Defense Federal Acquisition Regulation Supplement: Demonstration Project for Contractors Employing Persons With Disabilities (DFARS Case 2018-D058), 72554-72561 [2019-27826]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 84, Number 250 (Tuesday, December 31, 2019)]
[Rules and Regulations]
[Pages 72554-72561]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27826]



[[Page 72553]]

Vol. 84

Tuesday,

No. 250

December 31, 2019

Part IV





Department of Defense





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Defense Acquisition Regulations System





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48 CFR Parts 204, 212, 215, 219 et al.





Defense Federal Acquisition Regulation Supplement: Demonstration 
Project for Contractors Employing Persons With Disabilities (DFARS Case 
2018-D058); Defense Federal Acquisition Regulation Supplement: Review 
of Defense Solicitations by Procurement Center Representatives (DFARS 
Case 2019-D008); Defense Federal Acquisition Regulation Supplement: 
Technical Amendments; Final Rules

Federal Register / Vol. 84, No. 250 / Tuesday, December 31, 2019 / 
Rules and Regulations

[[Page 72554]]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 204, 212, 215, 219, 226, and 252

[Docket DARS-2019-0009]
RIN 0750-AK19


Defense Federal Acquisition Regulation Supplement: Demonstration 
Project for Contractors Employing Persons With Disabilities (DFARS Case 
2018-D058)

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

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to implement a section of the 
National Defense Authorization Act for Fiscal Year 2019 that requires 
the DFARS to be updated to include an instruction on the Demonstration 
Project for Contractors.

DATES: Effective December 31, 2019.

FOR FURTHER INFORMATION CONTACT: Ms. Jennifer D. Johnson, telephone 
571-372-6100.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published a proposed rule in the Federal Register at 84 FR 
12182 on April 1, 2019, to implement section 888 of the National 
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 
115-232). Section 888 requires that the DFARS be updated to include an 
instruction on the demonstration project authorized by section 853 of 
the NDAA for FY 2004 (Pub. L. 108-136, 10 U.S.C. 2302 note), as amended 
by division H, section 110 of the Consolidated Appropriations Act, 2004 
(Pub. L. 108-199, 10 U.S.C. 2302 note). Section 853 authorizes a 
demonstration project for contractors employing persons with 
disabilities in order to provide defense contracting opportunities for 
both nonprofit and for-profit entities employing individuals who have 
severe disabilities. Twenty respondents submitted public comments in 
response to the proposed rule.

II. Discussion and Analysis

    DoD reviewed the public comments in the development of the final 
rule. A discussion of the comments, and of the changes made to the rule 
as a result of those comments, is provided as follows:

A. Summary of Significant Changes From the Proposed Rule

    This final rule makes the following significant changes from the 
proposed rule:
1. Clarification of Procedures for Use of the Demonstration Project
    In DFARS subpart 226.72, Demonstration Project for Contractors 
Employing Persons with Disabilities, section 226.7200, Scope of 
subpart, is revised to clarify that subpart 226.72 does not supersede 
the requirements for contracting officers to use the mandatory sources 
in FAR part 8, Required Sources of Supplies and Services, or the small 
business programs in FAR part 19, Small Business Programs. This means 
that, depending on the specifics of a particular procurement, FAR part 
8 or 19 may require a contracting officer to use a program other than 
the Demonstration Project for Contractors Employing Persons with 
Disabilities.
    The text in DFARS 226.7202, Policy and procedures, is revised to 
clarify that, in order to limit competition to entities that meet the 
definition of ``eligible contractor,'' a written justification and 
approval is required pursuant to FAR 6.302-5, Authorized or required by 
statute. This means that prior to issuing the solicitation, contracting 
officers must explain, in writing, their rationale for using the 
Demonstration Project, and must obtain approval at the appropriate 
level based on the dollar value of the procurement.
    DFARS 226.7202 is also revised to require that, in order for DoD to 
continue to receive small disadvantaged business credit for a contract 
awarded under the Demonstration Project, the contractor must be an 
eligible contractor when options are exercised. Contracting officers 
are required to verify whether the contractor is still an eligible 
contractor (e.g., by checking the representation in the System for 
Award Management (SAM)) prior to exercising an option on a contract 
awarded under the Demonstration Project. The contracting officer may 
exercise an option on a contract regardless of whether the contractor 
is still an eligible contractor, but DoD would only continue to receive 
small disadvantaged business credit for that contract if the contractor 
remains an eligible contractor under the Demonstration Project.
2. Clarification Regarding Subcontracts Under the Demonstration Project
    The final rule adds Alternate II for the clause at DFARS 252.219-
7003, Small Business Subcontracting Plan (DoD Contracts), for use in 
solicitations and contracts issued under the Demonstration Project. 
Alternate II includes the definition of ``eligible contractor'' and 
allows the prime contractor to receive credit toward its small 
disadvantaged business subcontracting goal for subcontracts issued to 
eligible contractors. This final rule does not include, in the basic or 
Alternate I clause at DFARS 252.219-7003, the definition of ``eligible 
contractor'' and the statement regarding credit toward the small 
disadvantaged business subcontracting goal. The effect of this changes 
is that only eligible contractors that have contracts awarded under the 
Demonstration Project will receive credit toward their small 
disadvantaged business subcontracting goal for subcontracts they award 
to other eligible contractors under Demonstration Project contracts. 
The prescription for use of Alternate II of DFARS 252.219-7003 is added 
at DFARS 219.708.
3. Clarification of Applicability to Commercial Items
    To clarify that contracting officers may use the Demonstration 
Project to purchase commercial items, including commercially available 
off-the-shelf (COTS) items, this final rule adds the following 
provision and clause to section 212.301, Solicitation provisions and 
contract clauses for the acquisition of commercial items:
     Alternate II of the clause at DFARS 252.219-7003, Small 
Business Subcontracting Plan (DoD Contracts).
     The provision at DFARS 252.226-7002, Representation for 
Demonstration Project for Contractors Employing Persons with 
Disabilities.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: Most respondents expressed support for the rule and for 
the opportunities it may provide to entities employing individuals with 
disabilities.
    Response: DoD acknowledges the respondents' support.
2. Scope of the Demonstration Project
a. Product Service Codes
    Comment: A few respondents commented on the need for clarity about 
the types of procurements that would be eligible for the Demonstration 
Project, particularly with regard to the product service codes (PSCs) 
listed in the proposed rule. One respondent requested confirmation that 
the Demonstration Project would be used

[[Page 72555]]

only for procurements under those PSCs.
    Response: Section 853 does not impose limitations on the products 
or services that may be procured under the Demonstration Project. The 
PSCs listed in the Federal Register notice for the proposed rule were 
used merely to estimate the potential opportunities Congress identified 
in the Conference Report for the NDAA for FY 2004. The list of PSCs was 
not intended to limit the procurements that could be conducted under 
the Demonstration Project.
b. Applicability of the Demonstration Project at or Below the 
Simplified Acquisition Threshold and to Commercial Items
    Comment: One respondent commented on the applicability of the 
Demonstration Project to acquisitions at or below the simplified 
acquisition threshold (SAT) and to acquisitions of commercial items. 
The respondent stated that the Demonstration Project should be limited 
to commercial items under the SAT, and that to apply the Demonstration 
Project to all commercial item acquisitions would have a wider impact 
than Congress intended.
    Response: Section 853 did not limit the procurements that could be 
conducted under the Demonstration Project with regard to dollar value 
or the commercial (or noncommercial) nature of the product or service 
to be procured. By applying section 853 to acquisitions at or below the 
SAT, DoD allows these low dollar value procurements to be conducted 
under the Demonstration Project. In other words, the Demonstration 
Project could be used to buy products or services valued at or below 
the SAT. Similarly, applying section 853 to acquisitions of commercial 
items, including COTS items, allows these items to be procured under 
the Demonstration Project. For the reasons stated in section IV of this 
preamble, DoD has determined that it is in the Government's best 
interest to allow acquisitions at or below the SAT and acquisitions of 
commercial items, including COTS items, to be conducted under the 
Demonstration Project.
c. Selecting Procurements for the Demonstration Project
    Comment: One respondent asked how DoD would ``determine the 
suitability'' of a procurement for the Demonstration Project. In 
particular, the respondent asked if DoD would ``apply the Rule of Two 
like other Small Business programs.''
    Response: Contracting officers may elect to use the Demonstration 
Project for a particular procurement, but they are not required to do 
so. FAR part 10 requires agencies to conduct market research, and 
contracting officers will use the results of market research to 
determine whether a particular procurement may be appropriate for the 
Demonstration Project. The Demonstration Project is not a small 
business program. Therefore, the rule of two in FAR part 19 does not 
apply. However, section 853 does not provide authority to award 
contracts on a sole-source basis (i.e., without competition), so there 
is an expectation that procurements under the Demonstration Project 
will be competed unless a sole-source award is justified and approved 
based on another authority.
3. Demonstration Project and the AbilityOne Program
a. Credit Toward Small Disadvantaged Business Goal for AbilityOne 
Contracts
    Comment: Two respondents recommended allowing credit toward the 
small disadvantaged business goal for current and future contracts 
awarded to AbilityOne nonprofits that also qualify as eligible 
contractors under the Demonstration Project. Several respondents 
recommended continuing the small disadvantaged business credit for 
Demonstration Project contracts that are later added to the AbilityOne 
Procurement List.
    Response: There is no statutory authority for DoD to implement the 
respondents' recommendations. Section 853 provides credit for DoD 
toward its small disadvantaged business goal only for contracts awarded 
to eligible contractors under the Demonstration Project. This credit 
does not extend to contracts awarded outside the Demonstration Project. 
There is no statutory authority to provide small disadvantaged business 
credit for contracts for products or services on the Procurement List.
b. Impact of the Demonstration Project on the AbilityOne Procurement 
List
    Comment: Several respondents expressed concern that allowing DoD to 
receive credit toward its small disadvantaged business goal for 
contracts awarded under the Demonstration Project would have an adverse 
impact on AbilityOne nonprofits' ability to add projects to the 
AbilityOne Procurement List.
    Response: The authority to add products or services to the 
Procurement List resides with the U.S. AbilityOne Commission, which has 
its own process to make such additions. Addressing this process in the 
DFARS is outside the scope of this rule.
c. AbilityOne Purchase Exception Process
    Comment: Several respondents commented on the description of 
procurements made under the Demonstration Project in section III of the 
preamble of the proposed rule and recommended clarifying that a ``valid 
purchase exception'' must be granted by an appropriate authority in the 
AbilityOne Program. Some respondents stated that products and services 
on the Procurement List should not be eligible for award under the 
Demonstration Project. One respondent recommended modifying DFARS 
226.7202 to require contracting officers to ensure compliance with FAR 
8.002 and subpart 8.7 prior to conducting market research and 
developing a solicitation under the Demonstration Project.
    Response: The final rule includes a clarification at DFARS 226.7200 
that nothing in DFARS subpart 226.72 supersedes the requirement to use 
the mandatory sources in FAR part 8, Required Sources of Supplies and 
Services, or the small business programs in FAR part 19, Small Business 
Programs.
d. Eligibility of AbilityOne Nonprofits for the Demonstration Project
    Comment: Two respondents commented that they believe it was the 
intent of Congress to allow AbilityOne nonprofits to be eligible to 
participate in the Demonstration Project. One respondent noted that 
there appear to be limits on the participation of AbilityOne nonprofits 
in procurements conducted under the Demonstration Project. Two 
respondents argued that there should be a presumption of eligibility 
for AbilityOne nonprofits to participate in procurements under the 
Demonstration Project.
    Response: Any entity that meets the definition of ``eligible 
contractor'' may participate in a procurement conducted under the 
Demonstration Project. While AbilityOne nonprofit agencies are likely 
to meet the Demonstration Project requirement that at least 33 percent 
of their workforce must be severely disabled individuals, the statutory 
definition of ``eligible contractor'' in section 853 goes beyond the 
percentage. The definition includes other requirements (e.g., health 
insurance, minimum wage) that a specific nonprofit agency may or may 
not meet. Therefore, the eligibility of any entity for the 
Demonstration Project cannot be presumed.

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e. Oversight of the Demonstration Project
    Comment: A few respondents suggested that the AbilityOne Commission 
should provide oversight for eligible contractors under the 
Demonstration Project, i.e., all eligible contractors ``would fall 
under the umbrella of the AbilityOne program.''
    Response: The Demonstration Project includes both for-profit and 
nonprofit entities. The AbilityOne Commission oversees only nonprofit 
entities. Therefore, the respondents' suggestion is not included in the 
final rule.
4. Demonstration Project and Small Business
a. Relationship to Small Business Programs
    Comment: One respondent asked whether the Demonstration Project 
would ``affect the mandatory small business reserve'' at 15 U.S.C. 
644(j).
    Response: The Demonstration Project will not affect the mandatory 
small business set-asides required by 15 U.S.C. 644(j). Text has been 
added in the final rule to clarify that nothing in DFARS subpart 226.72 
supersedes the requirement to use the small business programs in FAR 
part 19, Small Business Programs, or the mandatory sources in FAR part 
8, Required Sources of Supplies and Services.
b. Credit Toward the Small Disadvantaged Business Goal
    Comment: Two respondents objected to allowing DoD to receive credit 
toward its small disadvantaged business goal for contracts awarded 
under the Demonstration Project, since such credit should only be 
allowed for awards to small businesses that qualify as disadvantaged 
under the Small Business Administration's rules. One respondent 
commented that it appears prime contractors who are not eligible 
contractors under the Demonstration Project could obtain credit toward 
their small disadvantaged business subcontracting goal for subcontracts 
awarded to eligible contractors. Another respondent recommended 
changing ``may'' to ``shall'' in paragraph (c) of the proposed text at 
DFARS 226.7202 to more closely align with section 853.
    Response: Section 853 of the NDAA for FY 2004 was amended by 
division H, section 110 of the Consolidated Appropriations Act, 2004 
(Pub. L. 108-199), which required that contracts awarded under the 
Demonstration Project to eligible contractors be counted toward DoD's 
small disadvantaged business goal, and that subcontracts awarded to 
eligible contractors under these contracts be counted toward the prime 
contractor's small disadvantaged business goal. Therefore, this final 
rule requires these contracts and subcontracts to be counted toward the 
small disadvantaged business goal.
    DoD contractors can only receive credit toward the small 
disadvantaged business goal for subcontracts to eligible contractors if 
the prime contract was awarded under the Demonstration Project. The 
final rule provides clarification by adding Alternate II for the clause 
at DFARS 252.219-7003, Small Business Subcontracting Plan (DoD 
Contracts), specifically for use in procurements conducted under the 
Demonstration Project. Alternate II will appear in contracts awarded 
under the Demonstration Project, not in any other contracts, so it 
should be clear that this credit is available only if the prime 
contract was awarded under the Demonstration Project.
    DoD agrees that ``may'' should be changed to ``shall'' at DFARS 
226.7202, paragraph (c), as well as in Alternate II of the clause at 
DFARS 252.219-7003, to be consistent with the statute. This change is 
included in the final rule.
c. Update of Systems
    Comment: One respondent stated that the Federal Procurement Data 
System (FPDS) and the Electronic Subcontracting Reporting System (eSRS) 
must be updated to ensure contract awards under the Demonstration 
Project can be accurately reported and counted toward the small 
disadvantaged business goal.
    Response: DoD agrees that FPDS will need to be updated to ensure 
accurate reporting and counting of awards to eligible contractors under 
the Demonstration Project. No change is needed to eSRS. Contractors 
with subcontracting plans will continue to report their achievements 
toward their subcontracting goals in eSRS.
d. Subcontracting Plan Requirement
    Comment: One respondent commented that the subcontracting plan 
requirement may dissuade nontraditional companies from participating in 
the Demonstration Project. Another respondent requested clarification 
that small business subcontracting plans are not required from small 
businesses or AbilityOne nonprofit agencies.
    Response: If a contract awarded under the Demonstration Project 
meets the requirements for a subcontracting plan at FAR 19.702, then a 
subcontracting plan is required. Section 853 does not provide relief 
from this requirement. FAR 19.702 states that subcontracting plans are 
not required from small businesses. It is not necessary to repeat this 
in the DFARS, since DoD contracting officers use the DFARS in 
conjunction with the FAR. Clarification regarding applicability of the 
subcontracting plan requirement to AbilityOne nonprofit agencies is 
outside the scope of this DFARS rule.
e. Limitation on Subcontracting
    Comment: Two respondents requested that DoD limit outsourcing by an 
eligible contractor to 50 percent of the contract amount, similar to 
the limitation on subcontracting that applies to small business.
    Response: The statutory authority for the Demonstration Project 
does not provide limits on subcontracting for eligible contractors. To 
the extent an eligible contractor decides to subcontract part of the 
work under a Demonstration Project contract, there is an incentive for 
them to subcontract to other eligible contractors because they receive 
credit toward their small disadvantaged business subcontracting goal 
for those subcontracts.
5. Eligibility Criteria
a. Verification of Compliance
    Comment: Many respondents expressed concern regarding DoD's ability 
to verify compliance with the eligibility criteria for the 
Demonstration Project. Three respondents recommended independent 
verification of an entity's employment of severely disabled 
individuals. Other respondents commented that self-certification may 
lead to waste, fraud, and abuse, resulting in ``crowding the intended 
beneficiaries out of employment opportunities generated.'' These 
respondents suggested that AbilityOne nonprofits ``could be deemed to 
be compliant'' under the Demonstration Project, but other entities 
should be required to demonstrate compliance with the definition of 
eligible contractor. Another respondent urged DoD to consider 
strengthening the self-certification process for eligible contractors.
    Response: All offerors for procurements conducted under the 
Demonstration Project are required to represent whether they are or are 
not eligible contractors. This representation has value because there 
are criminal and civil penalties for misrepresentations associated with 
Government contracts (see 18 U.S.C. 287 and 31 U.S.C. 3729-3733).
    DoD considered more extensive verification requirements for this 
final

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rule. However, such requirements would be burdensome for contractors 
and for the Government. At this time, DoD does not have sufficient data 
on the use of the Demonstration Project to determine whether this 
burden would be necessary. Therefore, DoD will rely on the 
representation requirement described above until enough data can be 
collected on the Demonstration Project to determine if more extensive 
requirements are needed.
b. Challenges to Representations
    Comment: One respondent recommended that DoD identify an appellate 
body to which awards under the Demonstration Project could be appealed. 
Another respondent commented that there is no way to determine how DoD 
will evaluate offerors for compliance and enforcement and asked if 
offerors would submit a protest for evaluation of another offeror's 
representation. If so, the respondent asked how DoD would examine and 
enforce the protests.
    Response: DoD contracting officers will rely on an offeror's 
representation under the provision at DFARS 252.226-7002. Interested 
parties may file a protest under existing FAR part 33 procedures. Any 
challenge to an entity's representation will be addressed on a case-by-
case basis.
c. Definition of Eligible Contractor
    Comment: Several respondents commented that eligible contractors 
should be required to meet the requirement to employ severely disabled 
individuals at a rate of 33 percent of the contractor's workforce 
throughout the life of the contract. One respondent questioned whether 
the 33 percent requirement applied to the entity's total workforce or 
only to employees for a specific contract, as well as whether it 
applied to full-time and part-time employees. Another respondent 
supported applying the 33 percent requirement to the entity's total 
workforce. One respondent recommended requiring performance of the 
contract by disabled individuals. Another respondent recommended, to 
the extent feasible, clarifying how a contractor can ascertain in good 
faith its compliance with the requirement to offer health insurance and 
retirement plan that are comparable to those offered by entities of 
similar size in its industrial sector or geographic region.
    Response: The 33 percent requirement applies to the entity's total 
workforce. To qualify for a contract under the Demonstration Project, 
eligible contractors are required to employ severely disabled 
individuals at a rate of 33 percent of their total workforce over the 
12-month period prior to issuance of the solicitation. The final rule 
has been revised to require contracting officers to verify whether the 
contractor is still an eligible contractor (e.g., by checking the 
representation in SAM) prior to exercising an option under a contract 
awarded under the Demonstration Project. The contracting officer may 
decide to exercise an option on the contract if the contractor has 
represented that it is not an eligible contractor, but DoD will not 
continue to receive small disadvantaged business credit for that 
contract.
    Regarding health insurance and retirement plans, the final rule 
implements the definition of ``eligible contractor'' consistent with 
the authorizing statute, which allows for variability among industries 
and regions. Entities should be generally aware of benefits packages 
offered by competitors in their own industry and geographic region.
d. Flexible Implementation of Eligibility Criteria
    Comment: Two respondents requested greater clarity and additional 
guidance on possible teaming or subcontracting opportunities to meet 
the eligibility criteria. One of the two respondents noted that initial 
flexibility would be helpful regarding the requirement to employ 
severely disabled individuals at a rate of 33 percent of the entity's 
workforce, e.g., a transition phase of 2 or 3 years building up to 33 
percent or allow a prime contractor and subcontractor working together 
to meet the requirement. The other respondent commented that more 
contractors may participate if there is flexibility in achieving 
eligibility criteria.
    Response: The statutory authority for the Demonstration Project 
specifies that an eligible contractor must employ severely disabled 
individuals at a rate of 33 percent of the entity's total workforce. A 
prime contractor and subcontractor would not qualify as a single entity 
in order to meet the requirement. The use of joint ventures to meet the 
33 percent requirement would be consistent with this final rule.
e. Definition Related to Disabilities
    Comment: Several respondents stated that it was unclear whether 
``severe'' in the definition of ``severely disabled individual'' is 
meant to create a subset of people with disabilities who can be counted 
by eligible contractors, or if anyone with a disability can be counted, 
and recommended adopting the legal definition of blindness in 41 U.S.C. 
8501(1). Another respondent commented that the definition of ``severely 
disabled individual'' does not clarify what would constitute a 
``serious limitation of one or more functional capacities'' or a 
``severe physical or mental impairment.'' Another respondent 
recommended that DoD consider expanding the definition of ``severely 
disabled individual'' to include severely disabled veterans ``to remove 
any uncertainty.''
    Response: The definition of ``severely disabled individual'' comes 
from section 853. Any employee who meets the definition of ``severely 
disabled individual'' in this rule, including veterans, can be counted 
toward the requirement to employ severely disabled individuals at a 
rate of 33 percent of the entity's total workforce.
6. Protected Health Information
    Comment: One respondent recommended the creation of criteria for 
eligible contractors to obtain and maintain protected health 
information in their possession.
    Response: The creation of such criteria is outside the scope of 
this DFARS rule.
7. Use of Evaluation Factor
    Comment: One respondent stated that it is unclear how the 
evaluation factor for the percentage of the entity's workforce that 
consists of severely disabled individuals will be applied if the 
contracting officer is also considering price and technical factors. 
The respondent recommended use of a ``best-value scenario'' and 
expressed support for the use of a rating method in which a higher 
percentage of the workforce results in a higher overall rating. Another 
respondent commented that the evaluation factor should not give an 
advantage to offerors who employ severely disabled individuals at a 
rate of more than 33 percent of their workforce.
    Response: The contracting officer has the discretion to structure 
this evaluation factor in a way that best suits the specific 
procurement. The evaluation factor will be applied as described in the 
solicitation for the specific procurement.
8. Guidance and Training for Contracting Officers
    Comment: One respondent noted that there is no incentive for 
contracting officers to use the Demonstration Project, so it is 
important to educate them about the Demonstration Project and to 
encourage them to use it.
    Response: DoD acknowledges the comment and notes that training is 
considered for DFARS rules as needed.

[[Page 72558]]

9. Vocational Support Services
    Comment: One respondent recommended considering the establishment 
of a requirement for all eligible contractors to provide vocational 
support services for severely disabled individuals to help them 
overcome challenges that impede their ability to obtain and retain 
employment, e.g., vocational rehabilitation, employment retention 
support.
    Response: Establishment of such a requirement is outside the scope 
of this rule.
10. Preemployment Training
    Comment: One respondent recommended including, as part of the 
Demonstration Project, preemployment training for severely disabled 
individuals employed by eligible contractors.
    Response: Inclusion of such training is outside the scope of this 
rule.

C. Other Changes

    The final rule includes minor editorial changes in paragraph (3) of 
the definition of ``eligible contractor'' at 226.7201.

III. Expected Impact of the Rule

    The Demonstration Project allows DoD to provide additional 
contracting opportunities to entities that employ individuals who are 
severely disabled. Procurements under the Demonstration Project must be 
for products and services that are not on the AbilityOne Procurement 
List, or for which the designated central nonprofit agency has granted 
a purchase exception.
    The Demonstration Project is modeled after the Small Business 
Administration's set-aside program, but uniquely includes an incentive 
for Federal contractors to hire people with disabilities who currently 
receive Social Security benefits. Such a demonstration project provides 
opportunities for severely disabled individuals to become gainfully 
employed taxpayers. Employing people with disabilities can be a way to 
offset the effects of an aging and shrinking workforce. In addition, 
people with disabilities bring different perspectives on solving 
problems and adapting to different circumstances. The Demonstration 
Project provides another incentive for both for-profit and nonprofit 
entities to recruit, employ, and retain people with disabilities.
    DoD estimates that there may be approximately 549 procurements 
conducted under the Demonstration Project per year, based on data 
obtained from the Federal Procurement Data System. Specifically, DoD 
examined the number of contracts awarded to nonprofits in product 
service codes (PSCs) that may be suitable for award under the 
Demonstration Project. The selection of PSCs was informed by the 
Conference Report for the NDAA for FY 2004, which authorized the 
Demonstration Project. The Conference Report indicated that Congress 
expected opportunities to exist for the Demonstration Project in 
aerospace end items and components, as well as information technology 
products and services. It is important to note that use of these PSCs 
to estimate the number of procurements that may be conducted under the 
Demonstration Project does not limit such procurements to these PSCs. 
Opportunities may exist for the Demonstration Project in other PSCs.
    DoD obtained data for contracts awarded in the following PSCs:

 
------------------------------------------------------------------------
                  PSC                              Description
------------------------------------------------------------------------
1560...................................  Airframe Structural Components.
All PSCs in Group 16...................  Aerospace Craft Components and
                                          Accessories.
All PSCs in Group 70...................  Information Technology
                                          Equipment (including
                                          firmware), Software, Supplies,
                                          and Support Equipment.
All PSCs in Category D3................  Information Technology and
                                          Telecommunications.
------------------------------------------------------------------------

    In certain PSCs, there is some overlap with the Procurement List 
maintained by the Committee for Purchase From People Who Are Blind or 
Severely Disabled. The areas of overlap generally included a few items 
within a specific PSC, not the entire PSC. Therefore, relevant PSCs 
were included regardless of possible overlap with the Procurement List.
    DoD also used awards to nonprofits as an indicator of suitability 
for the Demonstration Project because of its similarities to the 
AbilityOne Program, in terms of employment of individuals with severe 
disabilities. From FY 2016 through 2018, an average of 0.16 percent of 
those contracts (approximately 90 each year) were awarded to 
nonprofits. Since the Demonstration Project applies to both for-profit 
and nonprofit entities, DoD conservatively estimated that up to 1 
percent of contracts (approximately 549 each year) awarded in those 
PSCs may be suitable for the Demonstration Project.
    This rule requires offerors for procurements conducted under the 
Demonstration Project to represent whether they are or are not eligible 
contractors as defined in the rule. Offerors will complete the 
representation in SAM. The cost associated with the representation is 
expected to be de minimis and is within the estimate of public burden 
for OMB Control Number 9000-0159, System for Award Management 
Registration.

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

    This rule applies the requirements of section 853 of the NDAA for 
FY 2004 (Pub. L. 108-136), as amended by division H, section 110 of the 
Consolidated Appropriations Act, 2004 (Pub. L. 108-199) (10 U.S.C. 2302 
note), to contracts at or below the SAT and to contracts for the 
acquisition of commercial items, including COTS 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.

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

    10 U.S.C. 2375 governs the applicability of laws to DoD contracts 
and subcontracts for the acquisition of commercial items (including 
commercially available off-the-shelf items) and is intended to limit 
the applicability of laws to contracts for the acquisition of 
commercial items, including COTS 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 for Acquisition and Sustainment (USD(A&S)) 
makes a written determination that it is not in the best interest of 
the Federal Government to exempt commercial item contracts, the 
provision of law will apply to contracts for the acquisition of 
commercial items. Due to delegations of authority from

[[Page 72559]]

USD(A&S), the Principal Director, DPC, is the appropriate authority to 
make this determination.

C. Determinations

    The requirements of section 853 of the NDAA for FY 2004, as amended 
by division H, section 110 of the Consolidated Appropriations Act, 
2004, were enacted to provide defense contracting opportunities for 
contractors employing persons with disabilities. The majority of 
contracts that could be awarded under the Demonstration Project are 
likely to be valued at or below the SAT. Similarly, the majority of the 
products and services offered by these contractors are commercial 
items, including COTS items. Therefore, DoD has determined that it is 
in the best interest of the Federal Government to apply the rule to 
contracts valued at or below the SAT and contracts for the acquisition 
of commercial items, including COTS items. It is expected that 
contracting officers would likely be unable to utilize the 
Demonstration Project established by Congress, if this rule is not 
applied to these categories of contracts.

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 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 not subject to the requirements of E.O. 13771, because 
this rule will result in no more than de minimis costs.

VII. Regulatory Flexibility Act

    A final regulatory flexibility analysis (FRFA) has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
The FRFA is summarized as follows:
    DoD is amending the DFARS to include an instruction on the 
Demonstration Project for Contractors Employing Persons with 
Disabilities, as required by section 888 of the National Defense 
Authorization Act for Fiscal Year 2019 (Pub. L. 115-232). The 
Demonstration Project allows DoD to provide defense contracting 
opportunities to entities that employ individuals who are severely 
disabled. Nothing in this final DFARS rule supersedes the requirement 
to use the mandatory sources in FAR part 8 or the small business 
programs in FAR part 19.
    There were no significant issues raised by the public in response 
to the initial regulatory flexibility analysis.
    The rule will apply to entities, including small entities, that 
meet the definition of ``eligible contractor'' in the rule and that are 
interested in competing for contracts under the Demonstration Project. 
Specifically, an eligible contractor is one that employs severely 
disabled individuals at a rate of no less than 33 percent of the 
contractor's workforce over a 12-month period prior to issuance of the 
solicitation; pays not less than the minimum wage to those individuals; 
and provides health insurance and a retirement plan comparable to those 
provided by similar entities. The entity may operate on a for-profit or 
nonprofit basis.
    According to data in FPDS, DoD awarded contracts to approximately 
4,065 small entities each year from FY 2016 to FY 2018 in product and 
service codes (PSCs) that may be suitable for award under the 
Demonstration Project, such as aerospace components and accessories and 
information technology equipment and services. DoD conservatively 
estimates that approximately 21 percent, or 870 small entities, may 
meet the definition of ``eligible contractor'' and be interested in 
competing for contracts under the Demonstration Project.
    This rule requires offerors to represent whether they are or are 
not eligible contractors under the Demonstration Project. This 
representation will be available for completion in SAM and will be 
completed on an annual basis. This rule does not impose any additional 
recordkeeping or other compliance requirements for small entities.
    DoD considered more extensive recordkeeping requirements related to 
the definition of ``eligible contractor,'' particularly with regard to 
the percentage of the entity's workforce that consists of severely 
disabled individuals. Such recordkeeping requirements would be 
burdensome for small entities. At this time, DoD does not have 
sufficient data on the use of the Demonstration Project to determine 
whether this burden would be necessary. Therefore, DoD will rely on the 
representation requirement described above until sufficient data can be 
collected on the Demonstration Project to determine if more extensive 
requirements are needed.

VIII. Paperwork Reduction Act

    This rule affects the information collection requirements in the 
provision at FAR 52.204-7, System for Award Management, and in the 
clause at FAR 52.204-13, System for Award Management Maintenance, 
currently approved under OMB Control Number 9000-0159, entitled System 
for Award Management Registration, in accordance with the Paperwork 
Reduction Act (44 U.S.C. chapter 35). The impact, however, is 
negligible, because the cost of providing the additional representation 
in SAM is de minimis and is within the estimate of public burden 
approved for OMB Control Number 9000-0159.

List of Subjects in 48 CFR Parts 204, 212, 215, 219, 226, and 252

    Government procurement.

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

    Therefore, 48 CFR parts 204, 212, 215, 219, 226, and 252 are 
amended as follows:

0
1. The authority citation for 48 CFR parts 204, 212, 215, 219, 226, and 
252 continues to read as follows:

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

PART 204--ADMINISTRATIVE MATTERS

0
2. Amend section 204.1202 by--
0
a. Redesignating paragraphs (2)(xii), (xiii), and (xiv) as paragraphs 
(2)(xiii), (xiv), and (xv), respectively; and
0
b. Adding new paragraph (xii).
    The addition reads as follows:


204.1202   Solicitation provision.

* * * * *
    (2) * * *
    (xi) 252.226-7002, Representation for Demonstration Project for 
Contractors Employing Persons with Disabilities.
* * * * *

PART 212--ACQUISITION OF COMMERCIAL ITEMS

0
3. Amend section 212.301(f) by-
0
a. Adding paragraph (vii)(A)(3); and
0
b. In paragraph (x), designating the text as paragraph (A) and adding a 
new paragraph (B).
    The additions read as follows:

[[Page 72560]]

212.301   Solicitation provisions and contract clauses for the 
acquisition of commercial items.

* * * * *
    (f) * * *
    (vii) * * *
    (A) * * *
    (3) Use the alternate II clause as prescribed in 
219.708(b)(1)(A)(3).
* * * * *
    (x) * * *
    (B) Use the provision at 252.226-7002, Representation for 
Demonstration Project for Contractors Employing Persons with 
Disabilities, as prescribed in 226.7203.

PART 215--CONTRACTING BY NEGOTIATION

0
4. Amend section 215.304 by adding paragraph (c)(vii) to read as 
follows:


215.304   Evaluation factors and significant subfactors.

    (c) * * *
    (vii) See 226.7202 for an additional evaluation factor required in 
solicitations when using the Demonstration Project for Contractors 
Employing Persons with Disabilities.

PART 219--SMALL BUSINESS PROGRAMS

0
5. Amend section 219.708 by-
0
a. In paragraph (b)(1)(A) introductory text, removing ``basic or 
alternate clause'' and adding ``basic, alternate I, or alternate II 
clause'' in its place; and
0
b. Adding paragraph (b)(1)(A)(3).


219.708   Contract clauses.

    (b) * * *
    (1) * * *
    (A) * * *
    (3) Use the alternate II clause at 252.219-7003 when using the 
Demonstration Project described at 226.72.
* * * * *

PART 226--OTHER SOCIOECONOMIC PROGRAMS

0
6. Add subpart 226.72, consisting of 226.7200 through 226.7203, to read 
as follows:
Subpart 226.72--Demonstration Project for Contractors Employing Persons 
With Disabilities
Sec.
226.7200 Scope of subpart.
226.7201 Definitions.
226.7202 Policy and procedures.
226.7203 Solicitation provision.

Subpart 226.72--Demonstration Project for Contractors Employing 
Persons With Disabilities


226.7200   Scope of subpart.

    This subpart implements section 853 of the National Defense 
Authorization Act for Fiscal Year 2004 (Pub. L. 108-136, 10 U.S.C. 2302 
note). Nothing in this subpart supersedes the requirement to use the 
mandatory sources in FAR part 8 or the small business programs in FAR 
part 19.


226.7201   Definitions.

    As used in this subpart--
    Eligible contractor means a business entity operated on a for-
profit or nonprofit basis that--
    (1) Employs severely disabled individuals at a rate that averages 
not less than 33 percent of its total workforce over the 12-month 
period prior to issuance of the solicitation;
    (2) Pays not less than the minimum wage prescribed pursuant to 29 
U.S.C. 206 to the employees who are severely disabled individuals; and
    (3) Provides, for its employees, health insurance and a retirement 
plan comparable to those provided for employees by business entities of 
similar size in its industrial sector or geographic region.
    Severely disabled individual means an individual with a disability 
(as defined in 42 U.S.C. 12102) who has a severe physical or mental 
impairment that seriously limits one or more functional capacities.


226.7202   Policy and procedures.

    (a)(1) Contracting officers may use this Demonstration Project to 
award one or more contracts to an eligible contractor for the purpose 
of providing defense contracting opportunities for entities that employ 
severely disabled individuals. To determine if there are eligible 
contractors capable of fulfilling the agency's requirement, conduct 
market research as described in 210.002 and FAR 10.002. For services, 
see also PGI 210.070.
    (2) If the contracting officer elects to use this Demonstration 
Project, FAR 6.302-5 requires a written justification and approval to 
limit competition to eligible contractors. In the justification, 
identify the statutory authority for the Demonstration Project (10 
U.S.C. 2302 note).
    (b) When using this Demonstration Project, one of the evaluation 
factors shall be the percentage of the offeror's total workforce that 
consists of severely disabled individuals employed by the offeror. 
Contracting officers may use a rating method in which a higher 
percentage of the offeror's total workforce consisting of severely 
disabled individuals would result in a higher rating for this 
evaluation factor.
    (c)(1) Contracts awarded to eligible contractors under this 
Demonstration Project shall be counted toward DoD's small disadvantaged 
business goal. The contractor must be an eligible contractor when 
options under the contract are exercised, in order for DoD to continue 
to receive credit for the contract toward its small disadvantaged 
business goal.
    (2) Contracting officers shall verify the contractor's 
representation (e.g., by checking the System for Award Management) 
prior to exercising an option on a contract awarded under the 
Demonstration Project. Contracting officers may exercise the option if 
the contractor has represented that it is not an eligible contractor; 
however, the contract shall no longer be counted toward DoD's small 
disadvantaged business goal.


226.7203   Solicitation provision.

    Use the provision at 252.226-7002, Representation for Demonstration 
Project for Contractors Employing Persons with Disabilities, in 
solicitations when using this Demonstration Project, including 
solicitations using FAR part 12 procedures for the acquisition of 
commercial items.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
7. Amend section 252.204-7007 by--
0
a. Removing clause date ``(JUN 2019)'' and adding ``(DEC 2019)'' in its 
place; and
0
b. Adding paragraph (d)(2)(vi).
    The addition reads as follows:


252.204-7007   Alternate A, Annual Representations and Certifications.

* * * * *
    (d) * * *
    (2) * * *
    ____(vi) 252.226-7002, Representation for Demonstration Project for 
Contractors Employing Persons with Disabilities.
* * * * *

0
8. Amend section 252.219-7003 by-
0
a. Removing clause date ``(MAY 2019)'' and adding ``(DEC 2019)'' in its 
place;
0
b. In paragraph (b), removing ``goal'' and adding ``goal (section 8025 
of Pub. L. 108-87)'' in its place;
0
c. In paragraph (d), removing ``Contractor's cognizant contract 
administration activity'' and adding ``cognizant contract 
administration activity for the Contractor''.

[[Page 72561]]

0
d. In the Alternate I clause--
0
i. Removing clause date ``(MAY 2019)'' and adding ``(DEC 2019)'' in its 
place;
0
ii. In paragraph (b), removing ``goal'' and adding ``goal (section 8025 
of Pub. L. 108-87)'' in its place;
0
iii. In paragraph (d), removing ``Contractor's cognizant contract 
administration activity'' and adding ``cognizant contract 
administration activity for the Contractor''; and
0
e. Adding Alternate II clause to read as follows:


252.219-7003   Small Business Subcontracting Plan (DoD Contracts).

* * * * *
    Alternate II. As prescribed in 219.708(b)(1)(A) and (b)(1)(A)(3), 
use the following clause, which uses different paragraphs (a) and (b) 
than the basic clause.
Small Business Subcontracting Plan (DoD Contracts)--Alternate II (Dec 
2019)
    (a) Definitions. As used in this clause--
    Eligible contractor means a business entity operated on a for-
profit or nonprofit basis that--
    (1) Employs severely disabled individuals at a rate that 
averages not less than 33 percent of its total workforce over the 
12-month period prior to issuance of the solicitation;
    (2) Pays not less than the minimum wage prescribed pursuant to 
29 U.S.C. 206 to the employees who are severely disabled 
individuals; and
    (3) Provides, for its employees, health insurance and a 
retirement plan comparable to those provided for employees by 
business entities of similar size in its industrial sector or 
geographic region.
    Summary Subcontract Report (SSR) Coordinator means the 
individual who is registered in the Electronic Subcontracting 
Reporting System (eSRS) at the Department of Defense level and is 
responsible for acknowledging receipt or rejecting SSRs submitted 
under an individual subcontracting plan in eSRS for the Department 
of Defense.
    (b)(1) Subcontracts awarded to qualified nonprofit agencies 
designated by the Committee for Purchase From People Who are Blind 
or Severely Disabled (41 U.S.C. 8502-8504), may be counted toward 
the Contractor's small business subcontracting goal (section 8025 of 
Pub. L. 108-87).
    (2) Subcontracts awarded to eligible contractors under the 
Demonstration Project for Contractors Employing Persons with 
Disabilities (see Defense Federal Acquisition Regulation Supplement 
(DFARS) 226.72) may be counted toward the Contractor's small 
disadvantaged business subcontracting goal (section 853 of Pub. L. 
108-136, as amended by division H, section 110 of Pub. L. 108-199).
    (c) A mentor firm, under the Pilot Mentor-Protege Program 
established under section 831 of Public Law 101-510, may count 
toward its small disadvantaged business goal, subcontracts awarded 
to--
    (1) Protege firms which are qualified organizations employing 
the severely disabled; and
    (2) Former protege firms that meet the criteria in section 
831(g)(4) of Public Law 101-510.
    (d) The master plan is approved by the cognizant contract 
administration activity for the Contractor.
    (e) In those subcontracting plans which specifically identify 
small businesses, the Contractor shall notify the Administrative 
Contracting Officer of any substitutions of firms that are not small 
business firms, for the small business firms specifically identified 
in the subcontracting plan. Notifications shall be in writing and 
shall occur within a reasonable period of time after award of the 
subcontract. Contractor-specified formats shall be acceptable.
    (f)(1) For DoD, the Contractor shall submit reports in eSRS as 
follows:
    (i) The Individual Subcontract Report (ISR) shall be submitted 
to the contracting officer at the procuring contracting office, even 
when contract administration has been delegated to the Defense 
Contract Management Agency.
    (ii) Submit the consolidated SSR for an individual 
subcontracting plan to the ``Department of Defense.''
    (2) For DoD, the authority to acknowledge receipt or reject 
reports in eSRS is as follows:
    (i) The authority to acknowledge receipt or reject the ISR 
resides with the contracting officer who receives it, as described 
in paragraph (f)(1)(i) of this clause.
    (ii) The authority to acknowledge receipt of or reject SSRs 
submitted under an individual subcontracting plan resides with the 
SSR Coordinator.
    (g) Include the clause at DFARS 252.219-7004, Small Business 
Subcontracting Plan (Test Program), in subcontracts with 
subcontractors that participate in the Test Program described in 
DFARS 219.702-70, if the subcontract is expected to exceed the 
applicable threshold specified in Federal Acquisition Regulation 
19.702(a) and to have further subcontracting opportunities.


(End of clause)

0
9. Add section 252.226-7002 to read as follows:


252.226-7002   Representation for Demonstration Project for Contractors 
Employing Persons with Disabilities.

    As prescribed in 226.7203, use the following provision:
Representation for Demonstration Project for Contractors Employing 
Persons With Disabilities (Dec 2019)
    (a) Definitions. As used in this provision--
    Eligible contractor means a business entity operated on a for-
profit or nonprofit basis that--
    (1) Employs severely disabled individuals at a rate that 
averages not less than 33 percent of its total workforce over the 
12-month period prior to issuance of the solicitation;
    (2) Pays not less than the minimum wage prescribed pursuant to 
29 U.S.C. 206 to the employees who are severely disabled 
individuals; and
    (3) Provides, for its employees, health insurance and a 
retirement plan comparable to those provided for employees by 
business entities of similar size in its industrial sector or 
geographic region.
    Severely disabled individual means an individual with a 
disability (as defined in 42 U.S.C. 12102) who has a severe physical 
or mental impairment that seriously limits one or more functional 
capacities.
    (b) Demonstration Project. This solicitation is issued pursuant 
to the Demonstration Project for Contractors Employing Persons with 
Disabilities. The purpose of the Demonstration Project is to provide 
defense contracting opportunities for entities that employ severely 
disabled individuals. To be eligible for award, an offeror must be 
an eligible contractor as defined in paragraph (a) of this 
provision.
    (c) Representation. The offeror represents that it [] is [] is 
not an eligible contractor as defined in paragraph (a) of this 
provision.


(End of provision)

[FR Doc. 2019-27826 Filed 12-30-19; 8:45 am]
 BILLING CODE 5001-06-P