Federal Acquisition Regulation: Revision of Limitations on Subcontracting, 44233-44246 [2021-16364]

Agencies

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

[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Rules and Regulations]
[Pages 44233-44246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16364]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 19 and 52

[FAC 2021-07; FAR Case 2016-011; Item II; 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: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to implement revised and 
standardized limitations on subcontracting, including the 
nonmanufacturer rule, that apply to small business concerns.

DATES: Effective September 10, 2021.

FOR FURTHER INFORMATION CONTACT: Ms. Mahruba Uddowla, Procurement 
Analyst, at 703-605-2868 or by email at [email protected], for 
clarification of content. For information pertaining to status or 
publication schedules, contact the Regulatory Secretariat Division at 
202-501-4755 or [email protected]. Please cite FAC 2021-07, FAR Case 
2016-011.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published a proposed rule at 83 FR 62540 on 
December 4, 2018, 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, which became effective 
on June 30, 2016. SBA's final rule implements the statutory 
requirements of section 1651 of the National Defense Authorization Act 
(NDAA) for Fiscal Year (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. Twenty-nine respondents submitted comments on the proposed 
rule.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the public comments in the 
development of the final rule. A discussion of the comments and the 
changes made to the rule as a result of those comments are provided as 
follows:

A. Summary of Significant Changes

    This final rule makes the following significant changes from the 
proposed rule:
     The definition of ``similarly situated entity''. The 
definition of ``similarly situated entity'' is revised at FAR 19.001 
and in FAR clause 52.219-14, Limitations on Subcontracting. It now 
provides an example of entities having the same small business program 
status and to specify that the entity must be small under the size 
standard associated with the North American Industry Classification 
System (NAICS) code the prime contractor assigned to the subcontract.
     Applicable dollar threshold. The final rule reflects the 
clarification that the nonmanufacturer rule and the limitations on 
subcontracting apply to set-asides and sole source awards made pursuant 
to subparts 19.8, 19.13, 19.14, and 19.15, as well as awards using the 
HUBZone price evaluation preference pursuant to subpart 19.13, 
regardless of dollar value.
     HUBZone price evaluation preference.
    [cir] Paragraph (e)(2) is added to FAR 19.507, Solicitation 
provisions and contract clauses, to clarify that, in solicitations and 
contracts using the HUBZone price evaluation preference, the 
contracting officer shall insert the clause at FAR 52.219-14, 
Limitations on Subcontracting. Paragraph (h)(1)(ii)(B) is added to 
specify that the contracting officer shall insert the clause at FAR 
52.219-33, Nonmanufacturer Rule, in solicitations and contracts when 
the HUBZone price evaluation preference is used. For the FAR clauses at 
52.219-14 and 52.219-33, the prescription also states that the 
contracting officer shall not insert the clause in the resultant 
contract if the prospective contractor waived the use of the price 
evaluation preference or is an other than small business.
    [cir] The clause at FAR 52.219-4, Notice of Price Evaluation 
Preference for HUBZone Small Business Concerns, is revised to remove 
the proposed rule definition of ``similarly situated entity'', and to 
delete (instead of revising) the new redundant paragraphs (d) and (e), 
which pertained to the limitation on subcontracting.
     Limitations on Subcontracting. FAR clause 52.219-14, 
Limitations on Subcontracting, is revised to clarify that

[[Page 44234]]

this clause applies to contracts using the HUBZone price evaluation 
preference to award to a HUBZone small business concern unless the 
concern waived the evaluation preference. Additionally, to provide 
clarification on calculating the 50 percent limitation for contracts 
that include both services and supplies (i.e., ``mixed contracts''), 
paragraph (e)(1) of the clause at FAR 52.219-14 is revised to specify 
that when a contract is assigned a NAICS code for services, the 50 
percent limitation shall only apply to the services portion of the 
contract. Paragraph (e)(2) is revised to specify that when a contract 
is assigned a NAICS code for supplies, the 50 percent limitation shall 
only apply to the supply portion of the contract.
     Nonmanufacturer Rule. FAR clause 52.219-33, 
Nonmanufacturer Rule, is revised to clarify the clause applies to 
contracts using the HUBZone price evaluation preference to award to a 
HUBZone small business concern unless the concern waived the evaluation 
preference. Paragraph (c)(2) is revised to remove text concerning an 
item for a kit that is not produced by small business concerns in the 
United States or its outlying areas.
     Revisions to include recent FAR changes. Prior to 
publication of this final rule, FAR part 19 and its associated 
provisions and clauses were substantially revised as a result of FAC 
2020-05 (published February 27, 2020, and effective March 30, 2020). As 
a result, some revisions in the proposed rule are no longer included in 
this final rule, because the revisions have already been made to the 
FAR in FAC 2020-05. Other revisions appear in a different location due 
to the changed landscape of FAR part 19. The final rule also contains 
revisions that were not in the proposed rule due to changes made in FAC 
2020-05. For example, prior to March 30, 2020, the FAR did not include 
coverage of the limitations on subcontracting and nonmanufacturer rule 
in subparts 19.8, 19.13, 19.14, and 19.15; FAC 2020-05 added coverage 
tailored for each of those subparts. Due to the standardization of the 
limitations on subcontracting and nonmanufacturer rule, this final rule 
removes the coverage from those subparts and consolidates the coverage 
in subpart 19.5. In addition, as of March 30, 2020, FAR part 19 
includes coverage for orders issued directly to one small business 
under a reserve. This final rule provides guidance on the applicability 
of the limitations on subcontracting and nonmanufacturer rule for this 
new topic.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: Several respondents expressed support for the rule.
    Response: The Councils acknowledge the expressions of support.
2. Faster Implementation
    Comment: Several respondents expressed disappointment at the time 
it took to publish the proposed rule. More specifically, two 
respondents noted that it had taken over 2 years to publish the 
proposed rule. One respondent requested immediate implementation of the 
rule by means of a class deviation for the civilian agencies or an 
``interim final rule,'' noting that it is burdensome for small 
businesses if one agency has a class deviation in place while others do 
not. Another respondent also requested issuance of an ``interim final 
rule'' and recommended that the FAR Council coordinate with SBA on 
SBA's pending rulemaking and issue its own final rule that matches 
SBA's final rule.
    Response: The Councils acknowledge the length of time between the 
opening of FAR case 2016-011 and publication of the proposed rule. More 
time was required to publish the proposed rule due to changes in the 
rulemaking process that occurred in 2017 to more fully consider the 
regulatory or deregulatory impact of the rulemaking. The Councils have 
taken steps to try to shorten the time required to implement SBA's 
rules in the FAR. Beginning in 2019, the Councils started working on 
proposed FAR rules after SBA publishes a proposed rule, instead of 
waiting for a final rule from SBA. This approach should allow more 
timely publication of FAR rules implementing SBA rules.
3. Simplified Acquisition Threshold vs. Dollar Value
    Comment: Several respondents recommended changing all references to 
``$150,000'' to ``the simplified acquisition threshold (SAT).'' 
Furthermore, two respondents highlighted the fact that SBA updated its 
regulation at 13 CFR 121.406(d) to reference the term ``the simplified 
acquisition threshold'' and that the FAR at 48 CFR 2.101 contains the 
definition of the SAT.
    Response: This final rule has been revised to include recent 
amendments to the FAR, including the removal of many of the references 
to the dollar value ``$150,000'' (reference FAC 2020-05).
4. Other Pending FAR Rules
    Comment: Two respondents pointed out that the proposed text for FAR 
52.219-4(e) does not account for the joint venture options afforded to 
HUBZone small business concerns under SBA's regulations and requires 
further revisions to bring the clause into alignment with SBA's 
limitations on subcontracting rules for HUBZone joint ventures. 
Specifically, the respondents are concerned the SBA's requirement that 
a HUBZone joint venture partner perform 40 percent of the joint 
venture's work, is not being addressed.
    Response: A separate FAR case, 2017-019, Policy on Joint Ventures, 
will address the respondents' concern. The final rule will address the 
policy that a HUBZone joint venture partner must perform 40 percent of 
the joint venture's work.
5. HUBZone Price Evaluation Preference
    Comment: One respondent stated that the clause at FAR 52.219-4 
places HUBZone distributors at a significant disadvantage by 
effectively preventing them from taking advantage of the HUBZone price 
evaluation preference, because it is not possible for a HUBZone 
nonmanufacturer to obtain a waiver of the nonmanufacturer rule from SBA 
for a full-and-open contract. The respondent also stated that the 
HUBZone nonmanufacturer should be permitted to supply a product of any 
business when utilizing the HUBZone price evaluation preference. The 
respondent further stated that if the clause at FAR 52.219-4 continues 
to require full compliance with the nonmanufacturer rule for HUBZone 
distributors, then the waiver rules must be modified to permit SBA to 
issue a waiver of the nonmanufacturer rule, upon request of a HUBZone 
firm, for a full and open contract when the price evaluation preference 
is utilized. The respondent further stated that if HUBZone distributors 
are not permitted to supply products of any size business, the clause 
at FAR 52.219-4 should be modified to permit HUBZone distributors to 
provide products of any type of small business rather than the current 
requirement to supply products made by other HUBZone small businesses.
    Response: This final rule is implementing SBA's final rule 
published in the Federal Register at 81 FR 34243 on May 31, 2016, and 
the changes requested by the respondent would not be consistent with 
that SBA rule. An award made using the HUBZone price evaluation 
preference is considered a HUBZone contract (see 13 CFR 126.600(c) and 
FAR 2.101). SBA's regulations regarding the limitations on 
subcontracting and the nonmanufacturer rule apply to

[[Page 44235]]

HUBZone contracts (see 13 CFR 125.6). The Councils have updated the 
final rule at FAR 19.507(e) and (h) to clarify that solicitations and 
contracts using the HUBZone price evaluation preference to award to a 
HUBZone small business concern must include the FAR clauses at 52.219-
14, Limitations on Subcontracting, and 52.219-33, Nonmanufacturer Rule. 
The Councils have also updated the paragraphs entitled 
``Applicability'' in these clauses to clarify their applicability to 
contracts awarded to a HUBZone small business concern using the HUBZone 
price evaluation preference and that the limitations on subcontracting 
and nonmanufacturer rule do not apply if the price evaluation 
preference is waived by the offeror.
6a. Similarly Situated Entities--Definition
    Comment: One respondent requested clarification on which 
subcontractors count as similarly situated entities. The respondent 
specifically requested additional examples regarding ``standard small 
business set-asides.''
    Response: SBA's regulation at 13 CFR 125.1 states that ``for small 
business set-aside, partial set-aside, or reserve'' a similarly 
situated entity is ``a subcontractor that is a small business 
concern.'' Therefore, the definition of ``similarly situated entity'' 
in this final FAR rule has been revised to clarify that, for a small 
business set-aside, a similarly situated entity is a small business, 
without regard to socioeconomic status.
6b. Similarly Situated Entities--Loophole for 8(a) Participants
    Comment: One respondent stated the proposed rule circumvents FAR 
19.808-1(e) by allowing a new ANC or Indian Tribe to win a sole-source 
follow-on contract and then to subcontract it to the incumbent without 
competing it, which would increase costs to the Government. The 
respondent requested language be added to FAR 52.219-14(e)(1) through 
(4) to prohibit treatment of such a subcontractor as a similarly 
situated entity.
    Response: The FAR does not direct subcontracting decisions of prime 
contractors. Additionally, SBA's regulation does not provide that a 
prime contractor must compete a subcontract before it can award a 
subcontract, whether or not the award is to a similarly situated 
entity. This final rule will not be revised to incorporate the 
requested language as the rule is consistent with SBA's regulations.
6c. Treatment of Similarly Situated Entity Subcontractors
    Comment: One respondent acknowledged the proposed rule properly 
provides that first-tier subcontracts awarded to a ``similarly situated 
entity'' are excluded from the calculation of the 50 percent 
subcontract amount that cannot be exceeded. However, the respondent 
points out, the clauses then provide that all work further 
subcontracted by such similarly situated entity does count toward the 
50 percent subcontract amount that cannot be exceeded. The respondent 
believes this formulation creates an inconsistency among small business 
programs and an administrative burden for prime contractors and urges 
that this further limitation be deleted.
    Response: SBA's regulation at 13 CFR 125.6(c) limits similarly 
situated entities to the first-tier subcontractors. Therefore, this 
final rule also contains this limitation. Determining compliance with 
the limitations on subcontracting by including in the calculation 
subcontracts beyond the prime contractor and first-tier subcontractor 
creates the possibility that the first-tier subcontractor may 
subcontract 100% of the work it received from the prime to an entity 
that is not similarly situated. This would create a loophole for 
entities that are not small business concerns and would not have 
qualified to receive the prime contract, to benefit as subcontractors 
from Government contracts that are set aside for performance by small 
business concerns. To address these concerns, SBA's regulations apply 
the limitations on subcontracting collectively to the prime and any 
similarly situated first-tier subcontractor. Any work performed by a 
similarly situated first-tier subcontractor will count toward 
compliance with the applicable limitation on subcontracting. For 
purposes of determining whether the prime and its subcontractor 
complied with the applicable limitation on subcontracting, work that is 
not performed by the employees of the prime contractor or employees of 
first-tier similarly situated subcontractors will count as subcontracts 
performed by non-similarly situated entities. Using similarly situated 
subcontractors gives the prime contractor greater flexibility but does 
require monitoring and oversight by the prime contractor to ensure the 
benefits flow to the intended recipients. The final rule has been 
revised at FAR 52.219-14 to provide additional clarity on this issue.
6d. Similarly Situated Entities--Interpretation of the Rule
    Comment: One respondent requested clarification of its 
understanding of the proposed rule regarding the prime contractor not 
completing 50 percent of the work because it subcontracted to a 
similarly situated entity.
    Response: A prime contractor may subcontract more than 50 percent 
of the work to a similarly situated entity and still comply with the 
limitations on subcontracting. SBA's regulation at 13 CFR 125.6(c) 
provides three examples to illustrate when the prime contractor meets, 
or fails to meet, the limitations on subcontracting. One example 
describes an award for supplies to a service-disabled veteran-owned 
small business (SDVOSB) that subcontracts to a similarly situated 
entity for 51 percent of the work, which does not violate the 
limitations on subcontracting. However, any work that the similarly 
situated entity further subcontracts will be counted toward the 50 
percent subcontract limit.
7a. Application of the Limitations on Subcontracting and 
Nonmanufacturer Rule at or Below the SAT
    Comment: Two respondents submitted substantially similar comments 
suggesting that set-asides below the SAT in all small business and 
small business socioeconomic categories should be exempt from any 
limitations on subcontracting, including the nonmanufacturer rule. 
Another respondent stated the original intent of the nonmanufacturer 
rule was to promote U.S. innovation in manufacturing and technology by 
allowing small U.S. manufacturers to compete with large business for 
Federal Government contracts. This respondent also stated the recent 
SBA change to raise the value of application of the nonmanufacturer 
rule to the SAT contradicts this intent and threatens the U.S. Defense 
Industrial Base.
    Response: This rule implements SBA's policy on the limitations on 
subcontracting and the nonmanufacturer rule. The rule reflects distinct 
statutory authorities for setting aside small business procurements and 
small business socioeconomic category procurements below and above the 
threshold at 15 U.S.C. 644(j).
    For small business socioeconomic category procurements (i.e., a 
set-aside or sole source contract for 8(a) participants, women-owned 
small businesses, HUBZone small businesses, or SDVOSBs), the 
limitations on subcontracting, and the nonmanufacturer rule, apply to

[[Page 44236]]

procurements regardless of contract value. The Small Business Act at 15 
U.S.C. 657s established the applicability of the limitations on 
subcontracting and the nonmanufacturer rule for contracts awarded to 
``covered'' small business (or socioeconomic category) concerns ``under 
section 637(a), 637(m), 644(a), 657a, or 657f'' of Title 15. Contracts 
with ``covered'' concerns under 15 U.S.C. 637(a), 637(m), 657a, and 
657f include set-aside or sole source contracts, and any evaluation-
preference contracts, regardless of dollar value, for specific small 
business socioeconomic categories, i.e., small disadvantaged businesses 
participating in the section 8(a) business development program, women-
owned small businesses, HUBZone small businesses, and SDVOSBs.
    Set-aside contracts with small business concerns below the 
threshold (i.e., the simplified acquisition threshold) at 15 U.S.C. 
644(j) are not designated as ``covered'' in section 657s (see SBA's 
implementing regulations 13 CFR 125.6(a)). For this reason, contracts 
resulting from small business set-asides below this threshold would be 
exempt from the limitations on subcontracting and the nonmanufacturer 
rule.
7b. Application of the Limitations on Subcontracting and 
Nonmanufacturer Rule to Commercial Items
    Comment: Two respondents commented that the limitations on 
subcontracting, including those related to the nonmanufacturer rule, 
should not apply to acquisitions for commercial items and commercially 
available off-the-shelf (COTS) items because the complex and confusing 
limits conflict with the straightforward nature of commercial and COTS 
acquisitions.
    Response: The Councils do not concur with this comment. Section 
1651 of the NDAA for FY 2013 is silent on its applicability to 
commercial and COTS items. The corresponding final rule implemented by 
the SBA in its regulation did not exempt acquisitions of commercial or 
COTS items from the limitations on subcontracting. Further, the 
revisions to the limitations on subcontracting reflected in this final 
FAR rule actually facilitate access to the Federal marketplace for 
small businesses, simplify the process of tracking costs spent by prime 
contractors on subcontractors, and make the application of limitations 
on subcontracting consistent across the small business programs. 
Exclusion of acquisitions for commercial and COTS items will limit the 
full realization of these improvements for small businesses and hinder 
their participation in Federal procurements as both prime contractors 
and subcontractors.
8. Limitations on Subcontracting Too Restrictive
    Comment: One respondent suggests the proposed rule restricts 
opportunities for small businesses and discourages subcontracting 
arrangements. The same respondent recommends eliminating all 
limitations between prime contractors and subcontractors, regardless of 
business size.
    Response: The rule does not restrict small business subcontracting 
opportunities nor does it discourage subcontracting arrangements. 
Rather, the proposed rule provides small businesses with greater 
flexibility in how they choose to comply with the limitations on 
subcontracting. Moreover, the new rules make it easier for small 
business prime contractors to do business with Federal agencies by 
giving them more choices that are less burdensome and less costly for 
pursuing and winning larger contracts than before. The rule implements 
an SBA final rule intended to ensure that the benefits of set-aside 
contracts flow to the intended beneficiaries. The recommended 
elimination of all limitations on subcontracting is counter to that 
intent and is beyond the scope of this rule.
9. Mixed Contracts
    Comment: One respondent noted that 13 CFR 125.6(b) discusses the 
limitations on subcontracting with respect to mixed contracts (i.e., 
contracts for both supplies and services). The proposed revision to the 
clause at FAR 52.219-14 failed to address mixed contracts. The 
respondent proposed bringing the FAR into alignment with SBA's 
regulation by adding another subparagraph to address mixed contracts.
    Response: According to SBA's final rule published in the Federal 
Register at 81 FR 34243, on May 31, 2016, SBA's regulation at 13 CFR 
125.6(b) states that, ``where a contract combines services and 
supplies, the contracting officer shall select the appropriate NAICS 
code'' that best describes the principal purpose of the product or 
service being acquired. The contracting officer's selection of the 
applicable NAICS code determines which limitation on subcontracting 
applies. Thus, for a prime contract that includes both services and 
supplies, the NAICS code assigned by the contracting officer determines 
the relevant amount for purposes of calculating compliance with the 
limitation on subcontracting; e.g., when a NAICS code for services is 
assigned, the limitation on subcontracting for services applies to the 
services portion of the contract. Likewise, for subcontracts, the prime 
contractor will assign the NAICS. To provide clarification on 
calculating the 50 percent limitation for contracts that include both 
services and supplies (i.e., ``mixed contracts''), this final rule 
revises the clause at 52.219-14, Limitations on Subcontracting, to 
specify that when a contract is assigned a NAICS code for services, the 
50 percent limitation applies only to the services portion of the 
contract, and that when a contract is assigned a NAICS code for 
supplies, the 50 percent limitation applies only to the supply portion 
of the contract.
10. Revisions to the Clause on the Nonmanufacturer Rule
    Comment: One respondent indicated that the proposed solicitation 
provision does not state that the nonmanufacturer rule requirements can 
be waived by SBA, either on an individual or class basis; and 
furthermore, the provision does not state that nonmanufacturers need to 
have no more than 500 employees. The respondent further stated that the 
SBA has proposed to eliminate its rule about ``kit assemblers,'' and 
suggested that the Council similarly remove all rules about ``kit 
assemblers.''
    Response: The Councils reviewed the area of the rule identified by 
the respondent and found that the SBA waiver information for the 
nonmanufacturer rule is not appropriate for inclusion in the contract 
clause at 52.219-33, Nonmanufacturer Rule. FAR 19.507(h)(2) instructs 
contracting officers not to use 52.219-33 when SBA has waived the 
nonmanufacturer rule. Individual and class waivers of the 
nonmanufacturer rule are addressed in the final rule at FAR 19.505(c).
    The size standard for nonmanufacturers is located in the 
solicitation provisions that contain the requirement for offerors to 
represent size status (e.g., 52.219-1, Small Business Program 
Representations). There is no need to include it in the clause at 
52.219-33, which does not address representation of size status.
    The Councils found that removing the text on kit assemblers from 
the FAR is premature in this final rule, and must be addressed in a 
separate case. Therefore, the suggested revisions have not been 
included in the final rule.

[[Page 44237]]

11. Orders Under Multiple Award Contracts
    Comment: One respondent stated that clarification should be 
provided for orders set aside for small business under multiple-award 
contracts regarding whether, for the purpose of applying the 
limitations on subcontracting and the nonmanufacturer rule, the value 
is determined at the contract level or at the order level. The 
respondent further expressed a preference for having the value 
determined at the individual order level, so that the nonmanufacturer 
rule would only apply to orders above the simplified acquisition 
threshold.
    Response: The prescriptions for the clauses at FAR 52.219-14, 
Limitations on Subcontracting, and 52.219-33, Nonmanufacturer Rule, 
specify use of the clauses when ``any portion of the requirement is set 
aside for small business and is expected to exceed the simplified 
acquisition threshold''. The prescriptions also specify use of the 
clauses in multiple-award contracts when orders may be set aside for 
small business because the clauses apply to orders that are set aside 
for small business under multiple-award contracts. The applicability of 
the limitations on subcontracting and the nonmanufacturer rule is 
determined partly by whether the contract or the order is being set 
aside for small business. If an order is set aside for small business, 
the clause applies to the order if it exceeds the simplified 
acquisition threshold (see 52.219-14(c)(4) and 52.219-33(b)(2)(iii)). 
Alternatively, if a multiple-award contract is set aside for small 
business, the clause applies to the contract if it exceeds the 
simplified acquisition threshold.
12a. Additional SBA Rule--Hazardous Waste Industry
    Comment: Six respondents stated the hazardous waste industry should 
be excluded from the limitations on subcontracting as disposal 
facilities and transportation costs are prohibitively expensive for 
small businesses to own and operate. Therefore, small businesses 
subcontract out these services, which would cause them to exceed the 
limitations on subcontracting.
    Two respondents stated environmental remediation requires the 
purchase of significant materials, which is similar to construction. 
The respondents requested these materials be excluded from the 
limitations on subcontracting.
    Response: These changes are included in SBA's final rule at 13 CFR 
125.6(a), published in the Federal Register on November 29, 2019 (84 FR 
65647). SBA's rule updates the limitations on subcontracting. A new FAR 
case would have to be opened to implement the additional changes, which 
require public comment under 41 U.S.C. 1707 prior to implementation in 
the FAR. Therefore, the suggested changes are not incorporated in this 
final rule.
12b. Additional SBA Rule--Independent Contractors
    Comment: Two respondents suggested additional language be added to 
the proposed rule to define an independent contractor. One respondent 
requested that the term ``independent contractor'' be removed from the 
rule. One respondent recommended that independent contractors should 
not be subject to FAR 44.201-1, Consent requirements.
    Response: SBA made clarifications regarding independent contractors 
in its final rule, published in the Federal Register on November 29, 
2019 (84 FR 65647), which updates the limitations on subcontracting. 
Those changes are beyond the scope of this FAR case. A new FAR case 
would have to be opened to implement additional changes in the FAR, 
including publication for notice and comment if necessary. The 
suggested changes are not consistent with the SBA's regulations which 
are being implemented in this final FAR rule, and therefore will not be 
included in this final FAR rule.
12c. Additional SBA Rule--Exclusion of Materials and Other Direct Costs 
From the Limitation on Subcontracting for Services
    Comment: Four respondents stated the cost of materials and other 
direct costs for services should be excluded from the limitations on 
subcontracting, which would treat these contracts the same as supply 
contracts.
    Response: This rule implements SBA's final rule published in the 
Federal Register at 81 FR 34243 on May 31, 2016, which does not provide 
an exclusion for the cost of materials or other direct costs. These 
changes are in SBA's final rule, published in the Federal Register on 
November 29, 2019 (84 FR 65647), which updates the limitations on 
subcontracting. A new FAR case would have to be opened to implement the 
additional changes.
12d. Additional SBA Rule--Inconsistencies Between FAR and SBA
    Comment: Two respondents stated that because of SBA's proposed rule 
published December 4, 2018, 83 FR 62516, the FAR will be inconsistent 
with SBA's regulations once again, which will create new confusion. 
They requested the FAR Council issue an interim final rule.
    Response: SBA's final rule published November 29, 2019, 84 FR 6564, 
made updates to the limitations on subcontracting. A new FAR case would 
have to be opened to implement the SBA's November 29, 2019 changes. The 
FAR Council may issue an interim rule without first publishing a 
proposed rule only when urgent and compelling circumstances exist, 
which justify changing the FAR prior to seeking public comment.
13. Information Technology Value Added Resellers
    Comment: One respondent requested a clarification of whether the 
nonmanufacturer rule applies to Information Technology Value Added 
Resellers (ITVAR), NAICS code 541519.
    Response: An ITVAR provides a total solution to information 
technology acquisitions by providing multi-vendor hardware and software 
along with significant value added services. SBA's regulation at 
footnote 18 within 13 CFR 121.201 states that the nonmanufacturer rule 
applies to an ITVAR procurement unless SBA has issued a class or 
contract-specific waiver of the nonmanufacturer rule.
14. Out of Scope
    Comment: One respondent stated DoD Class Deviation 2019-O0003, 
Limitations on Subcontracting for Small Business, contains a 
requirement stating, if the contract falls below the SAT, it is not a 
complete waiver of the nonmanufacturer rule because the small business 
must still provide the end item of any domestic firm. The respondent 
noted this same requirement is not present in the current SBA 
regulations, nor in the current proposed rule change and encourages the 
Councils to proceed with issuing a final rule that does not include 
this restriction. A second respondent recommended that clear 
definitions of subcontract and subcontractor should be provided to 
regulate the use of independent contractors (consultants) and ancillary 
services, as well as to formulate policies and mechanisms with respect 
to consent to subcontract, flow down of contract provisions, and other 
FAR requirements. A third respondent asked if the proposed regulation 
would take precedence over a specified agency's clause.
    Response: These comments are beyond the scope of this rule. SBA's 
waiver of the nonmanufacturer rule (13 CFR 121.406(b)(7)) has no effect 
on requirements external to the Small

[[Page 44238]]

Business Act which involve domestic sources of supply, such as the Buy 
American Act or the Trade Agreements Act. Class deviations issued by 
individual agencies do not impact the text of this rule. In many 
instances the definition of subcontractor used in the FAR varies 
depending on which statutes or FAR regulations apply. It is not 
possible to use the same definition across all the parts of the FAR. 
Agency regulations and guidance must be consistent with the FAR unless 
an authorized deviation (see FAR 1.404) is in place.

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 determinations with respect to the 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 determinations is set forth below.

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; or that 
use the HUBZone price evaluation preference to award to a HUBZone small 
business concern. 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 the Federal Procurement 
Data System, an average of 283,374 contracts per year resulted from FAR 
part 19 set-asides and sole-source awards at or below the simplified 
acquisition threshold during fiscal years 2016-2018. Failure to apply 
section 1651 below the SAT would exclude a significant number of 
acquisitions, contrary to the goal of promoting opportunities for small 
businesses in the Federal marketplace to the maximum extent possible. 
Further, the FAR clauses imposing 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; or that use the HUBZone price 
evaluation preference to award to a HUBZone small business concern. 
Making section 1651 applicable to acquisitions at or below the SAT 
would allow the amended versions of those clauses, reflecting the 
requirements of section 1651, to be incorporated into such 
solicitations and contracts. Exclusion of the amended clauses from 
those documents would create confusion among contractors and the 
Federal contracting workforce. Finally, under the FAR clauses currently 
incorporated into those documents, 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.
    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

[[Page 44239]]

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, potentially allowing 
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, would 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. Making section 1651 applicable to acquisitions for 
commercial items would allow the amended versions of those clauses, 
reflecting the requirements of section 1651, to be included in such 
solicitations and contracts. Exclusion of those amended clauses from 
contracts for commercial items would create confusion among contractors 
and the Federal contracting workforce. Finally, 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 currently incorporated into contracts for commercial 
items, 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 (codified at 15 U.S.C. 657s). 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 concern bid protest procedures 
developed under the authority of the relevant statutes. 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, potentially allowing 
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, would limit the full implementation of these objectives. 
Further, FAR clauses imposing limitations on subcontracting and the 
nonmanufacturer rule are currently prescribed for use in solicitations 
and contracts for COTS items. Making section 1651 applicable to 
acquisitions of COTS items would allow the amended versions of those 
clauses, reflecting the requirements of section 1651, to be 
incorporated into such solicitations and contracts. Exclusion of the 
amended clauses from those documents would create confusion among 
contractors and the Federal contracting workforce. Finally, 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 currently incorporated into contracts for those items, 
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, 
including task and delivery orders under those contracts (i.e., the 
``limitations on subcontracting''). The 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, who is a reseller of a product (i.e., a 
``nonmanufacturer''), 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

[[Page 44240]]

ensure that the benefits of contracts and orders awarded to small 
businesses flow to the intended beneficiaries.
    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. 
As a result, for the purpose of compliance with the limitations on 
subcontracting 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 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.............  Contractor must       Contractor may pay
                               spend $400--i.e.,     up to $500 (50
                               50 percent of the     percent of the
                               $800 cost of          contract price) to
                               contract              a non-similarly
                               performance           situated entity,
                               incurred for its      e.g., large
                               own personnel. The    business, AND/OR
                               contract value        subcontract to a
                               (i.e., $1,000) is     similarly situated
                               not used to           entity without
                               determine             limitation.
                               compliance under
                               previous rule..
------------------------------------------------------------------------

    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 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 the simplified acquisition threshold. 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 expected net savings of the rule, calculated at 
present value using a 7-percent discount rate over ten years, is 
estimated to be $189,298,957.
    To access the full regulatory cost analysis for this rule, go to 
the Federal eRulemaking Portal at https://www.regulations.gov, search 
for ``FAR

[[Page 44241]]

Case 2016-011,'' click ``Open Docket,'' and view ``Supporting 
Documents.''

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. 
The Office of Information and Regulatory Affairs in the Office of 
Management and Budget has determined that 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.

VI. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before an interim or final rule takes effect, DoD, GSA and NASA will 
submit for an interim or final rule a report to each House of the 
Congress and to the Comptroller General of the United States. A major 
rule cannot take effect until 60 days after it is published in the 
Federal Register. The Office of Information and Regulatory Affairs in 
the Office of Management and Budget has determined that this is not a 
major rule under 5 U.S.C. 804.

VII. Regulatory Flexibility Act

    DoD, GSA, and NASA have prepared a Final Regulatory Flexibility 
Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 
U.S.C. 601, et seq. The FRFA is summarized as follows:

    DoD, GSA, and NASA are amending the Federal Acquisition 
Regulation (FAR) to implement 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, which 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 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.
    There were no significant issues raised by the public in 
response to the Initial Regulatory Flexibility Analysis.
    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.
    According to the System for Award Management (SAM), there are 
315,655 active registrants that are considered small for at least 
one North American Industry Classification System code. Firms 
looking to be prime contractors for 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 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 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, there were approximately 70,992 contracts per year in fiscal 
years 2016-2018 under all the small business programs to which the 
limitations on subcontracting or the nonmanufacturer rule would 
apply.
    This rule is not expected to have a negative impact on the 
majority of small entities.

    Interested parties may obtain a copy of the FRFA from the 
Regulatory Secretariat Division. The Regulatory Secretariat Division 
has submitted a copy of the FRFA to the Chief Counsel for Advocacy of 
SBA.

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.

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 amending 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 of 
``Nonmanufacturer'' and adding, in alphabetical order, the definition 
of ``Similarly situated entity'' to read as follows:


19.001   Definitions.

* * * * *
    Similarly situated entity means a first-tier subcontractor, 
including an independent contractor, that--
    (1) Has the same small business program status as that which 
qualified the prime contractor for the award (e.g., for a small 
business set-aside contract, any small business concern, without regard 
to socioeconomic status); and (2) Is considered small for the size 
standard under the NAICS code the prime contractor assigned to the 
subcontract.

0
3. Revise section 19.505 to read as follows:


19.505  Limitations on subcontracting and nonmanufacturer rule.

    (a) Applicability. (1) This section applies to small business set-
asides above the simplified acquisition threshold and orders issued 
directly to a small business in accordance with 19.504(c)(1)(ii) above 
the simplified acquisition threshold.
    (2) This section applies, regardless of dollar value, to the 
following awards under subparts 19.8, 19.13, 19.14, and 19.15:
    (i) Contracts that are set aside.
    (ii) Contracts that are awarded on a sole-source basis.
    (iii) Orders that are set-aside as described in 8.405-5 and 
16.505(b)(2)(i)(F).
    (iv) Orders that are issued directly in accordance with 
19.504(c)(1)(ii).
    (v) Contracts that use the HUBZone price evaluation preference to 
award to a HUBZone small business concern unless the concern waived the 
evaluation preference.

[[Page 44242]]

    (b)(1) Limitations on subcontracting. A small business concern 
subject to the limitations on subcontracting is required to comply with 
the following:
    (i) For a contract or order assigned a North American Industry 
Classification System (NAICS) code for services (except construction), 
the concern 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 concern's 50 percent 
subcontract amount that cannot be exceeded. When a contract includes 
both services and supplies, the 50 percent limitation shall apply only 
to the service portion of the contract.
    (ii) For a contract or order assigned a NAICS code for supplies or 
products (other than a procurement from a nonmanufacturer of such 
supplies or products), the concern 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 concern's 50 percent subcontract 
amount that cannot be exceeded. When a contract includes both supplies 
and services, the 50 percent limitation shall apply only to the supply 
portion of the contract.
    (iii) For a contract or order assigned a NAICS code for general 
construction, the concern 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 concern's 85 percent subcontract 
amount that cannot be exceeded.
    (iv) For a contract or order assigned a NAICS code for construction 
by special trade contractors, the concern 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 concern's 75 percent 
subcontract amount that cannot be exceeded.
    (2) Compliance period. A small business contractor subject to the 
limitations on subcontracting is required to comply with the 
limitations on subcontracting--
    (i) For a contract that has been set aside, either by the end of 
the base term and then by the end of each subsequent option period, or 
by the end of the performance period for each order issued under the 
contract, at the contracting officer's discretion; and
    (ii) For an order set aside under a contract as described in 
19.504(a), (b), or (c)(1)(i) or an order issued in accordance with 
19.504(c)(1)(ii), by the end of the performance period for the order.
    (c) Nonmanufacturer rule. The nonmanufacturer rule applies to 
nonmanufacturers in accordance with paragraph (c)(1) of this section 
and to kit assemblers who are nonmanufacturers in accordance with 
paragraph (c)(2) of this section.
    (1) Nonmanufacturers. Any concern, including a supplier, that is 
awarded a contract or order subject to the nonmanufacturer rule, other 
than a construction or service acquisition, but proposes to furnish an 
end item that it did not itself manufacture, process, or produce (i.e., 
a ``nonmanufacturer''), is required to--
    (i) Provide an end item that a small business has manufactured, 
processed, or produced in the United States or its outlying areas (see 
paragraph (c)(3) of this section for determining the manufacturer of an 
end item);
    (ii) Not exceed 500 employees;
    (iii) Be primarily engaged in the retail or wholesale trade and 
normally sell the type of item being supplied; and
    (iv) 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) Kit assemblers. When the end item being acquired is a kit of 
supplies--
    (i) The offeror may not exceed 500 employees; and
    (ii) 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.
    (3) 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).
    (4) Waiver of nonmanufacturer rule. (i) The SBA may grant an 
individual or a class waiver to the nonmanufacturer rule to allow a 
nonmanufacturer to provide an end item of an other than small business 
without regard to the place of manufacture, processing, or production.
    (A) Class waiver. An agency may request that SBA waive the 
requirement at paragraph (c)(1)(i) or (c)(2)(ii) of this section for a 
specific product or class of products. See 13 CFR 121.1202 for an 
explanation of when SBA will issue a class waiver.
    (B) Individual waiver. The contracting officer may also request a 
waiver of the requirements at paragraph (c)(1)(i) or (c)(2)(ii) 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. This type of waiver is known as 
an individual waiver and would apply only to a specific acquisition.
    (ii) 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.
    (iii) List of class waivers. For the most current listing of class 
waivers, contact the SBA Office of Government Contracting or go to 
https://www.sba.gov/document/support-non-manufacturer-rule-class-waiver-list.
    (iv) 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.
    (5) Multiple-item acquisitions. (i) If at least 50 percent of the 
estimated contract value 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.
    (ii) 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

[[Page 44243]]

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.
    (iii) 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.

0
4. Amend section 19.507 by revising paragraphs (e) and (h) to read as 
follows:


19.507   Solicitation provisions and contract clauses.

* * * * *
    (e) The contracting officer shall insert the clause at 52.219-14, 
Limitations on Subcontracting, in solicitations and contracts--
    (1) For supplies, services, and construction, if any portion of the 
requirement is to be set aside for small business and the contract 
amount is expected to exceed the simplified acquisition threshold, 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), and when orders may be 
issued directly to a small business concern as described in 
19.504(c)(1)(ii). For contracts that are set aside, the contracting 
officer shall indicate in paragraph (f) of the clause whether 
compliance with the limitations on subcontracting is required at the 
contract or order level;
    (2) Using the HUBZone price evaluation preference. However, if the 
prospective contractor waived the use of the price evaluation 
preference, or is an other than small business, do not insert the 
clause in the resultant contract.
* * * * *
    (h)(1) The contracting officer shall insert the clause at 52.219-
33, Nonmanufacturer Rule, in solicitations and contracts (including 
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), and 
when orders may be issued directly to a small business concern as 
described in 19.504(c)(1)(ii)), when--
    (i) the item being acquired has been assigned a manufacturing or 
supply NAICS code, and--
    (ii)(A) Any portion of the requirement is to be--
    (1) Set aside for small business and is expected to exceed the 
simplified acquisition threshold; or
    (2) 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; or
    (B) Using the HUBZone price evaluation preference. However, if the 
prospective contractor waived the use of the price evaluation 
preference, or is an other than small business, do not insert the 
clause in the resultant contract.
    (2) The contracting officer shall not insert the clause at 52.219-
33 when the Small Business Administration has waived the 
nonmanufacturer rule (see 19.505(c)(4)).


19.811-3   [Amended]

0
5. Amend section 19.811-3 by removing from paragraph (d) ``The clause 
at 52.219-18 with its Alternate I shall be used when'' and adding ``Use 
the clause at 52.219-18 with its Alternate I when'' in its place.


19.1308   [Removed and Reserved]

0
6. Remove and reserve section 19.1308.

0
7. 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 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) or when orders may be issued directly to one HUBZone 
small business concern in accordance with 19.504(c)(1)(ii).
    (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) For use of clause 52.219-14, Limitations on Subcontracting, see 
the prescription at 19.507(e).
    (d) For use of clause 52.219-33, Nonmanufacturer Rule, see the 
prescription at 19.507(h).


19.1403   [Amended]

0
8. Amend section 19.1403 by removing from paragraph (d) ``19.1407(c)'' 
and adding ``19.505'' in its place.


19.1407   [Removed and Reserved]

0
9. Remove and reserve section 19.1407.

0
10. Revise section 19.1408 to read as follows:


19.1408   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 
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) or when orders may be issued directly to one 
service-disabled veteran-owned small business contractor in accordance 
with 19.504(c)(1)(ii).
    (b) For use of clause 52.219-14, Limitations on Subcontracting, see 
the prescription at 19.507(e).
    (c) For use of clause 52.219-33, Nonmanufacturer Rule, see the 
prescription at 19.507(h).


19.1507   [Removed and Reserved]

0
11. Remove and reserve section 19.1507.

0
12. Revise section 19.1508 to read as follows:


19.1508   Contract clauses.

    (a) The contracting officer shall insert the clause at 52.219-29, 
Notice of Set-Aside for, or Sole-Source Award to, Economically 
Disadvantaged Women-owned Small Business Concerns, in solicitations and 
contracts for acquisitions that are set aside or awarded on a sole-
source basis to, EDWOSB concerns under 19.1505(b) or 19.1506(a). This 
includes multiple-award contracts when orders may be set aside for 
EDWOSB concerns as described in 8.405-5 and 16.505(b)(2)(i)(F) or when 
orders may be issued directly to one EDWOSB contractor in accordance 
with 19.504(c)(1)(ii).
    (b) The contracting officer shall insert the clause at 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, in solicitations and contracts for acquisitions that are set 
aside or awarded on a sole-source basis to WOSB concerns under 
19.1505(c) or 19.1506(b). This includes multiple-award contracts when 
orders may be set aside for WOSB concerns eligible under the WOSB 
Program as described in 8.405-5 and 16.505(b)(2)(i)(F) or when orders 
may be issued directly to one

[[Page 44244]]

WOSB contractor in accordance with 19.504(c)(1)(ii).
    (c) For use of clause 52.219-14, Limitations on Subcontracting, see 
the prescription at 19.507(e).
    (d) For use of clause 52.219-33, Nonmanufacturer Rule, see the 
prescription at 19.507(h).

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
13. Amend section 52.204-8 by--
0
a. Revising the date of the provision;
0
b. Revising paragraph (a)(3);
0
c. Revising the date of Alternate I; and
0
d. Revising paragraph (a)(2) of Alternate I.
    The revisions read as follows:


52.204-8  Annual Representations and Certifications.

* * * * *

Annual Representations and Certifications (SEP 2021)

    (a) * * *
    (3) 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 if the acquisition--
    (i) Is set aside for small business and has a value above the 
simplified acquisition threshold;
    (ii) Uses the HUBZone price evaluation preference regardless of 
dollar value, unless the offeror waives the price evaluation 
preference; or
    (iii) 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.
* * * * *
    Alternate I (SEP 2021).

     * * *
    (a) * * *
    (2) 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, (i.e., nonmanufacturer), is 500 employees if 
the acquisition--
    (i) Is set aside for small business and has a value above the 
simplified acquisition threshold;
    (ii) Uses the HUBZone price evaluation preference regardless of 
dollar value, unless the offeror waives the price evaluation 
preference; or
    (iii) 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.
* * * * *

0
14. 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 (SEP 2021)

    (a) North American Industry Classification System (NAICS) code 
and small business size standard. The NAICS code(s) and small 
business size standard(s) for this acquisition appear elsewhere in 
the solicitation. However, 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 if the 
acquisition--
    (1) Is set aside for small business and has a value above the 
simplified acquisition threshold;
    (2) Uses the HUBZone price evaluation preference regardless of 
dollar value, unless the offeror waives the price evaluation 
preference; or
    (3) 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.
* * * * *

0
15. Amend section 52.212-5 by revising the date of the clause and 
paragraphs (b)(11), (b)(12), (b)(19), (b)(21), (b)(22), (b)(23), 
(b)(24), and (b)(26) to read as follows:


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

* * * * *

Contract Terms and Conditions Required To Implement Statutes or 
Executive Orders--Commercial Items (SEP 2021)

* * * * *
    (b) * * *
    __(11) 52.219-3, Notice of HUBZone Set-Aside or Sole-Source 
Award (SEP 2021) (15 U.S.C. 657a).
    __(12) 52.219-4, Notice of Price Evaluation Preference for 
HUBZone Small Business Concerns (SEP 2021) (if the offeror elects to 
waive the preference, it shall so indicate in its offer) (15 U.S.C. 
657a).
* * * * *
    __(19) 52.219-14, Limitations on Subcontracting (SEP 2021) (15 
U.S.C. 657s).
* * * * *
    __(21) 52.219-27, Notice of Service-Disabled Veteran-Owned Small 
Business Set-Aside (SEP 2021) (15 U.S.C. 657f).
    __(22)(i) 52.219-28, Post-Award Small Business Program 
Rerepresentation (SEP 2021) (15 U.S.C. 632(a)(2)).
    __(ii) Alternate I (MAR 2020) of 52.219-28.
    __(23) 52.219-29, Notice of Set-Aside for, or Sole-Source Award 
to, Economically Disadvantaged Women-Owned Small Business Concerns 
(SEP 2021) (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 (SEP 2021) (15 U.S.C. 637(m)).
* * * * *
    __(26) 52.219-33, Nonmanufacturer Rule (SEP 2021) (15 U.S.C. 
657s).
* * * * *

0
16. 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;
0
c. Revising paragraph (b)(3);
0
d. Revising the date of Alternate II; and
0
e. Revising paragraph (b)(2) of Alternate II.
    The revisions read as follows:


52.219-1   Small Business Program Representations.

* * * * *

Small Business Program Representations (SEP 2021)

* * * * *
    (b) * * *
    (3) 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 (i.e., nonmanufacturer), is 500 employees if the 
acquisition--
    (i) Is set aside for small business and has a value above the 
simplified acquisition threshold;
    (ii) Uses the HUBZone price evaluation preference regardless of 
dollar value, unless the offeror waives the price evaluation 
preference; or
    (iii) 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.
* * * * *
    Alternate II (SEP 2021).
* * * * *

    (b) * * *
    (2) 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 (i.e., nonmanufacturer), is 500 employees if the 
acquisition--
    (i) Is set aside for small business and has a value above the 
simplified acquisition threshold;
    (ii) Uses the HUBZone price evaluation preference regardless of 
dollar value, unless the offeror waives the price evaluation 
preference; or
    (iii) 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.
* * * * *

0
17. Amend section 52.219-3 by--
0
a. Revising the introductory text;
0
b. Revising the title and date of the clause;

[[Page 44245]]

0
c. Revising paragraph (a);
0
d. In paragraph (b)(1) removing ``sole source'' and adding ``sole-
source'' in its place;
0
e. In paragraph (b)(3) removing ``set-aside'' and adding ``set aside'' 
in its place;
0
f. Removing paragraphs (d), (e), and (f);
0
g. Redesignating paragraph (g) as paragraph (d); and
0
h. Removing Alternate I.
    The revisions read 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 (SEP 2021)

    (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
18. Amend section 52.219-4 by--
0
a. In the introductory text removing ``19.1309(b)(1)'' and adding 
``19.1309(b)'' in its place;
0
b. Revising the date of the clause;
0
c. Removing paragraphs (a), (d), and (e);
0
d. Redesignating paragraphs (b), (c) and (f) as paragraphs (a), (b) and 
(c), respectively;
0
e. Revising newly redesignated paragraph (b); and
0
f. Removing Alternate I.
    The revision reads as follows:


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

* * * * *

Notice of Price Evaluation Preference for HUBZone Small Business 
Concerns (SEP 2021)

* * * * *
    (b) Waiver of evaluation preference. A HUBZone small business 
concern may elect to waive the evaluation preference, in which case 
the factor will be added to its offer for evaluation purposes.
    [square] Offeror elects to waive the evaluation preference.
* * * * *

0
19. Revise section 52.219-14 to read as follows:


52.219-14   Limitations on Subcontracting.

    As prescribed in 19.507(e), insert the following clause:

Limitations on Subcontracting (SEP 2021)

    (a) This clause does not apply to the unrestricted portion of a 
partial set-aside.
    (b) Definition. Similarly situated entity, as used in this 
clause, means a first-tier subcontractor, including an independent 
contractor, that--
    (1) Has the same small business program status as that which 
qualified the prime contractor for the award (e.g., for a small 
business set-aside contract, any small business concern, without 
regard to its socioeconomic status); and
    (2) Is considered small for the size standard under the North 
American Industry Classification System (NAICS) code the prime 
contractor assigned to the subcontract.
    (c) Applicability. This clause applies only to--
    (1) Contracts that have been set aside for 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;
    (4) Orders expected to exceed the simplified acquisition 
threshold and that are--
    (i) Set aside for small business concerns under multiple-award 
contracts, as described in 8.405-5 and 16.505(b)(2)(i)(F); or
    (ii) Issued directly to small business concerns under multiple-
award contracts as described in 19.504(c)(1)(ii);
    (5) Orders, regardless of dollar value, that are--
    (i) Set aside in accordance with subparts 19.8, 19.13, 19.14, or 
19.15 under multiple-award contracts, as described in 8.405-5 and 
16.505(b)(2)(i)(F); or
    (ii) Issued directly to concerns that qualify for the programs 
described in subparts 19.8, 19.13, 19.14, or 19.15 under multiple-
award contracts, as described in 19.504(c)(1)(ii); and
    (6) Contracts using the HUBZone price evaluation preference to 
award to a HUBZone small business concern unless the concern waived 
the evaluation preference.
    (d) Independent contractors. An independent contractor shall be 
considered a subcontractor.
    (e) Limitations on subcontracting. By submission of an offer and 
execution of a contract, the Contractor agrees that in performance 
of a contract assigned a North American Industry Classification 
System (NAICS) code 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 prime contractor's 50 percent 
subcontract amount that cannot be exceeded. When a contract includes 
both services and supplies, the 50 percent limitation shall apply 
only to the service portion of the contract;
    (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 prime contractor's 50 percent 
subcontract amount that cannot be exceeded. When a contract includes 
both supplies and services, the 50 percent limitation shall apply 
only to the supply portion of the contract;
    (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 prime 
contractor's 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 prime contractor's 75 percent subcontract amount that 
cannot be exceeded.
    (f) The Contractor shall comply with the limitations on 
subcontracting as follows:
    (1) For contracts, in accordance with paragraphs (c)(1), (2), 
(3) and (6) of this clause--
    [Contracting Officer check as appropriate.]
    __By the end of the base term of the contract and then by the 
end of each subsequent option period; or
    __By the end of the performance period for each order issued 
under the contract.
    (2) For orders, in accordance with paragraphs (c)(4) and (5) of 
this clause, by the end of the performance period for the order.
    (g) 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.
(End of clause)

0
20. Amend section 52.219-27 by--
0
a. Revising the date of the clause;
0
b. Removing paragraphs (d) and (e);
0
c. Redesignating paragraph (f) as paragraph (d); and
0
d. Revising newly redesignated paragraph (d).
    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 (SEP 
2021)

* * * * *
    (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

[[Page 44246]]

    (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 13 CFR 
121.103(h); and
    (4) The joint venture meets the requirements of 13 CFR 
125.15(b).

0
21. Amend section 52.219-28 by revising the date of the clause and 
paragraph (e) to read as follows:


52.219-28   Post-Award Small Business Program Rerepresentation.

* * * * *

Post-Award Small Business Program Rerepresentation (SEP 2021)

* * * * *
    (e) The small business size standard for a Contractor providing 
an end item that it does not manufacture, process, or produce 
itself, for a contract other than a construction or service 
contract, is 500 employees if the acquisition--
    (1) Was set aside for small business and has a value above the 
simplified acquisition threshold;
    (2) Used the HUBZone price evaluation preference regardless of 
dollar value, unless the Contractor waived the price evaluation 
preference; or
    (3) Was 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.
* * * * *

0
22. Amend section 52.219-29 by--
0
a. Revising the section heading, clause heading, and date of the 
clause;
0
b. In paragraph (a) removing from the definition ``Economically 
disadvantaged women-owned small business (EDWOSB) concern'' ``means- A 
small'' and adding ``means a small'' in its place;
0
c. In paragraph (b)(1) removing ``sole source'' and adding ``sole-
source'' in its place;
0
d. Removing paragraphs (d) and (e);
0
e. Redesignating paragraph (f) as paragraph (d);
0
f. In newly redesignated paragraph (d)--
0
i. In paragraph (1) removing ``NAICS'' and adding ``North American 
Industry Classification System'' in its place;
0
ii. In paragraph (3)(v) removing ``venture.'' and adding ``venture; 
and'' in its place;
0
iii. Removing paragraph (4);
0
iv. Redesignating paragraph (5) as (4); and
0
v. In newly redesignated paragraph (4) removing ``procuring activity'' 
and adding ``Contracting Officer'' in its place.
    The revision reads 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 (SEP 2021)

* * * * *

0
23. Amend section 52.219-30 by--
0
a. Revising the section heading, clause heading, date of the clause, 
and the introductory text of paragraph (a);
0
b. In paragraph (b)(1) removing ``sole source'' and adding ``sole-
source'' in its place;
0
c. In the second sentence of paragraph (c)(1) removing ``WOSB program'' 
and adding ``WOSB Program'' in its place;
0
d. Removing paragraphs (d) and (e);
0
e. Redesignating paragraph (f) as paragraph (d);
0
f. In newly redesignated paragraph (d):
0
i. In paragraph (1) removing ``NAICS'' and adding ``North American 
Industry Classification System'' in its place;
0
ii. In paragraph (d)(3)(v) removing ``venture.'' and adding ``venture; 
and'' in its place;
0
iii. Removing paragraph (4);
0
iv. Redesignating paragraph (5) as (4); and
0
v. In newly redesignated paragraph (4) removing ``procuring activity'' 
and adding ``Contracting Officer'' in its place.
    The revisions read 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 
(SEP 2021)

    (a) Definitions. As used in this clause--
* * * * *

0
24. Revise section 52.219-33 to read as follows:


52.219-33  Nonmanufacturer Rule.

    As prescribed in 19.507(h), insert the following clause:

Nonmanufacturer Rule (SEP 2021)

    (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;
    (iii) Orders expected to exceed the simplified acquisition 
threshold and that are--
    (A) Set aside for small business under multiple-award contracts, 
as described in 8.405-5 and 16.505(b)(2)(i)(F); or
    (B) Issued directly to a small business concern under multiple-
award contracts as described in 19.504(c)(1)(ii);
    (iv) Orders, regardless of dollar value, that are--
    (A) Set aside in accordance with subparts 19.8, 19.13, 19.14, 
and 19.15 under multiple-award contracts as described in 8.405-5 and 
16.505(b)(2)(i)(F); or
    (B) Issued directly to concerns that qualify for the programs 
described in subparts 19.8, 19.13, 19.14, and 19.15 under multiple-
award contracts as described in 19.504(c)(1)(ii); and
    (v) Contracts using the HUBZone price evaluation preference to 
award to a HUBZone concern unless the Contractor waived the 
evaluation preference.
    (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.
(End of clause)
* * * * *
[FR Doc. 2021-16364 Filed 8-10-21; 8:45 am]
BILLING CODE 6820-EP-P