Federal Acquisition Regulation: Revision of Limitations on Subcontracting, 62540-62550 [2018-25506]

Agencies

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

[Federal Register Volume 83, Number 233 (Tuesday, December 4, 2018)]
[Proposed Rules]
[Pages 62540-62550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25506]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 19 and 52

[FAR Case 2016-011; Docket No. 2016-0011, Sequence No. 1]
RIN 9000-AN35


Federal Acquisition Regulation: Revision of Limitations on 
Subcontracting

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

ACTION: Proposed rule.

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SUMMARY: DoD, GSA, and NASA are proposing to amend the Federal 
Acquisition Regulation (FAR) to implement the final rule published by 
the Small Business Administration implementing section 1651 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013, 
which revised and standardized the limitations on subcontracting, 
including the nonmanufacturer rule, that apply to small business 
concerns under FAR part 19 procurements.

DATES: Interested parties should submit comments to the Regulatory 
Secretariat Division at one of the addresses shown below on or before 
February 4, 2019 to be considered in the formulation of a final rule.

ADDRESSES: Submit comments in response to FAR Case 2016-011 by any of 
the following methods:
     Regulations.gov: https://www.regulations.gov.
    Submit comments via the Federal eRulemaking portal by entering 
``FAR Case 2016-011'' under the heading ``Enter Keyword or ID'' and 
selecting ``Search.'' Select the link ``Comment Now'' that corresponds 
with ``FAR Case 2016-011.'' Follow the instructions provided on the 
screen. Please include your name, company name (if any), and ``FAR Case 
2016-011'' on your attached document.
     Mail: General Services Administration, Regulatory-
Secretariat Division (MVCB), ATTN: Lois Mandell, 1800 F Street NW, 2nd 
floor, Washington, DC 20405.
    Instructions: Please submit comments only and cite ``FAR case 2016-
011'' in all correspondence related to this case. All comments received 
will be posted without change to https://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: For clarification of content, contact 
Ms. Mahruba Uddowla, Procurement Analyst, at 703-605-2868. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat Division at 202-501-4755. Please cite ``FAR Case 
2016-011.''

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA are proposing to revise the FAR to implement 
regulatory changes made by the SBA in its final rule published in the 
Federal Register at 81 FR 34243 on May 31, 2016. SBA's final rule 
implements the statutory requirements of section 1651 of the NDAA for 
FY 2013 (15 U.S.C. 657s). Section 1651 revised and standardized the 
limitations on subcontracting, including the nonmanufacturer rule, that 
apply to small business concerns under FAR part 19 procurements. SBA's 
final rule became effective on June 30, 2016.
    Prior to passage of section 1651 of the NDAA for FY 2013, the 
limitations on subcontracting and the nonmanufacturer rule were 
inconsistent across the small business programs. For example, for 
awards under some small business programs, the prime contractor was 
required to perform a certain percentage of work itself, whereas under 
other programs, the prime contractor could include subcontracts to 
``similarly situated entities'' in the percentage of work it performed. 
The method for

[[Page 62541]]

calculating compliance with the limitations on subcontracting also 
varied across small business programs.
    Section 1651 of the NDAA for FY 2013 changed the focus of the 
limitations on subcontracting rules. Instead of requiring a percentage 
of work to be performed by a prime contractor, the limitations on 
subcontracting rules now limit subcontracting to a percentage of the 
overall award amount to be spent by the prime on subcontractors. As a 
result, the prime contractor no longer has to track the percentage of 
costs incurred that it spends performing work itself; it only has to 
track the percentage of the overall award amount (i.e., contract price) 
that it spends on subcontractors. For small businesses, this change 
will reduce a substantial burden associated with tracking and 
demonstrating compliance with the limitations on subcontracting.
    In addition, the percentage of the award amount that the prime 
contractor spends on subcontractors who are similarly situated entities 
is not considered subcontracted for purposes of compliance with the 
limitations on subcontracting. The statute and SBA's implementing 
regulations define ``similarly situated entity'' as a subcontractor 
that has the same small business program status as that which qualified 
the prime contractor for the award and that is considered small for the 
North American Industry Classification System (NAICS) code the prime 
contractor assigned to the subcontract the subcontractor will perform. 
Work performed by similarly situated entities is counted as if it were 
performed by the prime contractor in determining compliance with the 
limitations on subcontracting.
    These important changes give small businesses greater flexibility 
on how they choose to comply with the limitations on subcontracting. 
Under the current FAR clauses, there is only one way for a small 
business to comply with the limitations: It must spend the required 
amount on work performed in-house. As proposed in this rule, there will 
be more than one way to comply with the limitations, and the small 
business will be able to choose how to comply. For example, a small 
business that is in compliance with the existing FAR clause will be 
able to comply with the new limitations on subcontracting. 
Alternatively, a small business can decide to subcontract more than it 
did before, and it will be able to comply with the new limitations 
where it would not have complied before, as long as the amount spent on 
subcontracts does not exceed 50 percent of the price of the prime 
contract, for other than construction contracts; different percentages 
apply for construction contracts. Finally, a small business can decide 
to subcontract work to a similarly situated entity, in any amount of 
its choosing, that it previously subcontracted or performed in-house, 
and it will be in compliance with the new limitations on subcontracting 
because work performed by a similarly situated entity is counted as if 
it were performed by the prime contractor. In short, the new rules will 
make it easier for prime contractors to do business with Federal 
agencies by giving them more, and less burdensome, options for pursuing 
and winning larger contracts than before.
    SBA's final rule specified that similarly situated entities must 
also comply with the limitations on subcontracting. Requiring prime 
contractors and their similarly situated entity subcontractors to 
comply with the limitations on subcontracting will ensure that the 
benefits from small business and socioeconomic set-aside and sole-
source contracts flow to the intended parties. SBA's final rule also 
provided updated guidance on the nonmanufacturer rule, including the 
process for obtaining waivers to the nonmanufacturer rule and the 
proper application of these waivers to procurements.
    The SBA rule also clarified that the limitations on subcontracting 
and the nonmanufacturer rule do not apply to small business set-aside 
contracts valued at or below $150,000, but do apply to set-aside and 
sole-source awards under the other small business programs regardless 
of dollar value. This proposed rule reflects the same clarification. 
Thus, this rule provides that the limitations on subcontracting and the 
nonmanufacturer rule clauses are prescribed for small business set-
asides that are expected to exceed $150,000, and for requirements set 
aside for or awarded on a sole-source basis to 8(a) participants, 
Historically Underutilized Business Zone (HUBZone) small business, 
service-disabled veteran-owned small business (SDVOSB), economically 
disadvantaged women-owned small business (EDWOSB), or Women-Owned Small 
Business(WOSB) concerns eligible under the WOSB program.

II. Discussion and Analysis

    This proposed rule would amend FAR parts 19 and 52. This rule 
implements the revised and standardized limitations on subcontracting 
through a single FAR clause applicable to every small business program, 
instead of continuing to implement through multiple FAR clauses that 
were specific to particular small business programs. Similarly, this 
proposed rule creates a new FAR clause implementing the revised and 
standardized the nonmanufacturer rule across all the small business 
programs.
    These changes are summarized in the following paragraphs:
    A. Nonmanufacturer rule implementation. Paragraph (f) in section 
19.102 is deleted, and 19.502-2 and 19.1303(e) are revised to remove 
the outdated nonmanufacturer rule guidance. New section 19.103, 
Nonmanufacturer rule, provides full and updated guidance on the 
application of the nonmanufacturer rule, including the requirements 
associated with the nonmanufacturer rule and the circumstances and 
procedures related to waivers. This section clarifies that the 
nonmanufacturer rule does not apply to small business set-aside 
acquisitions at or below $150,000, but does apply to 8(a), HUBZone, 
SDVOSB, EDWOSB, and WOSB set-aside and sole-source acquisitions 
regardless of dollar value. Previous references to 19.102(f) at 19.303 
and 19.1403 have been updated to refer to the new 19.103 section.
    New clause 52.219-XX, Nonmanufacturer Rule, implements the 
requirements in solicitations and contracts. The prescription for this 
clause is added at 19.508(g). References to this prescription were 
added at 19.811-3(f), 19.1309(d), 19.1407(c), and 19.1507(d). The 
outdated nonmanufacturer rule has been removed from the clauses at 
52.219-3, 52.219-6 and its Alternate I, 52.219-7 and its Alternate I, 
52.219-18 and its Alternate II, 52.219-27, 52.219-29, and 52.219-30. 
The prescriptions have been removed from subparts 19.5 and 19.8 for the 
following clauses: Alternate I of 52.219-6, Alternate I of 52.219-7, 
and Alternate II of 52.219-18. However, paragraph (f) of the clause at 
52.219-4, Notice of Price Evaluation Preference for HUBZone Small 
Business Concerns, is not revised because the application of the 
nonmanufacturer rule to acquisitions in which the HUBZone price 
evaluation preference is used is still under review.
    The following provisions and clause are updated to clarify when the 
size standard for nonmanufacturers applies: 52.204-8, 52.212-1, 52.219-
1, and 52.219-28. Additionally, the definition of ``nonmanufacturer 
rule'' is deleted from 19.001.
    B. Limitations on subcontracting implementation. The clause at 
52.219-14, Limitations on Subcontracting, is revised to implement the 
updated limitations on subcontracting requirements in solicitations and

[[Page 62542]]

contracts. The prescription for this clause at 19.508(e) is revised to 
apply to all small business programs. References to this prescription 
were added at 19.1309(c), 19.1407(b), and 19.1507(c), and revised at 
19.811-3(e). Additionally, the clause at 52.219-4 is revised to reflect 
the updated limitations on subcontracting.
    The outdated limitations on subcontracting guidance is removed from 
the following clauses: 52.219-3, 52.219-27, 52.219-29, and 52.219-30. 
The following clauses have been deleted: Alternate I of 52.219-3 and 
Alternate I of 52.219-4. In addition, the prescriptions for these 
clauses at 19.1309 have been deleted. The outdated limitations on 
subcontracting text at 19.1308 is deleted.
    Lastly, the definition of ``similarly situated entity'' is added to 
19.001 to support the implementation of the updated limitations on 
subcontracting.
    C. Conforming changes. The clause at 52.212-5 is revised to include 
52.219-XX, Nonmanufacturer Rule, and to update the dates of clauses 
revised in this rule.

III. Applicability to Contracts at or Below the Simplified Acquisition 
Threshold and for Commercial Items, Including Commercially Available 
Off-the-Shelf Items

    The Federal Acquisition Regulatory (FAR) Council has made the 
following preliminary determinations with respect to the proposed 
rule's application of section 1651 of the NDAA for FY 2013 to contracts 
at or below the simplified acquisition threshold (SAT) and for the 
acquisition of commercial items, including commercially available off-
the-shelf (COTS) items. Discussion of these preliminary determinations 
is set forth below. The FAR Council will consider public feedback 
before making a final determination on the scope of the final rule.

A. Applicability to Contracts at or Below the SAT.

    Pursuant to 41 U.S.C. 1905, a provision of law is not applicable to 
acquisitions at or below the SAT unless the law (i) contains criminal 
or civil penalties; (ii) specifically refers to 41 U.S.C. 1905 and 
states that the law applies to acquisitions at or below the SAT; or 
(iii) the FAR Council makes a written determination that it is not in 
the best interest of the Federal Government to exempt contracts or 
subcontracts at or below the SAT. If none of these conditions are met, 
the FAR is required to include the statutory requirement(s) on a list 
of provisions of law that are inapplicable to acquisitions at or below 
the SAT.
    The purpose of this rule is to implement section 1651 of the NDAA 
for FY 2013. Section 1651 provides revised limitations on 
subcontracting that apply across all small business programs. It also 
requires that the limitations on subcontracting be determined based on 
the percentage of the overall award amount that a prime contractor 
spends on its subcontractors. In addition, section 1651 provides that 
the percentage of the award amount that the prime contractor spends on 
subcontractors who are similarly situated entities is not considered 
subcontracted for purposes of the limitations on subcontracting in 
section 1651.
    These statutory requirements are reflected in SBA's final rule 
published in the Federal Register at 81 FR 34243, on May 31, 2016, 
which did not exempt acquisitions at or below the SAT that are set 
aside for, or awarded on a sole-source basis to, 8(a) program 
participants, HUBZone, service-disabled veteran-owned, women-owned, or 
economically disadvantaged women-owned small business concerns. SBA's 
final rule did exempt acquisitions at or below the SAT that are set 
aside for small businesses.
    The law is silent on the applicability of these requirements to 
acquisitions at or below the SAT and does not independently provide for 
criminal or civil penalties; nor does it include terms making express 
reference to 41 U.S.C. 1905 and its application to acquisitions at or 
below the SAT. Therefore, it does not apply to acquisitions at or below 
the SAT unless the FAR Council makes a written determination as 
provided at 41 U.S.C. 1905.
    Application of the law to acquisitions at or below the SAT will 
maximize the positive impact set-aside and sole-source contracts 
provide for small businesses in the socioeconomic programs (e.g., 
HUBZone, 8(a), service-disabled veteran-owned, and women-owned small 
business programs) by ensuring these benefits extend to the many 
contracts valued below the SAT. According to fiscal year 2015 data from 
the Federal Procurement Data System (FPDS), more than 70 percent of the 
number of acquisitions that were set aside or sole-sourced under the 
socioeconomic programs were in amounts at or below the SAT. Failure to 
apply section 1651 to the maximum extent possible would exclude a 
significant number of acquisitions, which would not advance the 
interests of small businesses and increase their opportunities in the 
Federal marketplace. Further, the primary FAR clauses implementing the 
limitations on subcontracting and the nonmanufacturer rule are 
currently prescribed for use in solicitations and contracts at or below 
the SAT that are set aside for, or awarded on a sole-source basis to, 
8(a) program participants, HUBZone, service-disabled veteran-owned, 
women-owned, or economically disadvantaged women-owned small business 
concerns. This rule merely revises these clauses to implement the 
requirements of section 1651. Exclusion of these acquisitions would 
create confusion among contractors and the Federal contracting 
workforce. Under the FAR clauses amended by this rule, contractors are 
already required to comply with the limitations on subcontracting and 
the nonmanufacturer rule. The new requirements will result in 
substantial savings for contractors.
    For these reasons, it is in the best interest of the Federal 
Government to apply the requirements of the rule to acquisitions at or 
below the SAT.

B. Applicability to Contracts for the Acquisition of Commercial Items

    Pursuant to 41 U.S.C. 1906, acquisitions of commercial items (other 
than acquisitions of COTS items, which are addressed in 41 U.S.C. 1907) 
are exempt from a provision of law unless the law (i) contains criminal 
or civil penalties; (ii) specifically refers to 41 U.S.C. 1906 and 
states that the law applies to acquisitions of commercial items; or 
(iii) the FAR Council makes a written determination and finding that it 
would not be in the best interest of the Federal Government to exempt 
contracts for the procurement of commercial items from the provision of 
law. If none of these conditions are met, the FAR is required to 
include the statutory requirement(s) on a list of provisions of law 
that are inapplicable to acquisitions of commercial items.
    The purpose of this rule is to implement section 1651 of the NDAA 
for FY 2013. Section 1651 provides revised limitations on 
subcontracting that apply across all small business programs. It also 
requires that the limitations on subcontracting be determined based on 
the percentage of the overall award amount that a prime contractor 
spends on its subcontractors. In addition, section 1651 provides that 
the percentage of the award amount that the prime contractor spends on 
subcontractors who are similarly situated entities is not considered 
subcontracted for purposes of the limitations on subcontracting in 
section 1651.

[[Page 62543]]

    These statutory requirements are reflected in SBA's final rule 
published in the Federal Register at 81 FR 34243, on May 31, 2016, 
which did not exempt acquisitions of commercial items.
    The law is silent on the applicability of these requirements to 
acquisitions of commercial items and does not independently provide for 
criminal or civil penalties; nor does it include terms making express 
reference to 41 U.S.C. 1906 and its application to acquisitions of 
commercial items. Therefore, it does not apply to acquisitions of 
commercial items unless the FAR Council makes a written determination 
as provided at 41 U.S.C. 1906.
    The law furthers the Administration's goal of simplifying the 
acquisition process and facilitating easier access to the Federal 
marketplace, in this case for small business contractors who make up an 
important component of the Government's industrial base. It advances 
the interests of small business prime contractors by making it easier 
to comply with the limitations on subcontracting, which makes it 
possible for those contractors to compete for larger contracts than 
they could in the past. The law also advances the interests of small 
business subcontractors by encouraging small business prime contractors 
to award more subcontracts to similarly situated small businesses. 
Exclusion of a large segment of Federal contracting, such as 
acquisitions for commercial items, will limit the full implementation 
of these objectives. Further, the primary FAR clauses implementing the 
limitations on subcontracting and the nonmanufacturer rule are 
currently prescribed for use in solicitations and contracts for 
commercial items. Exclusion of acquisitions for commercial items from 
these requirements would create confusion among contractors and the 
Federal contracting workforce. The burden on contractors would not 
increase significantly if the requirements of section 1651 were applied 
to acquisitions for commercial items. Under the FAR clauses amended by 
this rule, contractors are already required to comply with the 
limitations on subcontracting and the nonmanufacturer rule. The new 
requirements will result in substantial savings for contractors.
    For these reasons, it is in the best interest of the Federal 
Government to apply the requirements of the rule to the acquisition of 
commercial items.

C. Applicability to Contracts for the Acquisition of COTS Items

    Pursuant to 41 U.S.C. 1907, acquisitions of COTS items will be 
exempt from a provision of law unless the law (i) contains criminal or 
civil penalties; (ii) specifically refers to 41 U.S.C. 1907 and states 
that the law applies to acquisitions of COTS items; (iii) concerns 
authorities or responsibilities under 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; or (iv) the Administrator for Federal Procurement Policy makes a 
written determination and finding that would not be in the best 
interest of the Federal Government to exempt contracts for the 
procurement of COTS items from the provision of law. If none of these 
conditions are met, the FAR is required to include the statutory 
requirement(s) on a list of provisions of law that are inapplicable to 
acquisitions of COTS items.
    The purpose of this rule is to implement section 1651 of the NDAA 
for FY 2013. Section 1651 provides revised limitations on 
subcontracting that apply across all small business programs. It also 
requires that the limitations on subcontracting be determined based on 
the percentage of the overall award amount that a prime contractor 
spends on its subcontractors. In addition, section 1651 provides that 
the percentage of the award amount that the prime contractor spends on 
subcontractors who are similarly situated entities is not considered 
subcontracted for purposes of the limitations in section 1651.
    These statutory requirements are reflected in SBA's final rule 
published in the Federal Register at 81 FR 34243, on May 31, 2016, 
which did not exempt acquisitions of COTS items.
    The law is silent on the applicability of these requirements to 
acquisitions of COTS items and does not independently provide for 
criminal or civil penalties; nor does it include terms making express 
reference to 41 U.S.C. 1907 and its application to acquisitions of COTS 
items. Therefore, it does not apply to acquisitions of COTS items 
unless the Administrator for Federal Procurement Policy makes a written 
determination as provided at 41 U.S.C. 1907.
    The law furthers the Administration's goal of simplifying the 
acquisition process and facilitating easier access to the Federal 
marketplace, in this case for small business contractors who make up an 
important component of the Government's industrial base. It advances 
the interests of small business prime contractors by making it easier 
to comply with the limitations on subcontracting, which makes it 
possible for those contractors to compete for larger contracts than 
they could in the past. The law also advances the interests of small 
business subcontractors by encouraging small business prime contractors 
to award more subcontracts to similarly situated small businesses. 
Exclusion of a large segment of Federal contracting, such as 
acquisitions for COTS items, will limit the full implementation of 
these objectives. Further, the primary FAR clauses implementing the 
limitations on subcontracting and the nonmanufacturer rule are 
currently prescribed for use in solicitations and contracts for COTS 
items. Exclusion of acquisitions for COTS items from these requirements 
would create confusion among contractors and the Federal contracting 
workforce. The burden on contractors would not increase significantly 
if the requirements of section 1651 were applied to acquisitions for 
COTS items. Under the FAR clauses amended by this rule, contractors are 
already required to comply with the limitations on subcontracting and 
the nonmanufacturer rule. The new requirements will result in 
substantial savings for contractors.
    For these reasons, it is in the best interest of the Federal 
Government to apply the requirements of the rule to the acquisition of 
COTS items.

IV. Expected Cost Savings

    The purpose of this rule is to implement statutory authorities and 
SBA regulations that are designed to make it easier and less burdensome 
for small business prime contractors to comply with requirements 
related to how much work they may subcontract under Federal contracts 
and task and delivery orders (i.e., the ``limitations on 
subcontracting''). The proposed changes to these requirements would 
both ease compliance costs and provide more authorized ways to 
subcontract. Section 1651 of the NDAA for FY 2013 revised and 
standardized the limitations on subcontracting, including the 
nonmanufacturer rule. The nonmanufacturer rule is the requirement that 
the prime contractor provide an end product manufactured by a small 
business in the United States or its outlying areas. The limitations on 
subcontracting and the nonmanufacturer rule are meant to ensure that 
the benefits of contracts and orders awarded to small businesses flow 
to the intended beneficiaries.

[[Page 62544]]

    Prior to section 1651, the limitations on subcontracting and the 
nonmanufacturer rule were inconsistent across the small business 
programs. For example, under the 8(a) and WOSB Programs, the prime 
contractor was required to perform a certain percentage of work itself, 
whereas under the HUBZone and SDVOSB Programs, the prime contractor 
could include subcontracts to other HUBZone small business or SDVOSB 
concerns in the percentage of work it performed. Similarly, with regard 
to the nonmanufacturer rule, a prime contractor for a contract or order 
set aside or awarded on a sole-source basis under the HUBZone Program 
was required to provide products manufactured by another HUBZone small 
business, but for awards under the other small business programs, the 
prime contractor was required to provide products manufactured by any 
small business.
    In addition, the basis of the limitations on subcontracting has 
changed. Prior to section 1651, the limitations on subcontracting were 
calculated as a percentage of work to be performed by a prime 
contractor; the calculation was based on the contractor's costs to 
perform the contract (e.g., salaries and other allowable costs under 
FAR part 31). As a result of section 1651, the limitations on 
subcontracting will be calculated as a percentage of the overall 
contract or order amount (i.e., the contract price, including costs and 
profit or fee) to be spent by the prime contractor on subcontractors. 
For small businesses, this change will reduce the burden associated 
with tracking and documenting compliance with the limitations on 
subcontracting.
    Section 1651 also applied the concept of ``similarly situated 
entities'' to all small business programs. A similarly situated entity 
is a small business subcontractor that has the same small business 
program status as that which qualified the prime contractor for the 
prime contract. The percentage of the contract or order amount that the 
prime contractor spends on subcontractors who are similarly situated 
entities is not considered subcontracted for purposes of compliance 
with the limitations on subcontracting. Prior to section 1651, small 
businesses that wanted to work together to comply with the limitations 
on subcontracting were required to form a joint venture or a new legal 
entity (except in small business programs where the concept of 
similarly situated entities was already applied). The concept of 
similarly situated entities eliminates the need for paperwork, 
coordination, and other costs associated with forming such a joint 
venture or new legal entity simply to comply with the limitations on 
subcontracting.
    These important changes allow small businesses greater flexibility 
on how they choose to comply with the limitations on subcontracting. 
The impact is illustrated in the following example of a non-
construction contract:

------------------------------------------------------------------------
       Limitations on
       subcontracting               Previous                 New
------------------------------------------------------------------------
Contract Value..............  $1,000..............  $1,000
Small Business' Cost of       $800................  Not tracked.
 Contract Performance
 incurred for personnel.
LOS Requirement.............  Must spend $400--     May pay up to $500
                               i.e., 50 percent of   (50 percent of the
                               the cost of           contract price) to
                               contract              a non-similarly
                               performance           situated entity,
                               incurred for its      e.g., large
                               own personnel.        business, AND/OR
                                                     subcontract to a
                                                     similarly situated
                                                     entity without
                                                     limitation.
------------------------------------------------------------------------

    Under the current limitations on subcontracting, the small business 
only has one way to comply. In the example above, it must spend at 
least $400 on its own employees and, therefore, must be able to track 
its contract costs to ensure compliance with the requirement. Under the 
new limitations on subcontracting, there are multiple and less costly 
ways to comply, and the small business can choose the most efficient 
option, as demonstrated below:
     The small business can continue to spend $400 on its own 
employees and subcontract $400 to any business, as it did to comply 
with the previous limitations on subcontracting. Because the prime 
contractor is not subcontracting more than $500 to businesses that are 
not similarly situated entities, it will meet the new limitations on 
subcontracting.
     The small business can subcontract to any combination of 
similarly situated and non-similarly situated entities and remain in 
compliance with the new limitations on subcontracting as long as the 
amount spent on non-similarly situated entities does not exceed $500. 
For example, the small business can subcontract $500 to any business 
and spend $300 on its own employees, or subcontract $500 to any 
business, $100 to a similarly situated entity, and spend only $200 on 
its own employees.
    SBA's final rule specified that similarly situated entities must 
also comply with the limitations on subcontracting. As part of 
implementing section 1651, the Small Business Administration (SBA) made 
a few more revisions to their regulations that are reflected in this 
FAR rule:
     The nonmanufacturer rule does not apply to small business 
set-asides at or below $150,000. Note that currently, the FAR applies 
the nonmanufacturer rule to small business set-asides above $25,000.
     Waivers of the nonmanufacturer rule will now be allowed 
for procurements under the HUBZone Program. Such waivers allow a 
HUBZone small business to provide the product of any size business.
     In the event SBA grants a nonmanufacturer rule waiver 
after the issuance of a solicitation, but before award, contracting 
officers are required to amend that solicitation to notify potential 
offerors of the waiver and to give them more time to submit proposals.
    The above changes drive both costs and savings; however, the rule 
is expected to result in net savings to small entities, as well as to 
the Government. Since the rule will only revise regulations under the 
various small business programs, there will be no costs or savings to 
large businesses.
    The following is a summary of the estimated public cost savings 
calculated in perpetuity in 2016 dollars at a 7-percent discount rate:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Present Value at 7 percent.............................    -$271,391,140
Annualized 7 percent...................................     -$18,997,380
------------------------------------------------------------------------

    The full cost analysis narrative can be accessed at https://www.regulations.gov.

V. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory

[[Page 62545]]

approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). E.O. 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. This is a significant regulatory action and, 
therefore, was subject to review under Section 6(b) of E.O. 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

VI. Executive Order 13771

    This rule is considered to be an E.O. 13771 deregulatory action. 
Details on the estimated cost savings can be found in section IV. of 
this preamble.

VII. Regulatory Flexibility Act

    The change 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. The Initial Regulatory 
Flexibility Analysis (IRFA) has been performed and is summarized as 
follows:

    DoD, GSA, and NASA are proposing to amend the Federal 
Acquisition Regulation (FAR) to implement regulatory changes made by 
the Small Business Administration (SBA) in its final rule published 
in the Federal Register at 81 FR 34243 on May 31, 2016. SBA's final 
rule implements the statutory requirements of section 1651 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013. 
Section 1651 revised and standardized the limitations on 
subcontracting, including the nonmanufacturer rule, that apply to 
small business concerns under FAR part 19 procurements.
    The objectives of this proposed rule are to apply the 
limitations on subcontracting consistently to the small business 
concerns identified in FAR 19.000(a)(3) and to change the method of 
calculation to the percentage of the award amount to be spent on 
subcontractors. The legal basis for the rule is section 1651 of the 
NDAA for FY 2013, codified at section 46 of the Small Business Act 
(15 U.S.C. 657s).
    This rule may have a positive economic impact on small 
businesses, because it will make application of the limitations on 
subcontracting and the nonmanufacturer rule uniform across all small 
business programs and make it easier to calculate compliance with 
the limitations on subcontracting. Through the ability to meet the 
limitations by means of subcontracts with similarly situated 
entities, this rule will make it possible for small businesses to 
compete for larger contracts than they could in the past. The rule 
will encourage small business prime contractors to award 
subcontracts to other, similarly situated, small businesses. 
Analysis of the System for Award Management (SAM) indicates there 
are over 321,938 small business registrants. Firms looking to be 
prime contractors of Government contracts are required to register 
in SAM. However, firms do not need to register in SAM to participate 
in subcontracting. Thus, the number of small business firms impacted 
by this rule may be greater than the number of firms registered in 
SAM.
    This proposed rule does not include any new reporting or 
recordkeeping requirements for small entities. This rule does not 
include any new compliance requirements. The FAR already required 
compliance with the limitations on subcontracting and the 
nonmanufacturer rule for small business prime contractors receiving 
awards pursuant to set-aside and sole-source acquisitions under part 
19. This rule simply revises the limitations on subcontracting and 
the nonmanufacturer rule to match that required by section 1651 of 
the NDAA for FY 2013. According to the Federal Procurement Data 
System (FPDS), in fiscal year 2015 there were 45,963 small business 
prime contractors performing on acquisitions to which the 
limitations on subcontracting or the nonmanufacturer rule would 
apply.
    The proposed rule does not duplicate, overlap, or conflict with 
any other Federal rules.
    There are no known significant alternative approaches to the 
proposed rule that would meet the requirements of the applicable 
statute.

    The Regulatory Secretariat Division has submitted a copy of the 
IRFA to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy of the IRFA may be obtained from the Regulatory 
Secretariat Division. DoD, GSA, and NASA invite comments from small 
business concerns and other interested parties on the expected impact 
of this rule on small entities.
    DoD, GSA, and NASA will also consider comments from small entities 
concerning the existing regulations in subparts affected by this 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 2016-011) in 
correspondence.

VIII. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. chapter 35) does apply; 
however, these changes to the FAR do not impose additional information 
collection requirements to the paperwork burden previously approved 
under OMB Control Number 3245-0374, titled: Certification for the 
Women-Owned Small Business Federal Contract Program.

List of Subjects in 48 CFR Parts 19 and 52

    Government procurement.

    Dated: November 19, 2018.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.

    Therefore, DoD, GSA, and NASA are proposing to amend 48 CFR parts 
19 and 52 as set forth below:

0
1. The authority citation for 48 CFR parts 19 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 19.001 by removing the definition ``Nonmanufacturer 
rule'' and adding, in alphabetical order, the definition ``Similarly 
situated entity'' to read as follows:


19.001  Definitions.

* * * * *
    ``Similarly situated entity'' means a first-tier subcontractor, 
including an independent contractor, that has the same small business 
program status as that which qualified the prime contractor for the 
award; and is considered small for the NAICS code the prime contractor 
assigned to the subcontract the subcontractor will perform. An example 
of a similarly situated entity is a first-tier subcontractor that is a 
HUBZone small business concern for a HUBZone set-aside or sole-source 
award under the HUBZone Program.


19.102  [Amended]

0
3. Amend section 19.102 by removing paragraph (f).
0
4. Add section 19.103 to read as follows.


19.103  Nonmanufacturer rule.

    (a) Application. (1) The nonmanufacturer rule applies to small 
business set-asides above $150,000; it does not apply to small business 
set-asides at or below $150,000. The nonmanufacturer rule applies to 
all set-aside and sole-source awards under the 8(a), HUBZone, Service-
Disabled Veteran-Owned Small Business, Women-Owned Small Business 
programs regardless of dollar value.
    (2) The nonmanufacturer rule applies to nonmanufacturers in 
accordance with paragraph (b) and to kit assemblers who are 
nonmanufacturers in accordance with paragraph (c).
    (b) Nonmanufacturers. Any concern, including suppliers, that 
submits an offer for a set-aside or a sole-source award in accordance 
with part 19, other than on a construction or service

[[Page 62546]]

acquisition, but proposes to furnish an end item that it did not itself 
manufacture, process, or produce (i.e., a ``nonmanufacturer''), is 
required to--
    (1) Provide an end item that a small business has manufactured, 
processed, or produced in the United States or its outlying areas (see 
paragraph (d) of this section for determining the manufacturer of an 
end item);
    (2) Not exceed 500 employees;
    (3) Be primarily engaged in the retail or wholesale trade and 
normally sell the type of item being supplied; and
    (4) Take ownership or possession of the item(s) with its personnel, 
equipment, or facilities in a manner consistent with industry practice; 
for example, providing storage, transportation, or delivery.
    (c) Kit assemblers. When the end item being acquired is a kit of 
supplies--
    (1) The offeror may not exceed 500 employees; and
    (2) At least 50 percent of the total cost of the components of the 
kit shall be manufactured, processed, or produced in the United States 
or its outlying areas by business concerns that are small under the 
size standards for the NAICS codes of the components of the kit.
    (d) Identification of manufacturers. For the purposes of applying 
the nonmanufacturer rule, the manufacturer, processor, or producer is 
the concern that manufactures, processes, or produces an end item with 
its own facilities (i.e., transforms raw materials, miscellaneous 
parts, or components into the end item being acquired). See 13 CFR 
121.406(b)(2).
    (e) Waiver of nonmanufacturer rule. (1) SBA may grant an individual 
or a class waiver to the nonmanufacturer rule to allow a 
nonmanufacturer to provide the end item of an other than small business 
without regard to the place of manufacture, processing, or production.
    (i) Class waiver. An agency may request that SBA waive the 
requirement at paragraph (b)(1) or (c)(2) of this section for a 
specific product or class of products. SBA may issue a waiver when SBA 
has determined that there are no small business manufacturers, 
processors, or producers in the United States or its outlying areas for 
a specific product or class of products.
    (ii) Individual waiver. The contracting officer may request a 
waiver of the requirements at paragraph (b)(1) or (c)(2) of this 
section for an individual acquisition once the contracting officer 
determines through market research that no known small business 
manufacturers, processors, or producers in the United States or its 
outlying areas can reasonably be expected to offer an end item meeting 
the requirements of the solicitation. An individual waiver applies only 
to a specific acquisition.
    (2) Waiver requests. Requests for waivers shall include the content 
specified at 13 CFR 121.1204 and shall be sent via email to 
[email protected] or by mail to the--Director, Office of Government 
Contracting, Small Business Administration, 409 Third Street SW, 
Washington, DC 20416.
    (3) List of class waivers. The current listing of class waivers is 
available at https://www.sba.gov/content/class-waivers, or contact the 
SBA Office of Government Contracting.
    (4) Notification of waiver. The contracting officer shall provide 
potential offerors with written notification of any class or individual 
waiver in the solicitation. If providing the notification after 
solicitation issuance, the contracting officer shall provide potential 
offerors a reasonable amount of additional time to respond to the 
solicitation.
    (f) Multiple-item acquisitions. (1) If at least 50 percent of the 
estimated acquisition cost is composed of items that are manufactured, 
processed, or produced by small business concerns, then a waiver of the 
nonmanufacturer rule is not required. There is no requirement that each 
item acquired in a multiple-item acquisition be manufactured, 
processed, or produced by a small business in the United States or its 
outlying areas.
    (2) If more than 50 percent of the estimated acquisition cost is 
composed of items manufactured, processed, or produced by other than 
small business concerns, then a waiver is required. SBA may grant an 
individual waiver for one or more items in an acquisition in order to 
ensure that at least 50 percent of the cost of the items to be supplied 
by the nonmanufacturer comes from small business manufacturers, 
processors, and producers in the United States or its outlying areas or 
are subject to a waiver.
    (3) If a small business offeror is both a manufacturer of item(s) 
and a nonmanufacturer of other item(s) for an acquisition, the 
contracting officer shall apply the manufacturer size standard.


19.303  [Amended]

0
5. Amend section 19.303 by removing from paragraph (a)(2) ``of 
19.102(f)'' and adding ``of 19.103'' in its place.


19.502-2  [Amended]

0
6. Amend section 19.502-2 by removing paragraph (c).
0
7. Amend section 19.508 by--
0
a. Revising paragraphs (c), (d) and (e); and
0
b. Adding paragraph (g).
    The revisions and addition read as follows:


19.508  Solicitation provisions and contract clauses.

* * * * *
    (c) The contracting officer shall insert the clause at 52.219-6, 
Notice of Total Small Business Set-Aside, in solicitations and 
contracts involving total small business set-asides or reserves. This 
includes multiple-award contracts when orders may be set aside for any 
of the small business concerns identified in 19.000(a)(3), as described 
in 8.405-5 and 16.505(b)(2)(i)(F). Use the clause at 52.219-6 with its 
Alternate I when including FPI in the competition in accordance with 
19.504.
    (d) The contracting officer shall insert the clause at 52.219-7, 
Notice of Partial Small Business Set-Aside, in solicitations and 
contracts involving partial small business set-asides. This includes 
part or parts of multiple-award contracts, including those described in 
38.101. Use the clause at 52.219-7 with its Alternate I when including 
FPI in the competition in accordance with 19.504.
    (e) The contracting officer shall insert the clause at 52.219-14, 
Limitations on Subcontracting, in solicitations and contracts for 
supplies, services, and construction, if any portion of the requirement 
is to be set aside or reserved for small business and the contract 
amount is expected to exceed $150,000, and in any solicitations and 
contracts that are set aside or awarded on a sole-source basis in 
accordance with subparts 19.8, 19.13, 19.14, or 19.15, regardless of 
dollar value. This includes multiple-award contracts when orders may be 
set aside for small business concerns, as described in 8.405-5 and 
16.505(b)(2)(i)(F).
* * * * *
    (g)(1) The contracting officer shall insert the clause at 52.219-
XX, Nonmanufacturer Rule, in solicitations and contracts when the item 
being acquired has been assigned a manufacturing or supply NAICS code 
and--
    (i) Any portion of the requirement is set aside for small business 
and is expected to exceed $150,000; or
    (ii) The requirement is set aside or awarded on a sole-source basis 
in accordance with subparts 19.8, 19.13, 19.14, or 19.15, regardless of 
dollar value.
    (2) The contracting officer shall not insert the clause at 52.219-
XX when SBA has waived the nonmanufacturer rule (see 19.103(e)).

[[Page 62547]]

0
8. Amend section 19.811-3 by
0
 a. Revising paragraphs (d) and (e); and
0
b. Adding a new paragraph (f).
    The revision and addition read as follows:


19.811-3  Contract clauses.

* * * * *
    (d) The contracting officer shall insert the clause at 52.219-18, 
Notification of Competition Limited to Eligible 8(a) Participants, in 
competitive solicitations and contracts when the acquisition is 
accomplished using the procedures of 19.805. Use the clause at 52.219-
18 with its Alternate I when competition is to be limited to 8(a) 
concerns within one or more specific SBA districts pursuant to 19.804-
2.
    (e) The contracting officer shall insert the clause at 52.219-14, 
Limitations on Subcontracting, in accordance with the prescription at 
19.508(e).
    (f) The contracting officer shall insert the clause at 52.219-XX, 
Nonmanufacturer Rule, in accordance with the prescription at 19.508(g).
0
9. Amend section 19.1303 by revising paragraph (e) to read as follows:


19.1303  Status as a HUBZone small business concern.

* * * * *
    (e) A HUBZone small business concern may submit an offer for 
supplies as a nonmanufacturer if it meets the requirements of the 
nonmanufacturer rule set forth at 13 CFR 121.406.


19.1308  [Removed and Reserved]

0
10. Remove and reserve section 19.1308.
0
11. Revise section 19.1309 to read as follows:


19.1309   Contract clauses.

    (a) The contracting officer shall insert the clause at 52.219-3, 
Notice of HUBZone Set-Aside or Sole-Source Award, in solicitations and 
contracts for acquisitions that are set aside, or reserved for, or 
awarded on a sole-source basis to, HUBZone small business concerns 
under 19.1305 or 19.1306. This includes multiple-award contracts when 
orders may be set aside for HUBZone small business concerns as 
described in 8.405-5 and 16.505(b)(2)(i)(F).
    (b) The contracting officer shall insert the clause at 52.219-4, 
Notice of Price Evaluation Preference for HUBZone Small Business 
Concerns, in solicitations and contracts for acquisitions conducted 
using full and open competition.
    (c) The contracting officer shall insert the clause at 52.219-14, 
Limitations on Subcontracting, in accordance with the prescription at 
19.508(e).
    (d) The contracting officer shall insert the clause at 52.219-XX, 
Nonmanufacturer Rule, in accordance with the prescription at 19.508(g).


19.1403  [Amended]

0
11. Amend section 19.1403 by removing from paragraph (d) ``19.102(f)'' 
and adding ``19.103'' in its place.
0
12. Revise section 19.1407 to read as follows:


19.1407   Contract clauses.

    (a) The contracting officer shall insert the clause at 52.219-27, 
Notice of Service-Disabled Veteran-Owned Small Business Set-Aside, in 
solicitations and contracts for acquisitions that are set aside or 
reserved for, or awarded on a sole-source basis to, service-disabled 
veteran-owned small business concerns under 19.1405 and 19.1406. This 
includes multiple-award contracts when orders may be set aside for 
service-disabled veteran-owned small business concerns as described in 
8.405-5 and 16.505(b)(2)(i)(F).
    (b) The contracting officer shall insert the clause at 52.219-14, 
Limitations on Subcontracting, in accordance with the prescription at 
19.508(e).
    (c) The contracting officer shall insert the clause at 52.219-XX, 
Nonmanufacturer Rule, in accordance with the prescription at 19.508(g).
0
13. Amend section 19.1507 by--
0
a. Removing from paragraph (a) ``clause 52.219-29'' and adding ``clause 
at 52.219-29'' in its place;
0
b. Removing from paragraph (b) ``clause 52.219-30'' and adding ``clause 
at 52.219-30'' in its place; and
0
c. Adding paragraphs (c) and (d) to read as follows:


19.1507  Contract clauses.

* * * * *
    (c) The contracting officer shall insert the clause at 52.219-14, 
Limitations on Subcontracting, in accordance with the prescription at 
19.508(e).
    (d) The contracting officer shall insert the clause at 52.219-XX, 
Nonmanufacturer Rule, in accordance with the prescription at 19.508(g).

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
14. Amend section 52.204-8 by revising the date of the provision and 
paragraph (a)(3) to read as follows:


52.204-8  Annual Representations and Certifications.

* * * * *

Annual Representations and Certifications (Date)

* * * * *
    (a)(3) If the acquisition is set aside for small business and has a 
value above $150,000, or is an 8(a), HUBZone, Service-Disabled Veteran-
Owned, Economically Disadvantaged Women-Owned, or Women-Owned Small 
Business set-aside or sole-source award regardless of dollar value, the 
small business size standard for a concern that submits an offer for a 
set-aside or sole-source award in accordance with part 19, other than 
on a construction or service acquisition, but proposes to furnish an 
end item that it did not itself manufacture, process, or produce is 500 
employees.
* * * * *
0
15. Amend section 52.212-1 by revising the date of the provision and 
paragraph (a) to read as follows:


52.212-1  Instructions to Offerors--Commercial Items.

* * * * *

Instructions to Offerors--Commercial Items (Date)

    (a) North American Industry Classification System (NAICS) code and 
small business size standard. The NAICS code and small business size 
standard for this acquisition appear in Block 10 of the solicitation 
cover sheet (SF 1449). However, if the acquisition is set aside for 
small business and has a value above $150,000, or is an 8(a), HUBZone, 
Service-Disabled Veteran-Owned, Economically Disadvantaged Women-Owned, 
or Women-Owned Small Business set-aside or sole-source award regardless 
of dollar value, the small business size standard for a concern that 
submits an offer for a set-aside or sole-source award in accordance 
with part 19, other than on a construction or service acquisition, but 
proposes to furnish an end item that it did not itself manufacture, 
process, or produce is 500 employees.
* * * * *
0
16. Amend section 52.212-5 by--
0
a. Revising the date of the clause and paragraphs (b)(11), (b)(12), 
(b)(14), (b)(15), (b)(19), (b)(21), (b)(22), (b)(23), and (b)(24);
0
b. Redesignating paragraphs (b)(25) through (b)(60) as paragraphs 
(b)(26) through (b)(61), respectively; and
0
c. Adding a new paragraph (b)(25).
    The revisions and additions read as follows:


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

* * * * *

[[Page 62548]]

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

* * * * *
    (b) * * *
    __ (11) 52.219-3, Notice of HUBZone Set-Aside or Sole-Source Award 
(DATE) (15 U.S.C. 657a).
    __ (12) 52.219-4, Notice of Price Evaluation Preference for HUBZone 
Small Business Concerns (DATE) (if the offeror elects to waive the 
preference, it shall so indicate in its offer) (15 U.S.C. 657a).
* * * * *
    __ (14)(i) 52.219-6, Notice of Total Small Business Set-Aside 
(DATE) (15 U.S.C. 644).
    __ (ii) Alternate I (DATE).
    __ (15)(i) 52.219-7, Notice of Partial Small Business Set-Aside 
(DATE) (15 U.S.C. 644).
    __ (ii) Alternate I (DATE) of 52.219-7.
* * * * *
    __ (19) 52.219-14, Limitations on Subcontracting (DATE) (15 U.S.C. 
657s).
* * * * *
    __ (21) 52.219-27, Notice of Service-Disabled Veteran-Owned Small 
Business Set-Aside (DATE) (15 U.S.C. 657f).
    __ (22) 52.219-28, Post Award Small Business Program 
Rerepresentation (DATE) (15 U.S.C. 632(a)(2)).
    __ (23) 52.219-29, Notice of Set-Aside for, or Sole-Source Award 
to, Economically Disadvantaged Women-Owned Small Business Concerns 
(DATE) (15 U.S.C. 637(m)).
    __ (24) 52.219-30, Notice of Set-Aside for, or Sole-Source Award 
to, Women-Owned Small Business Concerns Eligible Under the Women-Owned 
Small Business Program (DATE) (15 U.S.C. 637(m)).
    __ (25) 52.219-XX, Nonmanufacturer Rule (DATE) (15 U.S.C. 657s).
* * * * *
0
17. Amend section 52.219-1 by--
0
a. Revising the date of the provision;
0
b. Removing from paragraph (b)(1) ``--'' and adding a space in its 
place; and
0
c. Revising paragraph (b)(3) to read as follows:


52.219-1  Small Business Program Representations.

* * * * *

Small Business Program Representations (Date)

* * * * *
    (b) * * *
    (3) If the acquisition is set aside for small business and has a 
value above $150,000, or is an 8(a), HUBZone, Service-Disabled Veteran-
Owned, Economically Disadvantaged Women-Owned, or Women-Owned Small 
Business set-aside or sole-source award regardless of dollar value, the 
small business size standard for a concern that submits an offer, other 
than on a construction or service acquisition, but proposes to furnish 
an end item that it did not itself manufacture, process, or produce is 
500 employees.
* * * * *
0
18. Amend section 52.219-3 by--
0
a. Revising the date of the clause;
0
b. Revising paragraph (a);
0
c. Removing from paragraph (b)(3) ``set-aside'' and adding ``set 
aside'' in its place;
0
d. Removing paragraphs (d), (e), and (f);
0
e. Redesignating paragraph (g) as paragraph (d); and
0
f. Removing Alternate I.
    The revision reads as follows:


52.219-3  Notice of HUBZone Set-Aside or Sole-Source Award.

    As prescribed in 19.1309(a), insert the following clause:

Notice of HUBZone Set-Aside or Sole-Source Award (Date)

    (a) Definition. ``HUBZone small business concern,'' as used in 
this clause, means a small business concern, certified by the Small 
Business Administration (SBA), that appears on the List of Qualified 
HUBZone Small Business Concerns maintained by the SBA (13 CFR 
126.103).
* * * * *

0
19. Amend section 52.219-4 by--
0
a. Revising the date of the clause and paragraphs (a), (d) and (e) to 
read as follows; and
0
b. Removing Alternate I.


52.219-4  Notice of Price Evaluation Preference for HUBZone Small 
Business Concerns.

* * * * *

Notice of Price Evaluation Preference for HUBZone Small Business 
Concerns (Date)

    (a) Definition. ``Similarly situated entity,'' as used in this 
clause, means a first-tier subcontractor, including an independent 
contractor, that has the same small business program status as that 
which qualified the prime contractor for the award; and is considered 
small for the NAICS code the prime contractor assigned to the 
subcontract the subcontractor will perform. An example of a similarly 
situated entity is a first-tier subcontractor that is a HUBZone small 
business concern for a HUBZone set-aside or sole-source award under the 
HUBZone Program.
* * * * *
    (d) Agreement. By submission of an offer and execution of a 
contract, a HUBZone small business concern agrees that, in the case of 
a contract for--
    (1) Services (except construction), it will not pay more than 50 
percent of the amount paid by the Government for contract performance 
to subcontractors that are not similarly situated entities. Any work 
that a similarly situated entity further subcontracts will count 
towards the 50 percent subcontract amount that cannot be exceeded;
    (2) Supplies (other than procurement from a nonmanufacturer of such 
supplies), it will not pay more than 50 percent of the amount paid by 
the Government for contract performance, excluding the cost of 
materials (see 13 CFR 125.1), to subcontractors that are not similarly 
situated entities. Any work that a similarly situated entity further 
subcontracts will count toward the 50 percent subcontract amount that 
cannot be exceeded;
    (3) General construction, it will not pay more than 85 percent of 
the amount paid by the Government for contract performance, excluding 
the cost of materials, to subcontractors that are not similarly 
situated entities. Any work that a similarly situated entity further 
subcontracts will count towards the 85 percent subcontract amount that 
cannot be exceeded; or
    (4) Construction by special trade contractors, it will not pay more 
than 75 percent of the amount paid by the Government for contract 
performance, excluding the cost of materials, to subcontractors that 
are not similarly situated entities. Any work that a similarly situated 
entity further subcontracts will count towards the 75 percent 
subcontract amount that cannot be exceeded.
    (e) A HUBZone joint venture agrees that the aggregate of the 
HUBZone small business concerns to the joint venture, not each concern 
separately, will perform the applicable requirements specified in 
paragraph (d) of this clause.
* * * * *
0
20. Amend section 52.219-6 by--
0
a. Revising the date of the clause;
0
b. Removing paragraph (d);
0
c. Removing Alternate I;
0
d. Redesignating Alternate II as Alternate I; and
0
e. Revising the date of newly redesignated Alternate I.
    The revisions read as follows:


52.219-6  Notice of Total Small Business Set-Aside.

* * * * *

[[Page 62549]]

Notice of Total Small Business Set-Aside (Date)

* * * * *
    Alternate I (DATE). As prescribed in 19.508(c), substitute the 
following paragraph (c) for paragraph (c) of the basic clause:
* * * * *
0
21. Amend section 52.219-7 by--
0
a. Revising the date of the clause;
0
b. Removing paragraph (c);
0
c. Removing Alternate I;
0
d. Redesignating Alternate II as Alternate I; and
0
e. Revising the newly redesignated Alternate I.
    The revision reads as follows:


52.219-7  Notice of Partial Small Business Set-Aside.

* * * * *

Notice of Partial Small Business Set-Aside (Date)

* * * * *
    Alternate I (Date). As prescribed in 19.508(d), add the following 
paragraph (c) to the basic clause:

    (c) Notwithstanding paragraph (b) of this clause, offers from 
Federal Prison Industries, Inc., will be solicited and considered 
for both the set-aside and non-set-aside portion of this 
requirement.

0
22. Amend section 52.219-14 by--
0
a. Removing from the introductory text of the clause ``or 19.811-
3(e)'';
0
b. Revising the date of the clause;
0
c. Redesignating paragraph (c) as paragraph (e) and paragraph (b) as 
paragraph (c);
0
d. Revising newly designated paragraphs (c) and (e); and
0
e. Adding paragraphs (b), (d), and (f).
    The revisions and additions read as follows:


52.219-14  Limitations on Subcontracting.

* * * * *

Limitations on Subcontracting (Date)

* * * * *
    (b) Definition. ``Similarly situated entity,'' as used in this 
clause, means a first-tier subcontractor, including an independent 
contractor, that has the same small business program status as that 
which qualified the prime contractor for the award; and is considered 
small for the NAICS code the prime contractor assigned to the 
subcontract the subcontractor will perform. An example of a similarly 
situated entity is a first-tier subcontractor that is a HUBZone small 
business concern for a HUBZone set-aside or sole-source award under the 
HUBZone Program.
    (c) Applicability. This clause applies only to--
    (1) Contracts that have been set aside or reserved any of the small 
business concerns identified in 19.000(a)(3);
    (2) Part or parts of a multiple-award contract that have been set 
aside for any of the small business concerns identified in 
19.000(a)(3);
    (3) Contracts that have been awarded on a sole-source basis in 
accordance with subparts 19.8, 19.13, 19.14, and 19.15; and
    (4) Orders set aside for any of the small business concerns 
identified in 19.000(a)(3) under multiple-award contracts as described 
in 8.405-5 and 16.505(b)(2)(i)(F).
    (d) Independent contractors. An independent contractor shall be 
considered a subcontractor.
    (e) By submission of an offer and execution of a contract, the 
Offeror/Contractor agrees that, in the case of a contract for--
    (1) Services (except construction), it will not pay more than 50 
percent of the amount paid by the Government for contract performance 
to subcontractors that are not similarly situated entities. Any work 
that a similarly situated entity further subcontracts will count 
towards the 50 percent subcontract amount that cannot be exceeded;
    (2) Supplies (other than procurement from a nonmanufacturer of such 
supplies), it will not pay more than 50 percent of the amount paid by 
the Government for contract performance, excluding the cost of 
materials, to subcontractors that are not similarly situated entities. 
Any work that a similarly situated entity further subcontracts will 
count towards the 50 percent subcontract amount that cannot be 
exceeded;
    (3) General construction, it will not pay more than 85 percent of 
the amount paid by the Government for contract performance, excluding 
the cost of materials, to subcontractors that are not similarly 
situated entities. Any work that a similarly situated entity further 
subcontracts will count towards the 85 percent subcontract amount that 
cannot be exceeded; or
    (4) Construction by special trade contractors, it will not pay more 
than 75 percent of the amount paid by the Government for contract 
performance, excluding the cost of materials, to subcontractors that 
are not similarly situated entities. Any work that a similarly situated 
entity further subcontracts will count towards the 75 percent 
subcontract amount that cannot be exceeded.
    (f) A joint venture agrees that, in the performance of the 
contract, the applicable percentage specified in paragraph (e) of this 
clause will be performed by the aggregate of the joint venture 
participants.
0
23. Amend section 52.219-18 by--
0
a. Revising the date of the clause;
0
b. Removing paragraph (d)(1), redesignating paragraph (d)(2) as 
paragraph (d) and
0
c. Removing Alternate II.
    The revision reads as follows:


52.219-18  Notification of Competition Limited to Eligible 8(a) 
Participants.

* * * * *

Notification of Competition Limited to Eligible 8(a) Participants 
(Date)

* * * * *
0
24. Amend section 52.219-27 by--
0
a. Revising the date of the clause;
0
b. Removing paragraph (d);
0
c. Redesignating paragraph (e) as paragraph (d);
0
d. Revising the newly redesignated paragraph (d); and
0
e. Removing paragraph (f).
    The revisions read as follows:


52.219-27  Notice of Service-Disabled Veteran-Owned Small Business Set-
Aside.

* * * * *

Notice of Service-Disabled Veteran-Owned Small Business Set-Aside 
(Date)

* * * * *
    (d) A joint venture may be considered a service-disabled veteran 
owned small business concern if--
    (1) At least one member of the joint venture is a service-disabled 
veteran-owned small business concern, and makes the following 
representations:
    (i) That it is a service-disabled veteran-owned small business 
concern, and
    (ii) That it is a small business concern under the North American 
Industry Classification Systems (NAICS) code assigned to the 
procurement;
    (2) Each other concern is small under the size standard 
corresponding to the NAICS code assigned to the procurement;
    (3) The joint venture meets the requirements of paragraph 7 of the 
explanation of Affiliates in 19.101 of the Federal Acquisition 
Regulation; and
    (4) The joint venture meets the requirements of 13 CFR 125.15(b).
* * * * *
0
25. Amend section 52.219-28 by revising the date of the clause and 
paragraph (d) to read as follows:


52.219-28  Post-Award Small Business Program Rerepresentation.

* * * * *

Post-Award Small Business Program Rerepresentation (Date)

* * * * *

[[Page 62550]]

    (d) If the acquisition was set aside for small business and has a 
value above $150,000, or is an 8(a), HUBZone, Service-Disabled Veteran-
Owned, Economically Disadvantaged Women-Owned, or Women-Owned Small 
Business set-aside or sole-source award regardless of dollar value, the 
small business size standard for a Contractor providing a product which 
it does not manufacture, process, or produce itself, for a contract 
other than a construction or service contract, is 500 employees.
* * * * *
0
26. Amend section 52.219-29 by--
0
a. Revising the date of the clause;
0
b. Removing from the definition ``Economically disadvantaged women-
owned small business (EDWOSB)'' ``means- A small'' and adding ``means a 
small'' in its place;
0
c. Removing from paragraph (c)(3) ``contracting officer'' and adding 
``Contracting Officer'' in its place;
0
d. Removing paragraph (d);
0
e. Redesignating paragraph (e) as paragraph (d);
0
f. Removing newly redesignated paragraph (d)(4);
0
g. Redesignating paragraph (d)(5) as (d)(4) and revising newly 
redesignated paragraph (d)(4); and
0
h. Removing paragraph (f).
    The revisions read as follows:


52.219-29  Notice of Set-Aside for, or Sole-Source Award to, 
Economically Disadvantaged Women-Owned Small Business Concerns.

* * * * *

Notice of Set-Aside for, or Sole-Source Award to, Economically 
Disadvantaged Women-Owned Small Business Concerns (Date)

* * * * *
    (d) * * *
    (4) The Contracting Officer executes the contract in the name of 
the EDWOSB or joint venture.
* * * * *
0
27. Amend section 52.219-30 by--
0
a. Revising the date of the clause and the introductory text of 
paragraph (a);
0
b. Removing from the second sentence of paragraph (c)(1) ``WOSB 
program'' and adding ``WOSB Program'' in its place;
0
c. Removing paragraph (d);
0
d. Redesignating paragraph (e) as paragraph (d);
0
e. Removing newly redesignated paragraph (d)(4);
0
f. Redesignating paragraph (d)(5) as (d)(4) and revising newly 
redesignated paragraph (d)(4);
0
g. Removing paragraph (f).
    The revision reads as follows:


52.219-30  Notice of Set-Aside for, or Sole-Source Award to, Women-
Owned Small Business Concerns Eligible Under the Women-Owned Small 
Business Program.

* * * * *

Notice of Set-Aside for, or Sole-Source Award to, Women-Owned Small 
Business Concerns Eligible Under the Women-Owned Small Business Program 
(Date)

    (a) Definitions. As used in this clause--
* * * * *
    (d) * * *
    (4) The Contracting Officer executes the contract in the name of 
the WOSB concern eligible under the WOSB Program or joint venture.
* * * * *
0
28. Add section 52.219-XX to read as follows:


52.219-XX  Nonmanufacturer Rule.

    As prescribed in 19.508(g), insert the following clause:

Nonmanufacturer Rule (Date)

    (a) Definitions. As used in this clause--
    ``Manufacturer'' means the concern that transforms raw 
materials, miscellaneous parts, or components into the end item. 
Concerns that only minimally alter the item being procured do not 
qualify as manufacturers of the end item. Concerns that add 
substances, parts, or components to an existing end item to modify 
its performance will not be considered the end item manufacturer, 
where those identical modifications can be performed by and are 
available from the manufacturer of the existing end item.
    ``Nonmanufacturer'' means a concern, including a supplier, that 
provides an end item it did not manufacture, process, or produce.
    (b) Applicability.
    (1) This clause does not apply to contracts awarded pursuant to 
the unrestricted portion of a partial set-aside or to a contractor 
that is the manufacturer of the product or end item.
    (2) This clause applies to--
    (i) Contracts that have been awarded pursuant to a set-aside, in 
total or in part, for any of the small business concerns identified 
in 19.000(a)(3);
    (ii) Contracts that have been awarded on a sole-source basis in 
accordance with subparts 19.8, 19.13, 19.14, and 19.15; and
    (iii) Orders set aside for any of the small business concerns 
identified in 19.000(a)(3) under multiple-award contracts as 
described in 8.405-5 and 16.505(b)(2)(i)(F).
    (c) Requirements.
    (1) The Contractor shall--
    (i) Provide an end item that a small business has manufactured, 
processed, or produced in the United States or its outlying areas; 
for kit assemblers who are nonmanufacturers, see paragraph (c)(2) of 
this clause instead;
    (ii) Be primarily engaged in the retail or wholesale trade and 
normally sell the type of item being supplied; and
    (iii) Take ownership or possession of the item(s) with its 
personnel, equipment, or facilities in a manner consistent with 
industry practice; for example, providing storage, transportation, 
or delivery.
    (2) When the end item being acquired is a kit of supplies, at 
least 50 percent of the total cost of the components of the kit 
shall be manufactured, processed, or produced in the United States 
or its outlying areas by small business concerns. Where the 
Government has specified an item for the kit that is not produced by 
small business concerns in the United States or its outlying areas, 
such item is excluded from the calculation of total cost.


(End of clause)

[FR Doc. 2018-25506 Filed 12-3-18; 8:45 am]
 BILLING CODE 6820-EP-P