Defense Federal Acquisition Regulation Supplement: Nonmanufacturer Rule for 8(a) Participants (DFARS Case 2019-D004), 12187-12189 [2019-06252]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 84, Number 62 (Monday, April 1, 2019)]
[Proposed Rules]
[Pages 12187-12189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06252]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 219 and 252

[Docket DARS-2019-0015]
RIN 0750-AK39


Defense Federal Acquisition Regulation Supplement: 
Nonmanufacturer Rule for 8(a) Participants (DFARS Case 2019-D004)

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Proposed rule.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to implement the final rule published by 
the Small Business Administration implementing a section of the 
National Defense Authorization Act for Fiscal Year 2013 that provided 
revised and standardized limitations on subcontracting, including the 
nonmanufacturer rule, that apply to small business concerns, including 
participants in the 8(a) Program.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before May 31, 2019, to be considered in 
the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2019-D004, using 
any of the following methods:
    [cir] Federal eRulemaking Portal: https://www.regulations.gov. 
Search for ``DFARS Case 2019-D004.'' Select ``Comment Now'' and follow 
the instructions provided to submit a comment. Please include ``DFARS 
Case 2019-D004'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2019-D004 in 
the subject line of the message.
    [cir] Fax: 571-372-6094.
    [cir] Mail: Defense Acquisition Regulations System, Attn: Jennifer 
D. Johnson, OUSD(A-S)DPC/DARS, Room 3B941, 3060 Defense Pentagon, 
Washington, DC 20301-3060.
    Comments received generally will be posted without change to https://www.regulations.gov, including any personal 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: Ms. Jennifer D. Johnson, telephone 
571-372-6100.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD is proposing to revise the DFARS 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 implemented the requirements of section 1651 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 
(Pub. L. 112-239, 15 U.S.C. 657s). Section 1651 revised and 
standardized the limitations on subcontracting, including the 
nonmanufacturer rule, that apply to small business concerns, including 
8(a) Program participants, under procurements conducted pursuant to 
Federal Acquisition Regulation (FAR) part 19, Small Business Programs.
    Small business concerns must meet certain requirements when they 
offer to the Government an end item they did not manufacture, process, 
or produce. These requirements are known as the nonmanufacturer rule. 
For example, a small business nonmanufacturer must offer an end item 
that a small business manufactured, processed, or produced in the 
United States or its outlying areas (as defined in FAR 2.101). The 
clause at DFARS 252.219-7010, Notification of Competition Limited to 
Eligible 8(a) Concerns--Partnership Agreement, includes an outdated 
version of these requirements. This rule proposes to update DFARS 
252.219-7010 to include the revised nonmanufacturer rule provided by 
section 1651 and implemented in SBA's final rule.

II. Discussion and Analysis

    This rule proposes to amend DFARS 252.219-7010, paragraph (d), to 
replace the outdated text regarding the nonmanufacturer rule with 
updated text that implements section 1651 and SBA's final rule. The 
proposed, updated text is consistent with the proposed FAR rule 
published in the Federal Register on December 4, 2018, at 83 FR 62540 
(FAR Case 2016-011, Revision of Limitations on Subcontracting). In 
addition, this rule proposes to revise the title of the clause at 
252.219-7010 to align with the title of FAR 52.219-18, Notification of 
Competition Limited to Eligible 8(a) Participants.

III. Expected Impact of the Proposed Rule

    The clause at DFARS 252.219-7010, Notification of Competition 
Limited to Eligible 8(a) Concerns--Partnership Agreement, currently 
requires 8(a) participants that offer end items they did not 
manufacture or produce (i.e., nonmanufacturers) to offer end items 
manufactured or produced by small business concerns in the United 
States or its outlying areas. This requirement is known as the 
``nonmanufacturer rule.'' DFARS 252.219-7010 provides an exemption from 
the nonmanufacturer rule for contracts valued at or below $25,000 and 
awarded under simplified acquisition procedures. For these contracts, 
an 8(a) participant currently may offer end items manufactured or 
produced by any domestic firm.
    SBA's final rule applied the nonmanufacturer rule to 8(a) contracts 
at any dollar value. There was no exemption for contracts valued at or 
below $25,000 and awarded under simplified acquisition procedures. 
Therefore, this rule proposes to remove that exemption from DFARS 
252.219-7010. This change means the nonmanufacturer rule will apply to 
8(a) contracts at any dollar value, and 8(a) participants that are 
nonmanufacturers will be required to offer end items manufactured, 
processed, or produced by small business concerns in the United States 
or its outlying areas.
    To estimate the number of 8(a) participants that may be impacted by 
this change, DoD obtained data from the Federal Procurement Data System 
on DoD contracts, for products, awarded to 8(a) participants under the 
8(a) Program. Contracts for services, including construction, were 
excluded because the nonmanufacturer rule only applies to products, not 
services. In FY 2016 through FY 2018, DoD awarded contracts for 
products to an average of 285 8(a) participants each year. An

[[Page 12188]]

average of 90 of those 8(a) participants per year were awarded 
approximately 2 contracts each that were valued at or below $25,000, 
using simplified acquisition procedures. Therefore, DoD estimates that 
approximately 90 participants may be impacted by this rule. Due to the 
small number of 8(a) participants that may be impacted, it is expected 
that the cost associated with this rule will be de minimis.

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

    DoD intends to apply the requirements of section 1651 of the NDAA 
for FY 2013 to contracts at or below the simplified acquisition 
threshold and to contracts for the acquisition of commercial items, 
including commercially available off-the-shelf items.

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

    41 U.S.C. 1905 governs the applicability of laws to contracts or 
subcontracts in amounts not greater than the simplified acquisition 
threshold. It is intended to limit the applicability of laws to such 
contracts or subcontracts. 41 U.S.C. 1905 provides that if a provision 
of law contains criminal or civil penalties, or if 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, the law will apply to them. The Principal Director, Defense 
Pricing and Contracting (DPC), is the appropriate authority to make 
comparable determinations for regulations to be published in the DFARS, 
which is part of the FAR system of regulations.
    Therefore, given that SBA applied section 1651 to contracts and 
subcontracts at or below the SAT and that nearly 76 percent of the DoD 
contracts awarded to 8(a) participants in recent years are at or below 
the SAT, DoD has determined that it is in the best interest of the 
Federal Government to apply section 1651 to contracts or subcontracts 
at or below the SAT. An exemption for contracts or subcontracts at or 
below the SAT would exclude contracts intended to be covered by the 
law, thereby undermining the overarching public policy purpose of the 
law.

B. Applicability to Contracts for the Acquisition of Commercial Items, 
Including COTS Items

    10 U.S.C. 2375 governs the applicability of laws to contracts for 
the acquisition of commercial items, including COTS items, and is 
intended to limit the applicability of laws to contracts for the 
acquisition of commercial items. 10 U.S.C. 2375 provides that if a 
provision of law contains criminal or civil penalties, or if the Under 
Secretary of Defense (Acquisition and Sustainment) makes a written 
determination that it is not in the best interest of the Federal 
Government to exempt commercial item contracts, including COTS items, 
then the provision of law will apply to contracts for the acquisition 
of commercial items. This authority has been delegated to the Principal 
Director, DPC.
    Therefore, given that SBA applied section 1651 to contracts for the 
acquisition of commercial items, including COTS items, and that 
approximately 72 percent of the DoD contracts awarded to 8(a) 
participants in recent years are for commercial items, including COTS 
items, DoD intends to determine that it is in the best interest of the 
Federal Government to apply the rule to contracts for the acquisition 
of commercial items, including COTS items, as defined at FAR 2.101. An 
exception for contracts for the acquisition of commercial items, 
including COTS items, would exclude the contracts intended to be 
covered by the law, thereby undermining the overarching public policy 
purpose of the law.

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

VI. Executive Order 13771

    This rule is not expected to be subject to E.O. 13771, because this 
rule is not a significant regulatory action under E.O. 12866.

VII. Regulatory Flexibility Act

    DoD does not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because it will impact a very small number of small entities. However, 
an initial regulatory flexibility analysis has been performed and is 
summarized as follows:
    This rule proposes to revise the DFARS to implement regulatory 
changes made by SBA in its final rule published in the Federal Register 
on May 31, 2016 (81 FR 34243), which implemented section 1651 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 
(Pub. L. 112-239; 15 U.S.C. 657s). Section 1651 revised and 
standardized the limitations on subcontracting and the nonmanufacturer 
rule that apply to small business concerns, including 8(a) Program 
participants, under procurements conducted pursuant to FAR part 19, 
Small Business Programs.
    The objective of the rule is to implement the revised 
nonmanufacturer rule for 8(a) Program participants by updating the 
clause at DFARS 252.219-7010, Notification of Competition Limited 
Eligible 8(a) Concerns--Partnership Agreement. The legal basis is 
section 1651 of the NDAA for FY 2013.
    This rule will apply to 8(a) participants that contract with DoD. 
According to data obtained from the Federal Procurement Data System, 
DoD awarded contracts for products (i.e., contracts to which the 
nonmanufacturer rule would apply) to an average of 285 8(a) 
participants each year during FY 2016 through FY 2018. These entities 
will need to familiarize themselves with this rule. The clause at DFARS 
252.219-7010 currently provides an exemption from the nonmanufacturer 
rule for contracts valued at or below $25,000 and awarded under 
simplified acquisition procedures. SBA's final rule applied the 
nonmanufacturer rule to 8(a) contracts at any dollar value, with no 
exemption for contracts at or below $25,000. DoD awarded contracts at 
or below $25,000 to an average of 90 8(a) participants each year during 
FY 2016 through FY 2018.
    This rule does not impose any new reporting, recordkeeping or other 
compliance requirements for small entities.

[[Page 12189]]

    This rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    There are no known alternatives which would accomplish the stated 
objectives of the applicable statute.
    DoD invites comments from small business concerns and other 
interested parties on the expected impact of this rule on small 
entities.
    DoD will also consider comments from small entities concerning the 
existing regulations in subparts affected by this rule in accordance 
with 5 U.S.C. 610. Interested parties must submit such comments 
separately and should cite 5 U.S.C. 610 (DFARS Case 2019-D004), in 
correspondence.

VIII. Paperwork Reduction Act

    The rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 219 and 252

    Government procurement.

Jennifer Lee Hawes,
Regulatory Control Officer, Defense Acquisition Regulations System.

    Therefore, 48 CFR parts 2019 and 252 are proposed to be amended as 
follows:

0
1. The authority citation for parts 219 and 252 continues to read as 
follows:

    Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.

PART 219--SMALL BUSINESS PROGRAMS

* * * * *


219.811-3  [Amended]

0
2. Amend section 219.811-3 by removing ``Eligible 8(a) Concerns'' and 
adding ``Eligible 8(a) Participants'' in two places.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
3. Amend section 252.219-7010--
0
a. In the section heading, by removing ``Eligible 8(a) Concerns'' and 
adding ``Eligible 8(a) Participants'' in its place;
0
b. In the clause heading, by removing ``Eligible 8(a) Concerns'' and 
adding ``Eligible 8(a) Participants'' in its place, and removing ``(MAR 
2016)'' and adding ``(DATE)'' in its place;
0
c. In the paragraph (a) introductory text, by removing ``in the SBA's'' 
and adding ``in SBA's'' in its place;
0
d. In paragraph (a)(2), by removing ``by the SBA'' and adding ``by 
SBA'' in its place;
0
e. By redesignating paragraph (d)(2) as paragraph (e); and
0
f. By revising paragraph (d).
    The revision reads as follows:


252.219-7010  Notification of Competition Limited to Eligible 8(a) 
Concerns--Partnership Agreement

* * * * *
    (d)(1) Unless SBA has waived the requirements of paragraphs 
(d)(1)(i) through (iii) and (d)(2) of this clause in accordance with 13 
CFR 121.1204, a small business concern that provides an end item it did 
not manufacture, process, or produce, 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, see paragraph (d)(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 by small businesses in the United 
States or its outlying areas.
    (3) The requirements of paragraphs (d)(1)(i) through (iii) and 
(d)(2) of this clause do not apply to construction or service 
contracts.
* * * * *
[FR Doc. 2019-06252 Filed 3-29-19; 8:45 am]
BILLING CODE 5001-06-P