a competition or making such a purchase, the agency 
must consider a timely offer from FPI.
    The rule could benefit small business concerns that offer 
products comparable to those listed in the FPI catalog, by 
permitting those concerns to compete for Federal contract awards. 
However, the rule could have a negative impact on those small 
business concerns that supply goods or services to FPI. In response 
to an interim FAR rule published on March 24, 2004, that contained a 
similar requirement, FPI stated that it purchased over $497,000,000 
of goods or services from private sector companies during fiscal 
year 2003, and over 53 percent of those purchases were from small 
business concerns.
    The FAR Secretariat has submitted a copy of the IRFA to the Chief 
Counsel for Advocacy of the Small Business Administration. Interested 
parties may obtain a copy from the FAR Secretariat. The Councils will 
consider comments from small entities concerning the affected FAR Parts 
8 and 25 in accordance with 5 U.S.C. 610. Interested parties must 
submit such comments separately and should cite 5 U.S.C 601, et seq. 
(FAC 2005-03, FAR case 2003-023), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose information collection requirements that require 
the approval of the Office of Management and Budget under 44 U.S.C. 
3501, et seq.

D. Determination to Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DoD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This action 
is necessary to implement Section 637 of Division H of Public Law 108-
447, the Consolidated Appropriations Act, 2005. Section 637 provides 
that no funds made available under the Consolidated Appropriations Act 
for fiscal year 2005, or under any other Act for fiscal year 2005 and 
each fiscal year thereafter, shall be expended for purchase of a 
product or service offered by Federal Prison Industries,

[[Page 18958]]

Inc., unless the agency making the purchase determines that the offered 
product or service provides the best value to the buying agency 
pursuant to Governmentwide procurement regulations issued pursuant to 
41 U.S.C. 421(c)(1) that impose procedures, standards, and limitations 
of 10 U.S.C. 2410n. Section 637 became effective December 8, 2004. 
However, pursuant to Public Law 98-577 and FAR 1.501, the Councils will 
consider public comments received in response to this interim rule in 
the formation of the final rule.

List of Subjects in 48 CFR Parts 8 and 25

    Government procurement.

    Dated: April 1, 2005.
Rodney P. Lantier,
Director, Contract Policy Division, General Services Administration.

0
Therefore, DoD, GSA, and NASA amend 48 CFR parts 8 and 25 as set forth 
below:
0
1. The authority citation for 48 CFR parts 8 and 25 is revised to read 
as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 8--REQUIRED SOURCES OF SUPPLIES AND SERVICES

0
2. Amend section 8.601 by adding paragraph (e) to read as follows:


8.601  General.

* * * * *
    (e) Agencies are encouraged to purchase FPI supplies and services 
to the maximum extent practicable.
0
3. Amend section 8.602 by--
0
a. Revising paragraph (a);
0
b. Revising the introductory text of paragraph (b), paragraphs 
(b)(4)(ii) and (b)(4)(iii); and adding paragraphs (b)(4)(iv) and 
(b)(4)(v);
0
c. Removing from paragraph (c) ``8.605'' and adding ``8.605(b) through 
(g)'' in its place; and
0
d. Removing paragraph (e) and redesignating paragraph (f) as paragraph 
(e).
    The revised text reads as follows:


8.602  Policy.

    (a) Agencies shall use the procedures in this subpart when 
purchasing supplies of the classes listed in the FPI Schedule.
    (b) In accordance with 10 U.S.C. 2410n and Section 637 of Division 
H of the Consolidated Appropriations Act, 2005 (Pub. L. 108-447), 
agencies shall--
* * * * *
    (4) * * *
    (ii) Include FPI in the solicitation process and consider a timely 
offer from FPI for award in accordance with the item description or 
specifications, and evaluation factors in the solicitation--
    (A) If the solicitation is available through the Governmentwide 
point of entry (FedBizOpps), it is not necessary to provide a separate 
copy of the solicitation to FPI;
    (B) If the solicitation is not available through FedBizOpps, 
provide a copy of the solicitation to FPI;
    (iii) When using a multiple award schedule issued under the 
procedures in Subpart 8.4 or when using the fair opportunity procedures 
in 16.505--
    (A) Establish and communicate to FPI the item description or 
specifications, and evaluation factors that will be used as the basis 
for selecting a source, so that an offer from FPI can be evaluated on 
the same basis as the contract or schedule holder; and
    (B) Consider a timely offer from FPI;
    (iv) Award to the source offering the item determined by the agency 
to provide the best value to the Government; and
    (v) When the FPI item is determined to provide the best value to 
the Government as a result of FPI's response to a competitive 
solicitation, follow the ordering procedures at https://www.unicor.gov.
* * * * *
0
4. Amend section 8.605 by--
0
a. Removing the introductory text of paragraph (a);
0
b. Removing from the end of paragraph (e) the word ``or''; and
0
c. Redesignating paragraph (f) as paragraph (g) and adding a new 
paragraph (f) to read as follows:


8.605  Exceptions.

* * * * *
    (f) Acquiring items that FPI offers exclusively on a competitive 
(non-mandatory) basis, as identified in the FPI Schedule; or
* * * * *

PART 25--FOREIGN ACQUISITION

0
5. Amend section 25.401 by revising paragraph (a)(4) to read as 
follows:


25.401  Exceptions.

    (a) * * *
    (4) Acquisitions from Federal Prison Industries, Inc., under 
Subpart 8.6, and acquisitions under Subpart 8.7, Acquisition from 
Nonprofit Agencies Employing People Who Are Blind or Severely Disabled; 
and
* * * * *
[FR Doc. 05-6865 Filed 4-8-05; 8:45 am]
BILLING CODE 6820-EP-S