Federal Acquisition Regulations: FAR Case 2014-004, Payment of Subcontractors, 3087-3093 [2016-00950]

Download as PDF Federal Register / Vol. 81, No. 12 / Wednesday, January 20, 2016 / Proposed Rules Synopsis In Section IV.B of the Further Notice of Proposed Rule Making (FNPRM) accompanying the Data Collection Order, adopted on December 11, 2012, the Commission sought comment on possible changes to its rules for the business data services. The Commission set the comment deadlines on this portion of the Special Access FNPRM, 78 FR 2600, several months beyond the document’s release date to allow interested parties opportunity to review the data and information collected before filing comments. The Bureau has extended these deadlines, upon request and in consideration of oppositions filed in response to the request for extensions of time, to allow interested parties adequate time to access and review the data and information collected. Accordingly, the deadline for filing comments is extended to January 22, 2016, and the deadline for reply comments is extended to February 19, 2016. Federal Communications Commission. Pamela Arluk, Chief, Pricing Policy Division. [FR Doc. 2016–01082 Filed 1–19–16; 8:45 am] BILLING CODE 6712–01–P DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 19, 42, and 52 [FAR Case 2014–004; Docket No. 2014– 0004; Sequence No. 1] RIN 9000–AM98 Federal Acquisition Regulations: FAR Case 2014–004, Payment of Subcontractors Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Proposed rule. AGENCY: DoD, GSA, and NASA are proposing to amend the Federal Acquisition Regulation (FAR) to implement a section of the Small Business Jobs Act of 2010. This statute requires contractors to notify the contracting officer in writing if the contractor pays a reduced price to a small business subcontractor, or if the contractor’s payment to a small business contractor is more than 90 days past due. tkelley on DSK3SPTVN1PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 16:49 Jan 19, 2016 Jkt 238001 Interested parties should submit written comments to the Regulatory Secretariat at one of the addresses shown below on or before March 21, 2016 to be considered in the formulation of a final rule. ADDRESSES: Submit comments identified by FAR Case 2014–004 by any of the following methods: • Regulations.gov: http:// www.regulations.gov. Submit comments via the Federal eRulemaking portal by searching for ‘‘FAR Case 2014–004’’. Select the link ‘‘Comment Now’’ that corresponds with FAR Case 2014–004. Follow the instructions provided on the screen. Please include your name, company name (if any), and ‘‘FAR Case 2014–004’’ in all attached documents. • Mail: General Services Administration, Regulatory Secretariat Division (MVCB), 1800 F Street NW., Second floor, ATTN: Ms. Flowers, Washington, DC 20405. Instructions: Please submit comments only and cite FAR Case 2014–004, Payment of Subcontractors in all correspondence related to this case. Comments received generally will be posted without change to http:// www.regulations.gov, including any personal and/or business confidential information provided. To confirm receipt of your comment(s), please check www.regulations.gov, approximately two to three days after submission to verify posting (except allow 30 days for posting of comments submitted by mail). FOR FURTHER INFORMATION CONTACT: Mr. Curtis E. Glover, Sr., Procurement Analyst, at 202–501–1448 for clarification of content. Please cite FAR case 2014–004. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at 202–501–4755. SUPPLEMENTARY INFORMATION: DATES: I. Background DoD, GSA, and NASA are proposing to implement section 1334 of the Small Business Jobs Act of 2010 (Pub. L. 111– 240) and the Small Business Administration’s (SBA’s) implementation of section 1334 with its final rule, Small Business Subcontracting, published in the Federal Register at 78 FR 42391, on July 16, 2013, and effective August 15, 2013. This statute requires the prime contractor to self-report to the contracting officer when the prime contractor makes late or reduced payments to small business subcontractors. In addition, the contracting officer is required to record the identity of contractors with a history PO 00000 Frm 00055 Fmt 4702 Sfmt 4702 3087 of late or reduced payments to small business subcontractors in the Federal Awardee Performance and Integrity Information System (FAPIIS). The FAR is proposed to be amended as follows to implement the requirements of section 1334: FAR 19.701 is revised to add definitions for ‘‘reduced payment’’ and ‘‘untimely payment.’’ FAR 19.704(a)(12) and 52.219– 9(d)(12) are added to require that the offeror will pay its small business subcontractors on time and in accordance with the terms and conditions of the subcontract, and notify the contracting officer when the prime contractor pays a reduced or an untimely payment to a small business subcontractor. FAR 42.1502(g) is revised to include in the past performance evaluation reduced or untimely payments reported to the contracting officer by the prime contractor in accordance with the clause at 52.242–XX, Payments to Small Business Subcontractors, that are determined by the contracting officer to be unjustified. FAR 42.1503(b)(2)(v) is revised by including ‘‘reduced or untimely payments to small business subcontractors when a subcontracting plan is required in accordance with 19.702(a)’’ to the list of ‘‘Small business subcontracting’’ past performance evaluation factors. FAR 42.1503(h)(1)(vi) is added to the list of ‘‘other contractor performance information’’ that will be reported to FAPIIS and considered by contracting officers in evaluating contractor past performance to include a contracting officer’s determination that a contractor has a history of unjustified reduced or untimely payments to small business subcontractors. FAR table 42–2, ‘‘Evaluation Ratings Definitions (for the Small Business Subcontracting Evaluation Factor, When 52.219–9 is Used)’’ is revised to include the contracting officer’s evaluation of a prime contractor’s self-reported unjustified reduced or untimely payments (history of three or more) to small business subcontractors. FAR 42.1504 is added to require contracting officers to insert the clause at 52.242–XX, Payment to Small Business Subcontractors, in all solicitations and contracts containing the clause at 52.219–9, Small Business Subcontracting Plan. FAR clause 52.219–9, Small Business Subcontracting Plan, is revised to add definitions for ‘‘reduced payment’’ and ‘‘untimely payment.’’ FAR clause 52.242–XX, Payment to Small Business Subcontractors, is added E:\FR\FM\20JAP1.SGM 20JAP1 3088 Federal Register / Vol. 81, No. 12 / Wednesday, January 20, 2016 / Proposed Rules to FAR part 52 to require the contractor to provide a written notice to the contracting officer if it makes a payment to a small business subcontractor that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions for supplies and services for which the Government has paid the prime contractor, or if payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract for supplies and services for which the Government has paid the prime contractor. In accordance with the SBA final rule, this proposed rule would apply to prime contracts that require small business subcontracting plans. For the reasons explained in section II, below, the proposed rule would cover acquisitions for commercial items, including acquisitions for commercial-off-the-shelf (COTS) items. tkelley on DSK3SPTVN1PROD with PROPOSALS II. Determinations The FAR Council has made the following preliminary determinations with respect to the rule’s application of section 1334 of the Small Business Jobs Act of 2010, entitled ‘‘Payment of Subcontractors,’’ to contracts for the acquisition of commercial items: A. Applicability to Contracts for the Acquisition of Commercial Items 41 U.S.C. 1906 governs the applicability of laws to the acquisition of commercial items (other than COTS items). This statute limits the applicability of laws to the acquisition of commercial items. However, section 1906 provides that the acquisition of commercial items will not be exempt from a provision of law if— • The law contains criminal or civil penalties; • The law specifically refers to 41 U.S.C. 1906 and states that the law applies to the acquisition of commercial items; or • The FAR Council makes a written determination that it is not in the best interest of the Federal Government to exempt the acquisition of commercial items from the provision of law. Section 1334 of the Small Business Jobs Act of 2010 is silent on the applicability of the requirements set forth above to contracts for commercial items and does not provide for criminal or civil penalties. Therefore, under 41 U.S.C. 1906, section 1334 does not apply to acquisitions for commercial items unless the FAR Council makes a written determination that such application is in the best interest of the Federal Government. In making its initial determination of whether application of section 1334 to VerDate Sep<11>2014 16:49 Jan 19, 2016 Jkt 238001 commercial items is in the best interest of the Federal Government, the FAR Council considered the following factors: (i) The benefits of the policy in furthering Administration goals, (ii) the extent to which the benefits of the policy would be reduced if an exemption is provided for commercial items, and (iii) the burden on contractors if the policy is applied to acquisitions for commercial items. With respect to the first factor, this Administration has taken a number of steps to ensure that the government promptly and efficiently pays small businesses when they contract to provide goods and services to the government. These steps are part of the Administration’s strong commitment to supporting small business growth and prosperity, as an engine to drive economic activity and job creation throughout the country. On September 14, 2011, the Office of Management and Budget (OMB) issued Memorandum M 11–32, titled: ‘‘Accelerating Payments to Small Businesses for Goods and Services.’’ That memorandum established ‘‘the Executive Branch policy that, to the full extent permitted by law, agencies shall make their payments to small business contractors as soon as practicable, with the goal of making payments within 15 days’’ of receipt of relevant documents. OMB explained that such acceleration helps to improve cash flow for small businesses, increases liquidity, unlocks capital for the purposes of investment and growth, and increases small business participation in Federal contracting. To further preserve and increase small business participation in all levels of federal contracting through improved cash flow, OMB broadened the policy to reach small business subcontractors. Memorandum M–12–16, ‘‘Providing Prompt Payment to Small Business Subcontractors,’’ established the Executive Branch policy that, to the full extent permitted by law, agencies shall take certain steps to accelerate payments to all prime contractors, in order to allow them to provide prompt payments to small business subcontractors. The policy was extended by OMB Memoranda M–13–15 and M–14–10. In 2014, the FAR Council finalized FAR changes to implement this policy and provide a clause (see FAR clause 52.232–40) to support the acceleration of payments to subcontractors. By instilling accountability for untimely payment to subcontractors, section 1334, SBA’s implementing regulation, and this rule further the benefits and policies goals described above. Specifically, the proposed rule PO 00000 Frm 00056 Fmt 4702 Sfmt 4702 helps to create greater cash flow certainty, which is critical for small business subcontractors and reduces a potential barrier to their participation in federal contracting. With respect to the second factor (the impact of excluding commercial item acquisitions on the overall benefits of the underlying policy), the FAR Council believes based on an analysis of Fiscal Year 2014 Federal Procurement Data System (FPDS) data that less than onethird of spending on new contracts over $650,000 (i.e., the threshold for the applicability of this rule) are for commercial item acquisitions, so exclusion could have a material impact on these benefits. With respect to the third factor, burden on contractors selling commercial items, the initial analysis under the Paperwork Reduction Act (PRA) suggests that the total number of unique entities in Fiscal Year (FY) 2014 that are covered under this requirement (selling either commercial or noncommercial items) is 2,279 and the estimated reporting time per respondent is 2 hours. See the discussion on the PRA at Section VI, below. The FAR Council further estimates that the number of covered entities selling commercial items is not more than 40 percent of this stated total, and some of these entities may only sell COTs items, which as explained below are covered by the rule pursuant to the requirements of 41 U.S.C. 1907. Based on the above benefit and burden considerations, the FAR Council has made a preliminary determination that it is in the best interest of the government to apply section 1334 to commercial item acquisitions: covering commercial items helps to further an important ongoing Administration initiative to help ensure effective cash flow to small business subcontractors, which in turn helps to strengthen their participation in federal contracting, whereas exclusion of commercial item acquisitions would remove a significant amount of contracting activity from the accountability that this rule imposes on prime contractors to meet their payment commitments to their small business subcontractors. The limited information currently available to the FAR Council on reporting in accordance with the requirements of this rule suggests the burdens are not expected to be significant. Moreover, the relief provided by an exemption would be limited, since COTS are covered for the reason explained below. The Council welcomes public feedback on its initial analysis and preliminary determination to cover commercial items, including additional E:\FR\FM\20JAP1.SGM 20JAP1 Federal Register / Vol. 81, No. 12 / Wednesday, January 20, 2016 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS insight on the need for and cost of retrofitting payment systems to meet the requirements in the rule. This feedback will be considered before the FAR Council finalizes its analysis of benefits and burdens and makes a final determination on the scope of the final rule. B. Applicability to Contracts for the Acquisition of COTS Items 41 U.S.C. 1907 governs the applicability of laws to the acquisition of COTS items. This statute limits the applicability of laws when agencies are acquiring COTS items. However, section 1907 provides similar requirements for a law to be applied to COTS items where the law contains criminal or civil penalties, refers to section 1907 and states the law applies to COTS, or where the Administrator for Federal Procurement Policy determines it would not be in the best interest of the Federal Government to exempt the acquisition of COTS items from the provision of law. Of particular relevance to the instant rulemaking, section 1907 further provides that the acquisition of COTS items will not be exempt from a provision of law if the law concerns— • Authorities or responsibilities under section 15 of the Small Business Act (15 U.S.C. 644); or • Bid protest procedures developed under the authority of 31 U.S.C. 3551 et seq.; 10 U.S.C. 2305(e) and (f); or 41 U.S.C. 3706 and 3707. Section 1334 amends section 8(d) of the Small Business Act (15 U.S.C. 637(d)) to establish the requirement for a prime contractor for a covered contract to provide written notification to the contracting officer if the contractor pays a reduced price to a subcontractor for goods and services upon completion of the responsibilities of the subcontractor or the payment to a subcontractor is more than 90 days past due for goods or services provided for the covered contract for which the Federal agency has paid the prime contractor. Section 1334 requires a contracting officer of a covered contract to consider unjustified untimely or reduced payments to a small business subcontractor of the covered contract in the prime contractor’s past performance evaluation. The statute defines a ‘‘covered contract’’ as a contract under which a prime contractor is required to develop a subcontracting plan. Pursuant to section 8(d) of the Small Business Act (15 U.S.C. 637(d)), as implemented at FAR 19.702(a), a small business subcontracting plan is required in acquisitions expected to exceed $700,000 that have subcontracting opportunities. Contracts for COTS items VerDate Sep<11>2014 16:49 Jan 19, 2016 Jkt 238001 in amounts greater than $700,000 that have subcontracting opportunities meet the definition of a ‘‘covered contract’’ provided in the statute. The law furthers the Administration’s goal of supporting small business and advances the interests of small business subcontractors by encouraging prime contractors to comply with their stated subcontracting objectives. Increased compliance with subcontracting objectives will expand opportunities for small business subcontractors. Exclusion of a large segment of Federal contracting, such as acquisitions for COTS items, will limit the full implementation of these subcontractingrelated objectives. Further, one of the primary FAR clauses implementing Federal procurement policies governing subcontracting with small business, 52.219–9, Small Business Subcontracting Plan, are currently prescribed for use in solicitations for COTS items. This rule merely revises FAR clause 52.219–9 to implement the new requirements for a prime contractor for a covered contract to provide written notification to the contracting officer if the contractor pays a reduced price to a subcontractor for goods and services upon completion of the responsibilities of the subcontractor or the payment to a subcontractor is more than 90 days past due for goods or services provided for the covered contract for which the Federal agency has paid the prime contractor. A further example that the rule should apply to COTS items is FAR clause 52.232–40, Providing Accelerated Payments to Small Business Subcontractors, which is required in all solicitations and contracts. Exclusion of acquisitions for COTS items from these requirements would create confusion among contractors and the Federal contracting workforce. The burden on contractors is not expected to increase significantly if the new requirements of section 1334 were applied to acquisitions for COTS items. Under the FAR clause 52.219–9, which is noted above, contractors are already required to commit to objectives for subcontracting with small business concerns under contracts for COTS items above the subcontracting plan threshold. The effort required for contractors to comply with the new requirements should be relatively small. The Council welcomes public feedback on its initial analysis and preliminary determination to cover COTS items, including additional insight on the need for and cost of retrofitting payment systems to meet the requirements in the rule. This feedback will be considered before the FAR PO 00000 Frm 00057 Fmt 4702 Sfmt 4702 3089 Council finalizes its analysis of benefits and burdens and makes a final determination on the scope of the final rule. III. Executive Orders 12866 and 13563 Executive Orders 12866 and 13563 direct agencies to assess all 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). Executive Order 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 Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This proposed rule is not a major rule under 5 U.S.C. 804. IV. Regulatory Flexibility Act DoD, GSA, and NASA expect that this proposed rule may 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, et seq.. Therefore, an Initial Regulatory Flexibility Analysis (IRFA) has been prepared consistent with 5 U.S.C. 603 and is summarized as follows: Section 1334 of the Small Business Jobs Act of 2010 (Public Law 111–240) and the Small Business Administration’s final rule, Small Business Subcontracting, published in the Federal Register at 78 FR 42391, on July 16, 2013, require that the prime contractor self-report when the prime contractor makes reduced or untimely payments to small business subcontractors. Section 1334 also requires the contracting officer to record the identity of contractors with a history of unjustified reduced or untimely payments in FAPIIS. This proposed rule implements the selfreporting requirements of section 1334 by amending FAR 42.1504 to require contracting officers to include FAR clause 52.242–XX, Payments to Small Business Subcontractors, in all solicitations and contracts containing the clause at 52.219–9, Small Business Subcontracting Plan. The new FAR clause requires prime contractors to notify the contracting officer of reduced or untimely payments to small business subcontractors. The proposed rule also amends FAR 42.1503(h) to require contracting officers to report to FAPIIS a contractor that has a history of three or more reduced or untimely payments to small business subcontractors within a 12-month period under a single contract that are unjustified. Table 42–2 is also amended to include unjustified reduced or untimely payments to small business E:\FR\FM\20JAP1.SGM 20JAP1 3090 Federal Register / Vol. 81, No. 12 / Wednesday, January 20, 2016 / Proposed Rules subcontractors as part of the definition of ratings for the ‘‘small business subcontracting’’ past performance evaluation factors. The proposed rule would apply to payments made to small businesses that are first-tier subcontractors to prime government contractors. There will be no burden on small businesses, as small businesses do not have subcontracting plans. This regulation will benefit small business subcontractors by encouraging large business prime contractors to pay small business subcontractors in a timely manner and the agreed upon contractual price. The rule does not duplicate, overlap, or conflict with any other Federal rules. The specifics of the statutory requirement and the SBA final rule do not allow for alternative implementation strategies. The Regulatory Secretariat 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. 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 this proposed rule consistent with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 610 (FAR Case 2014–004) in correspondence. for a contractor to prepare the information for this collection is two hours. It is estimated also that the responses per respondent would be one. The annual reporting burden is estimated as follows: Respondents: 456. Responses per respondent: 1. Total annual responses: 456. Preparation hours per response: 2. Total response burden hours: 912. tkelley on DSK3SPTVN1PROD with PROPOSALS 42.1502 Policy. 19.704 42.1503 Government procurement. Dated: January 11, 2016. William F. Clark, Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-wide Policy. Therefore, the DoD, GSA, and NASA propose amending 48 CFR parts 19, 42, and 52 as set forth below: ■ 1. The authority citation for 48 CFR parts 19, 42, and 52 continues to read as follows: Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113. PART 19—SMALL BUSINESS PROGRAMS 2. Amend section 19.701 by adding, in alphabetical order, the definitions ‘‘Reduced payment’’ and ‘‘Untimely payment’’ to read as follows: ■ The Paperwork Reduction Act (44 U.S.C. Chapter 35) applies. The proposed rule contains information collection requirements. OMB has cleared this information collection requirement under OMB Control Number 9000–XXXX, titled: Payments to Small Business Subcontractors. FPDS for Fiscal Year (FY) 2014 lists 794 new commercial item contracts over $650,000 where the size determination was other than small and a subcontracting plan was required. FPDS for FY 2014 also lists 1,485 new noncommercial item contracts over $650,000 where the size determination was other than small and a subcontracting plan was required. It is estimated that no more than twenty percent of contractors with new commercial and non-commercial contracts where the size determination was other than small and where a subcontracting plan was required would have to notify the contracting officer that the prime contractor paid a reduced or an untimely payment to a small business subcontractor. It is also estimated that the average time required * Jkt 238001 4. Amend section 42.1502 by revising paragraph (g) to read as follows: ■ * * * * Reduced payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor. * * * * * Untimely payment means a payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract, for supplies and services for which the Government has paid the prime contractor. ■ 3. Amend section 19.704 by removing the period from the end of paragraph (a)(11)and adding ’’; and’’ in its place; and adding paragraph (a)(12) to read as follows: List of Subject in 48 CFR Parts 19, 42 and 52 19.701 16:49 Jan 19, 2016 PART 42—CONTRACT ADMINISTRATION AND AUDIT SERVICES * * * * (g) Past performance evaluations shall include an assessment of the contractor’s— (1) Performance against, and efforts to achieve, the goals identified in the small business subcontracting plan when the contract includes the clause at 52.219– 9, Small Business Subcontracting Plan; and (2) Reduced or untimely payments (see 19.701) determined by the Contracting Officer to be unjustified to small business subcontractors. (i) The contracting officer shall consider and evaluate a contractor’s written explanation for a reduced or an untimely payment when determining whether the reduced or untimely payment is justified. (ii) The contracting officer determines that a history of unjustified reduced or untimely payments has occurred when the contractor has reported three or more occasions of unjustified reduced or untimely payments under a single contract within a 12 month period (see 42.1503(h)(1)(vi) and the evaluation factors in Table 42–2). * * * * * ■ 5. Amend section 42.1503 by— ■ a. Revising paragraph (b)(2)(v); ■ b. Removing from paragraph (b)(2)(vi) the phrase ‘‘late or nonpayment to subcontractors,’’; ■ c. Revising the introductory text of paragraph (h)(1); ■ d. Removing from paragraph (h)(1)(iv) ‘‘; or’’ and adding a semicolon in its place; ■ e. Removing the period from the end of paragraph (h)(1)(v) and adding ‘‘; or’’ in its place; ■ f. Adding paragraph (h)(1)(vi); and ■ g. Revising table 42–2. The revisions and additions reads as follows: V. Paperwork Reduction Act VerDate Sep<11>2014 untimely payment to a small business subcontractor. * * * * * Definitions. Subcontracting plan requirements. (a) * * * (12) Assurances that the offeror will pay its small business subcontractors on time and in accordance with the terms and conditions of the subcontract, and notify the contracting officer when the prime contractor pays a reduced or an PO 00000 Frm 00058 Fmt 4702 Sfmt 4702 * Procedures. * * * * * (b) * * * (2) * * * (v) Small business subcontracting, including reduced or untimely payments to small business subcontractors when 19.702(a) requires E:\FR\FM\20JAP1.SGM 20JAP1 Federal Register / Vol. 81, No. 12 / Wednesday, January 20, 2016 / Proposed Rules a subcontracting plan (as applicable, see Table 42–2). * * * * * (h) * * * (1) Agencies shall ensure information is accurately reported in the FAPIIS or any successor thereto module of CPARS within 3 calendar days after a contracting officer— * * * * * (vi) Determines that a contractor has a history of three or more unjustified 3091 reduced or untimely payments to small business subcontractors within a 12 month period (see 42.1502(g)(2)). * * * * * TABLE 42–2—EVALUATION RATINGS DEFINITIONS [For the Small Business Subcontracting Evaluation Factor, when 52.219–9 is used] Rating Definition Note (a) Exceptional ..................... Exceeded all statutory goals or goals as negotiated. Had exceptional success with initiatives to assist, promote, and utilize small business (SB), small disadvantaged business (SDB), women-owned small business (WOSB), HUBZone small business, veteran-owned small business (VOSB), and service disabled veteran owned small business (SDVOSB). Complied with FAR 52.219–8, Utilization of Small Business Concerns. Exceeded any other small business participation requirements incorporated in the contract/order, including the use of small businesses in mission critical aspects of the program. Went above and beyond the required elements of the subcontracting plan and other small business requirements of the contract/order. Completed and submitted Individual Subcontract Reports and/or Summary Subcontract Reports in an accurate and timely manner. Did not have a history of three or more unjustified reduced or untimely payments to small business subcontractors within a 12 month period. Met all of the statutory goals or goals as negotiated. Had significant success with initiatives to assist, promote and utilize SB, SDB, WOSB, HUBZone, VOSB, and SDVOSB. Complied with FAR 52.219–8, Utilization of Small Business Concerns. Met or exceeded any other small business participation requirements incorporated in the contract/order, including the use of small businesses in mission critical aspects of the program. Endeavored to go above and beyond the required elements of the subcontracting plan. Completed and submitted Individual Subcontract Reports and/or Summary Subcontract Reports in an accurate and timely manner. Did not have a history of three or more unjustified reduced or untimely payments to small business subcontractors within a 12 month period. Demonstrated a good faith effort to meet all of the negotiated subcontracting goals in the various socioeconomic categories for the current period. Complied with FAR 52.219–8, Utilization of Small Business Concerns. Met any other small business participation requirements included in the contract/order. Fulfilled the requirements of the subcontracting plan included in the contract/order. Completed and submitted Individual Subcontract Reports and/or Summary Subcontract Reports in an accurate and timely manner. Did not have a history of three or more unjustified reduced or untimely payments to small business subcontractors within a 12 month period. To justify an Exceptional rating, identify multiple significant events and state how they were a benefit to small business utilization. A singular benefit, however, could be of such magnitude that it constitutes an Exceptional rating. Small businesses should be given meaningful and innovative work directly related to the contract, and opportunities should not be limited to indirect work such as cleaning offices, supplies, landscaping, etc. Also, there should have been no significant weaknesses identified. (b) Very Good ...................... tkelley on DSK3SPTVN1PROD with PROPOSALS (c) Satisfactory ..................... VerDate Sep<11>2014 16:49 Jan 19, 2016 Jkt 238001 PO 00000 Frm 00059 Fmt 4702 Sfmt 4702 To justify a Very Good rating, identify a significant event and state how it was a benefit to small business utilization. Small businesses should be given meaningful and innovative opportunities to participate as subcontractors for work directly related to the contract, and opportunities should not be limited to indirect work such as cleaning offices, supplies, landscaping, etc. There should be no significant weaknesses identified. To justify a Satisfactory rating, there should have been only minor problems, or major problems the contractor has addressed or taken corrective action. There should have been no significant weaknesses identified. A fundamental principle of assigning ratings is that contractors will not be assessed a rating lower than Satisfactory solely for not performing beyond the requirements of the contract/order. E:\FR\FM\20JAP1.SGM 20JAP1 3092 Federal Register / Vol. 81, No. 12 / Wednesday, January 20, 2016 / Proposed Rules TABLE 42–2—EVALUATION RATINGS DEFINITIONS—Continued [For the Small Business Subcontracting Evaluation Factor, when 52.219–9 is used] Rating Definition Note (d) Marginal .......................... Deficient in meeting key subcontracting plan elements. Deficient in complying with FAR 52.219–8, Utilization of Small Business Concerns, and any other small business participation requirements in the contract/ order. Did not submit Individual Subcontract Reports and/or Summary Subcontract Reports in an accurate or timely manner. Failed to satisfy one or more requirements of a corrective action plan currently in place; however, does show an interest in bringing performance to a satisfactory level and has demonstrated a commitment to apply the necessary resources to do so. Required a corrective action plan. Did not have a history of three or more unjustified reduced or untimely payments to small business subcontractors within a 12 month period. Noncompliant with FAR 52.219–8 and 52.219–9, and any other small business participation requirements in the contract/order. Did not submit Individual Subcontract Reports and/or Summary Subcontract Reports in an accurate or timely manner. Showed little interest in bringing performance to a satisfactory level or is generally uncooperative. Required a corrective action plan. Had a history of three or more unjustified reduced or untimely payments to small business subcontractors within a 12 month period. To justify Marginal performance, identify a significant event that the contractor had trouble overcoming and how it impacted small business utilization. A Marginal rating should be supported by referencing the actions taken by the Government that notified the contractor of the contractual deficiency. (e) Unsatisfactory ................. To justify an Unsatisfactory rating, identify multiple significant events that the contractor had trouble overcoming and state how it impacted small business utilization. A singular problem, however, could be of such serious magnitude that it alone constitutes an Unsatisfactory rating. An Unsatisfactory rating should be supported by referencing the actions taken by the Government to notify the contractor of the deficiencies. When an Unsatisfactory rating is justified, the contracting officer must consider whether the contractor made a good faith effort to comply with the requirements of the subcontracting plan required by FAR 52.219–9 and follow the procedures outlined in FAR 52.219–16, Liquidated Damages-Subcontracting Plan. Note 1: Plus or minus signs may be used to indicate an improving (+) or worsening (¥) trend insufficient to change the evaluation status. Note 2: N/A (not applicable) should be used if the ratings are not going to be applied to a particular area for evaluation. 6. Add section 42.1504 to Subpart 42.15—CONTRACTOR PERFORMANCE INFORMATION to read as follows: ■ 42.1504 Contract clause. Insert the clause at 52.242–XX, Payments to Small Business Subcontractors, in all solicitations and contracts containing the clause at 52.219–9, Small Business Subcontracting Plan. PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES 7. Amend section 52.212–5 by revising the date of the clause and paragraph (b)(17)(i) to read as follows: ■ 52.212–5 Contract Terms and Conditions Required to Implement Statutes or Executive Orders-Commercial Items. tkelley on DSK3SPTVN1PROD with PROPOSALS * * * * * Contract Terms and Conditions Required to Implement Statutes or Executive Orders-Commercial Items (Date) * * * * * (b) * * * __(17)(i) 52.219–9, Small Business Subcontracting Plan (DATE) (15 U.S.C. 637(d)(4)). ■ 8. Amend section 52.219–9 by— VerDate Sep<11>2014 16:49 Jan 19, 2016 Jkt 238001 a. Revising the date of the clause; b. Adding to paragraph (b), in alphabetical order, the definitions ‘‘Reduced payment’’ and ‘‘Untimely payment’’; and ■ c. Adding paragraph (d)(12). The revisions and additions read as follows: ■ ■ 52.219–9 Plan. Small Business Subcontracting * * * * * Small Business Subcontracting Plan (Date) * * * * * (b) * * * Reduced payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor. * * * * * Untimely payment means a payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract, for supplies and services for which the Government has paid the prime contractor. * * * * * (d) * * * PO 00000 Frm 00060 Fmt 4702 Sfmt 4702 (12) The offeror shall provide assurances that the offeror will pay its small business subcontractors on time, make payments 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–XX). * * * * * ■ 9. Add section 52.242–XX to read as follows: 52.242–XX Payments to Small Business Subcontractors As prescribed in 42.1504, insert the following clause: Payments to Small Business Subcontractors (Date) (a) Definitions. Reduced payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor. Untimely payment means a payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract, for supplies E:\FR\FM\20JAP1.SGM 20JAP1 Federal Register / Vol. 81, No. 12 / Wednesday, January 20, 2016 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS and services for which the Government has paid the prime contractor. (b) Notice. The Contractor shall notify the Contracting Officer in writing if— (1) A small business subcontractor is entitled to payment under the terms and conditions of the subcontract; and VerDate Sep<11>2014 16:49 Jan 19, 2016 Jkt 238001 (2) The Prime contractor makes a payment that is either reduced or untimely to the small business subcontractor, or if the Contractor failed to make a payment which is now untimely. PO 00000 (c) Content of Notice. The Contractor shall include the reason(s) for making the reduced or untimely payment in any notice required under paragraph (b). (End of clause) [FR Doc. 2016–00950 Filed 1–19–16; 8:45 am] BILLING CODE 6820–EP–P Frm 00061 Fmt 4702 Sfmt 9990 3093 E:\FR\FM\20JAP1.SGM 20JAP1

Agencies

[Federal Register Volume 81, Number 12 (Wednesday, January 20, 2016)]
[Proposed Rules]
[Pages 3087-3093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00950]


=======================================================================
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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 19, 42, and 52

[FAR Case 2014-004; Docket No. 2014-0004; Sequence No. 1]
RIN 9000-AM98


Federal Acquisition Regulations: FAR Case 2014-004, Payment of 
Subcontractors

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 a section of the Small 
Business Jobs Act of 2010. This statute requires contractors to notify 
the contracting officer in writing if the contractor pays a reduced 
price to a small business subcontractor, or if the contractor's payment 
to a small business contractor is more than 90 days past due.

DATES: Interested parties should submit written comments to the 
Regulatory Secretariat at one of the addresses shown below on or before 
March 21, 2016 to be considered in the formulation of a final rule.

ADDRESSES: Submit comments identified by FAR Case 2014-004 by any of 
the following methods:
     Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by searching for ``FAR Case 
2014-004''. Select the link ``Comment Now'' that corresponds with FAR 
Case 2014-004. Follow the instructions provided on the screen. Please 
include your name, company name (if any), and ``FAR Case 2014-004'' in 
all attached documents.
     Mail: General Services Administration, Regulatory 
Secretariat Division (MVCB), 1800 F Street NW., Second floor, ATTN: Ms. 
Flowers, Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR Case 2014-
004, Payment of Subcontractors in all correspondence related to this 
case. Comments received generally will be posted without change to 
http://www.regulations.gov, including any personal and/or business 
confidential information provided. To confirm receipt of your 
comment(s), please check www.regulations.gov, approximately two to 
three days after submission to verify posting (except allow 30 days for 
posting of comments submitted by mail).

FOR FURTHER INFORMATION CONTACT: Mr. Curtis E. Glover, Sr., Procurement 
Analyst, at 202-501-1448 for clarification of content. Please cite FAR 
case 2014-004. For information pertaining to status or publication 
schedules, contact the Regulatory Secretariat at 202-501-4755.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA are proposing to implement section 1334 of the 
Small Business Jobs Act of 2010 (Pub. L. 111-240) and the Small 
Business Administration's (SBA's) implementation of section 1334 with 
its final rule, Small Business Subcontracting, published in the Federal 
Register at 78 FR 42391, on July 16, 2013, and effective August 15, 
2013. This statute requires the prime contractor to self-report to the 
contracting officer when the prime contractor makes late or reduced 
payments to small business subcontractors. In addition, the contracting 
officer is required to record the identity of contractors with a 
history of late or reduced payments to small business subcontractors in 
the Federal Awardee Performance and Integrity Information System 
(FAPIIS).
    The FAR is proposed to be amended as follows to implement the 
requirements of section 1334:
    FAR 19.701 is revised to add definitions for ``reduced payment'' 
and ``untimely payment.''
    FAR 19.704(a)(12) and 52.219-9(d)(12) are added to require that the 
offeror will pay its small business subcontractors on time and in 
accordance with the terms and conditions of the subcontract, and notify 
the contracting officer when the prime contractor pays a reduced or an 
untimely payment to a small business subcontractor.
    FAR 42.1502(g) is revised to include in the past performance 
evaluation reduced or untimely payments reported to the contracting 
officer by the prime contractor in accordance with the clause at 
52.242-XX, Payments to Small Business Subcontractors, that are 
determined by the contracting officer to be unjustified.
    FAR 42.1503(b)(2)(v) is revised by including ``reduced or untimely 
payments to small business subcontractors when a subcontracting plan is 
required in accordance with 19.702(a)'' to the list of ``Small business 
subcontracting'' past performance evaluation factors.
    FAR 42.1503(h)(1)(vi) is added to the list of ``other contractor 
performance information'' that will be reported to FAPIIS and 
considered by contracting officers in evaluating contractor past 
performance to include a contracting officer's determination that a 
contractor has a history of unjustified reduced or untimely payments to 
small business subcontractors.
    FAR table 42-2, ``Evaluation Ratings Definitions (for the Small 
Business Subcontracting Evaluation Factor, When 52.219-9 is Used)'' is 
revised to include the contracting officer's evaluation of a prime 
contractor's self-reported unjustified reduced or untimely payments 
(history of three or more) to small business subcontractors.
    FAR 42.1504 is added to require contracting officers to insert the 
clause at 52.242-XX, Payment to Small Business Subcontractors, in all 
solicitations and contracts containing the clause at 52.219-9, Small 
Business Subcontracting Plan.
    FAR clause 52.219-9, Small Business Subcontracting Plan, is revised 
to add definitions for ``reduced payment'' and ``untimely payment.''
    FAR clause 52.242-XX, Payment to Small Business Subcontractors, is 
added

[[Page 3088]]

to FAR part 52 to require the contractor to provide a written notice to 
the contracting officer if it makes a payment to a small business 
subcontractor that is for less than the amount agreed upon in a 
subcontract in accordance with its terms and conditions for supplies 
and services for which the Government has paid the prime contractor, or 
if payment to a subcontractor that is more than 90 days past due under 
the terms and conditions of a subcontract for supplies and services for 
which the Government has paid the prime contractor. In accordance with 
the SBA final rule, this proposed rule would apply to prime contracts 
that require small business subcontracting plans. For the reasons 
explained in section II, below, the proposed rule would cover 
acquisitions for commercial items, including acquisitions for 
commercial-off-the-shelf (COTS) items.

II. Determinations

    The FAR Council has made the following preliminary determinations 
with respect to the rule's application of section 1334 of the Small 
Business Jobs Act of 2010, entitled ``Payment of Subcontractors,'' to 
contracts for the acquisition of commercial items:

A. Applicability to Contracts for the Acquisition of Commercial Items

    41 U.S.C. 1906 governs the applicability of laws to the acquisition 
of commercial items (other than COTS items). This statute limits the 
applicability of laws to the acquisition of commercial items. However, 
section 1906 provides that the acquisition of commercial items will not 
be exempt from a provision of law if--
     The law contains criminal or civil penalties;
     The law specifically refers to 41 U.S.C. 1906 and states 
that the law applies to the acquisition of commercial items; or
     The FAR Council makes a written determination that it is 
not in the best interest of the Federal Government to exempt the 
acquisition of commercial items from the provision of law.
    Section 1334 of the Small Business Jobs Act of 2010 is silent on 
the applicability of the requirements set forth above to contracts for 
commercial items and does not provide for criminal or civil penalties. 
Therefore, under 41 U.S.C. 1906, section 1334 does not apply to 
acquisitions for commercial items unless the FAR Council makes a 
written determination that such application is in the best interest of 
the Federal Government.
    In making its initial determination of whether application of 
section 1334 to commercial items is in the best interest of the Federal 
Government, the FAR Council considered the following factors: (i) The 
benefits of the policy in furthering Administration goals, (ii) the 
extent to which the benefits of the policy would be reduced if an 
exemption is provided for commercial items, and (iii) the burden on 
contractors if the policy is applied to acquisitions for commercial 
items.
    With respect to the first factor, this Administration has taken a 
number of steps to ensure that the government promptly and efficiently 
pays small businesses when they contract to provide goods and services 
to the government. These steps are part of the Administration's strong 
commitment to supporting small business growth and prosperity, as an 
engine to drive economic activity and job creation throughout the 
country. On September 14, 2011, the Office of Management and Budget 
(OMB) issued Memorandum M 11-32, titled: ``Accelerating Payments to 
Small Businesses for Goods and Services.'' That memorandum established 
``the Executive Branch policy that, to the full extent permitted by 
law, agencies shall make their payments to small business contractors 
as soon as practicable, with the goal of making payments within 15 
days'' of receipt of relevant documents. OMB explained that such 
acceleration helps to improve cash flow for small businesses, increases 
liquidity, unlocks capital for the purposes of investment and growth, 
and increases small business participation in Federal contracting. To 
further preserve and increase small business participation in all 
levels of federal contracting through improved cash flow, OMB broadened 
the policy to reach small business subcontractors. Memorandum M-12-16, 
``Providing Prompt Payment to Small Business Subcontractors,'' 
established the Executive Branch policy that, to the full extent 
permitted by law, agencies shall take certain steps to accelerate 
payments to all prime contractors, in order to allow them to provide 
prompt payments to small business subcontractors. The policy was 
extended by OMB Memoranda M-13-15 and M-14-10. In 2014, the FAR Council 
finalized FAR changes to implement this policy and provide a clause 
(see FAR clause 52.232-40) to support the acceleration of payments to 
subcontractors.
    By instilling accountability for untimely payment to 
subcontractors, section 1334, SBA's implementing regulation, and this 
rule further the benefits and policies goals described above. 
Specifically, the proposed rule helps to create greater cash flow 
certainty, which is critical for small business subcontractors and 
reduces a potential barrier to their participation in federal 
contracting.
    With respect to the second factor (the impact of excluding 
commercial item acquisitions on the overall benefits of the underlying 
policy), the FAR Council believes based on an analysis of Fiscal Year 
2014 Federal Procurement Data System (FPDS) data that less than one-
third of spending on new contracts over $650,000 (i.e., the threshold 
for the applicability of this rule) are for commercial item 
acquisitions, so exclusion could have a material impact on these 
benefits.
    With respect to the third factor, burden on contractors selling 
commercial items, the initial analysis under the Paperwork Reduction 
Act (PRA) suggests that the total number of unique entities in Fiscal 
Year (FY) 2014 that are covered under this requirement (selling either 
commercial or non-commercial items) is 2,279 and the estimated 
reporting time per respondent is 2 hours. See the discussion on the PRA 
at Section VI, below. The FAR Council further estimates that the number 
of covered entities selling commercial items is not more than 40 
percent of this stated total, and some of these entities may only sell 
COTs items, which as explained below are covered by the rule pursuant 
to the requirements of 41 U.S.C. 1907.
    Based on the above benefit and burden considerations, the FAR 
Council has made a preliminary determination that it is in the best 
interest of the government to apply section 1334 to commercial item 
acquisitions: covering commercial items helps to further an important 
ongoing Administration initiative to help ensure effective cash flow to 
small business subcontractors, which in turn helps to strengthen their 
participation in federal contracting, whereas exclusion of commercial 
item acquisitions would remove a significant amount of contracting 
activity from the accountability that this rule imposes on prime 
contractors to meet their payment commitments to their small business 
subcontractors. The limited information currently available to the FAR 
Council on reporting in accordance with the requirements of this rule 
suggests the burdens are not expected to be significant. Moreover, the 
relief provided by an exemption would be limited, since COTS are 
covered for the reason explained below.
    The Council welcomes public feedback on its initial analysis and 
preliminary determination to cover commercial items, including 
additional

[[Page 3089]]

insight on the need for and cost of retrofitting payment systems to 
meet the requirements in the rule. This feedback will be considered 
before the FAR Council finalizes its analysis of benefits and burdens 
and makes a final determination on the scope of the final rule.

B. Applicability to Contracts for the Acquisition of COTS Items

    41 U.S.C. 1907 governs the applicability of laws to the acquisition 
of COTS items. This statute limits the applicability of laws when 
agencies are acquiring COTS items. However, section 1907 provides 
similar requirements for a law to be applied to COTS items where the 
law contains criminal or civil penalties, refers to section 1907 and 
states the law applies to COTS, or where the Administrator for Federal 
Procurement Policy determines it would not be in the best interest of 
the Federal Government to exempt the acquisition of COTS items from the 
provision of law. Of particular relevance to the instant rulemaking, 
section 1907 further provides that the acquisition of COTS items will 
not be exempt from a provision of law if the law concerns--
     Authorities or responsibilities under section 15 of the 
Small Business Act (15 U.S.C. 644); or
     Bid protest procedures developed under the authority of 31 
U.S.C. 3551 et seq.; 10 U.S.C. 2305(e) and (f); or 41 U.S.C. 3706 and 
3707.
    Section 1334 amends section 8(d) of the Small Business Act (15 
U.S.C. 637(d)) to establish the requirement for a prime contractor for 
a covered contract to provide written notification to the contracting 
officer if the contractor pays a reduced price to a subcontractor for 
goods and services upon completion of the responsibilities of the 
subcontractor or the payment to a subcontractor is more than 90 days 
past due for goods or services provided for the covered contract for 
which the Federal agency has paid the prime contractor.
    Section 1334 requires a contracting officer of a covered contract 
to consider unjustified untimely or reduced payments to a small 
business subcontractor of the covered contract in the prime 
contractor's past performance evaluation. The statute defines a 
``covered contract'' as a contract under which a prime contractor is 
required to develop a subcontracting plan. Pursuant to section 8(d) of 
the Small Business Act (15 U.S.C. 637(d)), as implemented at FAR 
19.702(a), a small business subcontracting plan is required in 
acquisitions expected to exceed $700,000 that have subcontracting 
opportunities. Contracts for COTS items in amounts greater than 
$700,000 that have subcontracting opportunities meet the definition of 
a ``covered contract'' provided in the statute.
    The law furthers the Administration's goal of supporting small 
business and advances the interests of small business subcontractors by 
encouraging prime contractors to comply with their stated 
subcontracting objectives. Increased compliance with subcontracting 
objectives will expand opportunities for small business subcontractors. 
Exclusion of a large segment of Federal contracting, such as 
acquisitions for COTS items, will limit the full implementation of 
these subcontracting-related objectives.
    Further, one of the primary FAR clauses implementing Federal 
procurement policies governing subcontracting with small business, 
52.219-9, Small Business Subcontracting Plan, are currently prescribed 
for use in solicitations for COTS items. This rule merely revises FAR 
clause 52.219-9 to implement the new requirements for a prime 
contractor for a covered contract to provide written notification to 
the contracting officer if the contractor pays a reduced price to a 
subcontractor for goods and services upon completion of the 
responsibilities of the subcontractor or the payment to a subcontractor 
is more than 90 days past due for goods or services provided for the 
covered contract for which the Federal agency has paid the prime 
contractor. A further example that the rule should apply to COTS items 
is FAR clause 52.232-40, Providing Accelerated Payments to Small 
Business Subcontractors, which is required in all solicitations and 
contracts. Exclusion of acquisitions for COTS items from these 
requirements would create confusion among contractors and the Federal 
contracting workforce.
    The burden on contractors is not expected to increase significantly 
if the new requirements of section 1334 were applied to acquisitions 
for COTS items. Under the FAR clause 52.219-9, which is noted above, 
contractors are already required to commit to objectives for 
subcontracting with small business concerns under contracts for COTS 
items above the subcontracting plan threshold. The effort required for 
contractors to comply with the new requirements should be relatively 
small.
    The Council welcomes public feedback on its initial analysis and 
preliminary determination to cover COTS items, including additional 
insight on the need for and cost of retrofitting payment systems to 
meet the requirements in the rule. This feedback will be considered 
before the FAR Council finalizes its analysis of benefits and burdens 
and makes a final determination on the scope of the final rule.

III. Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
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). Executive 
Order 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 Executive 
Order 12866, Regulatory Planning and Review, dated September 30, 1993. 
This proposed rule is not a major rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA expect that this proposed rule may 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, et 
seq.. Therefore, an Initial Regulatory Flexibility Analysis (IRFA) has 
been prepared consistent with 5 U.S.C. 603 and is summarized as 
follows:

    Section 1334 of the Small Business Jobs Act of 2010 (Public Law 
111-240) and the Small Business Administration's final rule, Small 
Business Subcontracting, published in the Federal Register at 78 FR 
42391, on July 16, 2013, require that the prime contractor self-
report when the prime contractor makes reduced or untimely payments 
to small business subcontractors. Section 1334 also requires the 
contracting officer to record the identity of contractors with a 
history of unjustified reduced or untimely payments in FAPIIS.
    This proposed rule implements the self-reporting requirements of 
section 1334 by amending FAR 42.1504 to require contracting officers 
to include FAR clause 52.242-XX, Payments to Small Business 
Subcontractors, in all solicitations and contracts containing the 
clause at 52.219-9, Small Business Subcontracting Plan. The new FAR 
clause requires prime contractors to notify the contracting officer 
of reduced or untimely payments to small business subcontractors.
    The proposed rule also amends FAR 42.1503(h) to require 
contracting officers to report to FAPIIS a contractor that has a 
history of three or more reduced or untimely payments to small 
business subcontractors within a 12-month period under a single 
contract that are unjustified. Table 42-2 is also amended to include 
unjustified reduced or untimely payments to small business

[[Page 3090]]

subcontractors as part of the definition of ratings for the ``small 
business subcontracting'' past performance evaluation factors.
    The proposed rule would apply to payments made to small 
businesses that are first-tier subcontractors to prime government 
contractors. There will be no burden on small businesses, as small 
businesses do not have subcontracting plans. This regulation will 
benefit small business subcontractors by encouraging large business 
prime contractors to pay small business subcontractors in a timely 
manner and the agreed upon contractual price.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    The specifics of the statutory requirement and the SBA final 
rule do not allow for alternative implementation strategies.

    The Regulatory Secretariat 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. 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 this 
proposed rule consistent with 5 U.S.C. 610. Interested parties must 
submit such comments separately and should cite 5 U.S.C. 610 (FAR Case 
2014-004) in correspondence.

V. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. Chapter 35) applies. The 
proposed rule contains information collection requirements. OMB has 
cleared this information collection requirement under OMB Control 
Number 9000-XXXX, titled: Payments to Small Business Subcontractors. 
FPDS for Fiscal Year (FY) 2014 lists 794 new commercial item contracts 
over $650,000 where the size determination was other than small and a 
subcontracting plan was required. FPDS for FY 2014 also lists 1,485 new 
non-commercial item contracts over $650,000 where the size 
determination was other than small and a subcontracting plan was 
required. It is estimated that no more than twenty percent of 
contractors with new commercial and non-commercial contracts where the 
size determination was other than small and where a subcontracting plan 
was required would have to notify the contracting officer that the 
prime contractor paid a reduced or an untimely payment to a small 
business subcontractor. It is also estimated that the average time 
required for a contractor to prepare the information for this 
collection is two hours. It is estimated also that the responses per 
respondent would be one.
    The annual reporting burden is estimated as follows:
    Respondents: 456.
    Responses per respondent: 1.
    Total annual responses: 456.
    Preparation hours per response: 2.
    Total response burden hours: 912.

List of Subject in 48 CFR Parts 19, 42 and 52

    Government procurement.

    Dated: January 11, 2016.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.

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

0
1. The authority citation for 48 CFR parts 19, 42, and 52 continues to 
read as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.

PART 19--SMALL BUSINESS PROGRAMS

0
2. Amend section 19.701 by adding, in alphabetical order, the 
definitions ``Reduced payment'' and ``Untimely payment'' to read as 
follows:


19.701   Definitions.

* * * * *
    Reduced payment means a payment that is for less than the amount 
agreed upon in a subcontract in accordance with its terms and 
conditions, for supplies and services for which the Government has paid 
the prime contractor.
* * * * *
    Untimely payment means a payment to a subcontractor that is more 
than 90 days past due under the terms and conditions of a subcontract, 
for supplies and services for which the Government has paid the prime 
contractor.
0
3. Amend section 19.704 by removing the period from the end of 
paragraph (a)(11)and adding ''; and'' in its place; and adding 
paragraph (a)(12) to read as follows:


19.704  Subcontracting plan requirements.

    (a) * * *
    (12) Assurances that the offeror will pay its small business 
subcontractors on time and in accordance with the terms and conditions 
of the subcontract, and notify the contracting officer when the prime 
contractor pays a reduced or an untimely payment to a small business 
subcontractor.
* * * * *

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

0
4. Amend section 42.1502 by revising paragraph (g) to read as follows:


42.1502  Policy.

* * * * *
    (g) Past performance evaluations shall include an assessment of the 
contractor's--
    (1) Performance against, and efforts to achieve, the goals 
identified in the small business subcontracting plan when the contract 
includes the clause at 52.219-9, Small Business Subcontracting Plan; 
and
    (2) Reduced or untimely payments (see 19.701) determined by the 
Contracting Officer to be unjustified to small business subcontractors.
    (i) The contracting officer shall consider and evaluate a 
contractor's written explanation for a reduced or an untimely payment 
when determining whether the reduced or untimely payment is justified.
    (ii) The contracting officer determines that a history of 
unjustified reduced or untimely payments has occurred when the 
contractor has reported three or more occasions of unjustified reduced 
or untimely payments under a single contract within a 12 month period 
(see 42.1503(h)(1)(vi) and the evaluation factors in Table 42-2).
* * * * *
0
5. Amend section 42.1503 by--
0
a. Revising paragraph (b)(2)(v);
0
b. Removing from paragraph (b)(2)(vi) the phrase ``late or nonpayment 
to subcontractors,'';
0
c. Revising the introductory text of paragraph (h)(1);
0
d. Removing from paragraph (h)(1)(iv) ``; or'' and adding a semicolon 
in its place;
0
e. Removing the period from the end of paragraph (h)(1)(v) and adding 
``; or'' in its place;
0
f. Adding paragraph (h)(1)(vi); and
0
g. Revising table 42-2.
    The revisions and additions reads as follows:


42.1503  Procedures.

* * * * *
    (b) * * *
    (2) * * *
    (v) Small business subcontracting, including reduced or untimely 
payments to small business subcontractors when 19.702(a) requires

[[Page 3091]]

a subcontracting plan (as applicable, see Table 42-2).
* * * * *
    (h) * * *
    (1) Agencies shall ensure information is accurately reported in the 
FAPIIS or any successor thereto module of CPARS within 3 calendar days 
after a contracting officer--
* * * * *
    (vi) Determines that a contractor has a history of three or more 
unjustified reduced or untimely payments to small business 
subcontractors within a 12 month period (see 42.1502(g)(2)).
* * * * *

               Table 42-2--Evaluation Ratings Definitions
 [For the Small Business Subcontracting Evaluation Factor, when 52.219-9
                                is used]
------------------------------------------------------------------------
           Rating                  Definition               Note
------------------------------------------------------------------------
(a) Exceptional.............  Exceeded all          To justify an
                               statutory goals or    Exceptional rating,
                               goals as              identify multiple
                               negotiated. Had       significant events
                               exceptional success   and state how they
                               with initiatives to   were a benefit to
                               assist, promote,      small business
                               and utilize small     utilization. A
                               business (SB),        singular benefit,
                               small disadvantaged   however, could be
                               business (SDB),       of such magnitude
                               women-owned small     that it constitutes
                               business (WOSB),      an Exceptional
                               HUBZone small         rating. Small
                               business, veteran-    businesses should
                               owned small           be given meaningful
                               business (VOSB),      and innovative work
                               and service           directly related to
                               disabled veteran      the contract, and
                               owned small           opportunities
                               business (SDVOSB).    should not be
                               Complied with FAR     limited to indirect
                               52.219-8,             work such as
                               Utilization of        cleaning offices,
                               Small Business        supplies,
                               Concerns. Exceeded    landscaping, etc.
                               any other small       Also, there should
                               business              have been no
                               participation         significant
                               requirements          weaknesses
                               incorporated in the   identified.
                               contract/order,
                               including the use
                               of small businesses
                               in mission critical
                               aspects of the
                               program. Went above
                               and beyond the
                               required elements
                               of the
                               subcontracting plan
                               and other small
                               business
                               requirements of the
                               contract/order.
                               Completed and
                               submitted
                               Individual
                               Subcontract Reports
                               and/or Summary
                               Subcontract Reports
                               in an accurate and
                               timely manner. Did
                               not have a history
                               of three or more
                               unjustified reduced
                               or untimely
                               payments to small
                               business
                               subcontractors
                               within a 12 month
                               period.
(b) Very Good...............  Met all of the        To justify a Very
                               statutory goals or    Good rating,
                               goals as              identify a
                               negotiated. Had       significant event
                               significant success   and state how it
                               with initiatives to   was a benefit to
                               assist, promote and   small business
                               utilize SB, SDB,      utilization. Small
                               WOSB, HUBZone,        businesses should
                               VOSB, and SDVOSB.     be given meaningful
                               Complied with FAR     and innovative
                               52.219-8,             opportunities to
                               Utilization of        participate as
                               Small Business        subcontractors for
                               Concerns. Met or      work directly
                               exceeded any other    related to the
                               small business        contract, and
                               participation         opportunities
                               requirements          should not be
                               incorporated in the   limited to indirect
                               contract/order,       work such as
                               including the use     cleaning offices,
                               of small businesses   supplies,
                               in mission critical   landscaping, etc.
                               aspects of the        There should be no
                               program. Endeavored   significant
                               to go above and       weaknesses
                               beyond the required   identified.
                               elements of the
                               subcontracting
                               plan. Completed and
                               submitted
                               Individual
                               Subcontract Reports
                               and/or Summary
                               Subcontract Reports
                               in an accurate and
                               timely manner. Did
                               not have a history
                               of three or more
                               unjustified reduced
                               or untimely
                               payments to small
                               business
                               subcontractors
                               within a 12 month
                               period.
(c) Satisfactory............  Demonstrated a good   To justify a
                               faith effort to       Satisfactory
                               meet all of the       rating, there
                               negotiated            should have been
                               subcontracting        only minor
                               goals in the          problems, or major
                               various socio-        problems the
                               economic categories   contractor has
                               for the current       addressed or taken
                               period. Complied      corrective action.
                               with FAR 52.219-8,    There should have
                               Utilization of        been no significant
                               Small Business        weaknesses
                               Concerns. Met any     identified. A
                               other small           fundamental
                               business              principle of
                               participation         assigning ratings
                               requirements          is that contractors
                               included in the       will not be
                               contract/order.       assessed a rating
                               Fulfilled the         lower than
                               requirements of the   Satisfactory solely
                               subcontracting plan   for not performing
                               included in the       beyond the
                               contract/order.       requirements of the
                               Completed and         contract/order.
                               submitted
                               Individual
                               Subcontract Reports
                               and/or Summary
                               Subcontract Reports
                               in an accurate and
                               timely manner. Did
                               not have a history
                               of three or more
                               unjustified reduced
                               or untimely
                               payments to small
                               business
                               subcontractors
                               within a 12 month
                               period.

[[Page 3092]]

 
(d) Marginal................  Deficient in meeting  To justify Marginal
                               key subcontracting    performance,
                               plan elements.        identify a
                               Deficient in          significant event
                               complying with FAR    that the contractor
                               52.219-8,             had trouble
                               Utilization of        overcoming and how
                               Small Business        it impacted small
                               Concerns, and any     business
                               other small           utilization. A
                               business              Marginal rating
                               participation         should be supported
                               requirements in the   by referencing the
                               contract/order. Did   actions taken by
                               not submit            the Government that
                               Individual            notified the
                               Subcontract Reports   contractor of the
                               and/or Summary        contractual
                               Subcontract Reports   deficiency.
                               in an accurate or
                               timely manner.
                               Failed to satisfy
                               one or more
                               requirements of a
                               corrective action
                               plan currently in
                               place; however,
                               does show an
                               interest in
                               bringing
                               performance to a
                               satisfactory level
                               and has
                               demonstrated a
                               commitment to apply
                               the necessary
                               resources to do so.
                               Required a
                               corrective action
                               plan. Did not have
                               a history of three
                               or more unjustified
                               reduced or untimely
                               payments to small
                               business
                               subcontractors
                               within a 12 month
                               period.
(e) Unsatisfactory..........  Noncompliant with     To justify an
                               FAR 52.219-8 and      Unsatisfactory
                               52.219-9, and any     rating, identify
                               other small           multiple
                               business              significant events
                               participation         that the contractor
                               requirements in the   had trouble
                               contract/order. Did   overcoming and
                               not submit            state how it
                               Individual            impacted small
                               Subcontract Reports   business
                               and/or Summary        utilization. A
                               Subcontract Reports   singular problem,
                               in an accurate or     however, could be
                               timely manner.        of such serious
                               Showed little         magnitude that it
                               interest in           alone constitutes
                               bringing              an Unsatisfactory
                               performance to a      rating. An
                               satisfactory level    Unsatisfactory
                               or is generally       rating should be
                               uncooperative.        supported by
                               Required a            referencing the
                               corrective action     actions taken by
                               plan. Had a history   the Government to
                               of three or more      notify the
                               unjustified reduced   contractor of the
                               or untimely           deficiencies. When
                               payments to small     an Unsatisfactory
                               business              rating is
                               subcontractors        justified, the
                               within a 12 month     contracting officer
                               period.               must consider
                                                     whether the
                                                     contractor made a
                                                     good faith effort
                                                     to comply with the
                                                     requirements of the
                                                     subcontracting plan
                                                     required by FAR
                                                     52.219-9 and follow
                                                     the procedures
                                                     outlined in FAR
                                                     52.219-16,
                                                     Liquidated Damages-
                                                     Subcontracting
                                                     Plan.
------------------------------------------------------------------------
Note 1: Plus or minus signs may be used to indicate an improving (+) or
  worsening (-) trend insufficient to change the evaluation status.
Note 2: N/A (not applicable) should be used if the ratings are not going
  to be applied to a particular area for evaluation.

0
6. Add section 42.1504 to Subpart 42.15--CONTRACTOR PERFORMANCE 
INFORMATION to read as follows:


42.1504  Contract clause.

    Insert the clause at 52.242-XX, Payments to Small Business 
Subcontractors, in all solicitations and contracts containing the 
clause at 52.219-9, Small Business Subcontracting Plan.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
7. Amend section 52.212-5 by revising the date of the clause and 
paragraph (b)(17)(i) to read as follows:


52.212-5   Contract Terms and Conditions Required to Implement Statutes 
or Executive Orders-Commercial Items.

* * * * *

Contract Terms and Conditions Required to Implement Statutes or 
Executive Orders-Commercial Items (Date)

* * * * *
    (b) * * *
    __(17)(i) 52.219-9, Small Business Subcontracting Plan (DATE) (15 
U.S.C. 637(d)(4)).
0
8. Amend section 52.219-9 by--
0
a. Revising the date of the clause;
0
b. Adding to paragraph (b), in alphabetical order, the definitions 
``Reduced payment'' and ``Untimely payment''; and
0
c. Adding paragraph (d)(12).
    The revisions and additions read as follows:


52.219-9  Small Business Subcontracting Plan.

* * * * *
    Small Business Subcontracting Plan (Date)
* * * * *
    (b) * * *
    Reduced payment means a payment that is for less than the amount 
agreed upon in a subcontract in accordance with its terms and 
conditions, for supplies and services for which the Government has paid 
the prime contractor.
* * * * *
    Untimely payment means a payment to a subcontractor that is more 
than 90 days past due under the terms and conditions of a subcontract, 
for supplies and services for which the Government has paid the prime 
contractor.
* * * * *
    (d) * * *
    (12) The offeror shall provide assurances that the offeror will pay 
its small business subcontractors on time, make payments 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-XX).
* * * * *
0
9. Add section 52.242-XX to read as follows:


52.242-XX  Payments to Small Business Subcontractors

    As prescribed in 42.1504, insert the following clause:
    Payments to Small Business Subcontractors (Date)
    (a) Definitions.
    Reduced payment means a payment that is for less than the amount 
agreed upon in a subcontract in accordance with its terms and 
conditions, for supplies and services for which the Government has paid 
the prime contractor.
    Untimely payment means a payment to a subcontractor that is more 
than 90 days past due under the terms and conditions of a subcontract, 
for supplies

[[Page 3093]]

and services for which the Government has paid the prime contractor.
    (b) Notice. The Contractor shall notify the Contracting Officer in 
writing if--
    (1) A small business subcontractor is entitled to payment under the 
terms and conditions of the subcontract; and
    (2) The Prime contractor makes a payment that is either reduced or 
untimely to the small business subcontractor, or if the Contractor 
failed to make a payment which is now untimely.
    (c) Content of Notice. The Contractor shall include the reason(s) 
for making the reduced or untimely payment in any notice required under 
paragraph (b).
    (End of clause)

[FR Doc. 2016-00950 Filed 1-19-16; 8:45 am]
BILLING CODE 6820-EP-P