Federal Acquisition Regulation: Good Faith in Small Business Subcontracting, 44249-44255 [2021-16366]

Download as PDF Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 19, 42, and 52 [FAC 2021–07; FAR Case 2019–004; Item IV; Docket No. FAR–2019–0030, Sequence No. 1] RIN 9000–AN87 Federal Acquisition Regulation: Good Faith in Small Business Subcontracting Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Final rule. AGENCY: DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation to implement a section of the National Defense Authorization Act for Fiscal Year 2017, which requires examples of failure to make good faith efforts to comply with a small business subcontracting plan. DATES: Effective September 10, 2021. FOR FURTHER INFORMATION CONTACT: Ms. Dana Bowman, Procurement Analyst, at 202–803–3188, or by email at dana.bowman@gsa.gov, for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at 202–501– 4755 or GSARegSec@gsa.gov. Please cite FAC 2021–07, FAR Case 2019–004. SUPPLEMENTARY INFORMATION: SUMMARY: jbell on DSKJLSW7X2PROD with RULES2 I. Background DoD, GSA, and NASA published a proposed rule on June 3, 2020, at 85 FR 34155, to implement section 1821 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 (section 1821(c) of Pub. L. 114–328; 15 U.S.C. 637 note). Section 1821 requires the Small Business Administration (SBA) to amend its regulations to provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan. SBA issued a final rule at 84 FR 65647, dated November 29, 2019, to implement section 1821 of the NDAA for FY 2017. In its final rule, SBA amended 13 CFR 125.3(d)(3) to provide guidance on evaluating whether the prime contractor made a good faith effort to comply with its small business subcontracting plan and a list of examples of activities VerDate Sep<11>2014 23:19 Aug 10, 2021 Jkt 253001 reflective of a failure to make a good faith effort. Additionally, SBA revised 13 CFR 125.3(c)(1)(iv) to require that prime contractors with commercial subcontracting plans include indirect costs in their subcontracting goals. Other than small business concerns that have a commercial subcontracting plan report on performance through a summary subcontract report (SSR). Prior to the publication of its final rule, SBA’s regulations required that contractors using a commercial subcontracting plan must include all indirect costs in their SSRs, but did not require these contractors to include indirect costs in their subcontracting goals, which led to inconsistencies when comparing the data reported in the SSR to the goals in the commercial subcontracting plan. Small business subcontracting plans are required from large prime contractors when a contract is expected to exceed $750,000 ($1.5 million for construction) and has subcontracting possibilities. FAR 19.704 lists the elements of the plan, which include the contractor’s goals for subcontracting to small business concerns and a description of the efforts the contractor will make to ensure that small business, veteran-owned small business, servicedisabled veteran-owned small business, HUBZone small business, small disadvantaged business, and womenowned small business concerns have an equitable opportunity to compete for subcontracts. Failure to make a good faith effort to comply with the plan may result in the assessment of liquidated damages per FAR 52.219–16, Liquidated Damages—Subcontracting Plan. This final FAR rule requires that all indirect costs, with certain exceptions, are included in commercial plans and SSRs. FAR 19.705–7 contains examples of a good faith effort, and examples of a failure to make a good faith effort. Four respondents submitted public comments in response to 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 received and any changes made to the rule as a result of the public comments are provided as follows: A. Summary of Significant Changes From the Proposed Rule There are no changes made to the final rule. PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 44249 B. Analysis of Public Comments 1. Clarify Applicability to Subcontracts for Commercial Items and Commercially Available Off-the-Shelf (COTS) Items Comment: One respondent commented that the rule should clarify that the ‘‘good faith’’ requirement is not applicable to subcontracts for commercial and COTS items under prime contracts. The respondent commented that the proposed rule does not address FAR 52.219–9(j), which states that subcontracting plans are not required from subcontractors when the prime contract contains the clause at 52.212–5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders— Commercial Items, or when the subcontractor provides a commercial item subject to the clause at 52.244–6, Subcontracts for Commercial Items, under a prime contract. Response: This rule does not revise the conditions for when a subcontracting plan is required. If a subcontracting plan is not required, then the examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan are not applicable. No changes were made to the final rule as a result of this comment. 2. Material Breach a. FAR Language Broader Than SBA Language Comment: One respondent stated that the proposed FAR language at 19.705– 7(d) is much broader than the SBA final rule and is unclear on whether ‘‘material breach’’ refers to the subcontracting plan or a breach of the contract itself. Response: FAR 19.705–5(a)(5) requires that the subcontracting plan become a ‘‘material part of the contract upon award.’’ The final rule text at FAR 19.705–7(d), similar to the SBA final rule, cites FAR 52.219–16, Liquidated Damages—Subcontracting Plan, which provides the corrective actions available to all Federal Government contracting officers when a contractor fails to make a good faith effort to comply with the subcontracting plan, while also giving consideration to other Federal contracting regulations. In this context, a failure to make a good faith effort to comply with a subcontracting plan is a material breach, sufficient for the assessment of liquidated damages, and also for other remedies the Government may have. No changes were made to the final rule as a result of this comment. E:\FR\FM\11AUR2.SGM 11AUR2 44250 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations b. Recommended Language To Be Added to Final Rule Comment: One respondent requested the proposed FAR language at 19.705– 7(d) include language to indicate that the contractor has an opportunity to rebut and appeal before a determination of noncompliance is rendered and provided recommended text. Response: The clause at FAR 52.219– 16, Liquidated Damages— Subcontracting Plan, which is cited in proposed FAR text 19.705–7(d), specifically 52.219–16(c), allows the contractor an opportunity to demonstrate what good faith efforts have been made and to discuss the matter, before the contracting officer’s final decision. No changes were made to the final rule as a result of this comment. jbell on DSKJLSW7X2PROD with RULES2 3. Clarifications a. Ensure Consistency Between FAR 52.219–16 and Proposed FAR 19.705– 7(b)(2) Comment: One respondent recommended that to remain consistent, the proposed language at FAR 19.705– 7(b)(2) should either include the language contained in 52.219–16 or include references to the intent of 52.219–16, as the examples provided at FAR 19.705–7(b)(2) may occur without willful or intentional behavior. The respondent also recommended that intent and examples should be read together providing that an occurrence of the examples without intent would not constitute a violation. Specifically, failure to make a good faith effort must meet the ‘‘willful or intentional’’ standard. The respondent also provided various reasons why the FAR should make it clear that an occurrence of the examples without intent would not constitute a violation. Response: This final rule is implementing current SBA regulation. SBA’s language at 13 CFR 125.3(d)(3) provides guidance on evaluating whether the prime contractor made a good faith effort to comply with its small business subcontracting plan. This language parallels the language in SBA’s rule providing contracting officers with examples to consider, in the context of the contractor’s total effort, as possible indicators of a failure to make a good faith effort. SBA’s rule does not reference the ‘‘willful and intentional’’ language. The FAR text will not be revised to incorporate the requested language as the ‘‘willful and intentional’’ language already appears in the definition of ‘‘failure to make a good faith effort to comply with the subcontracting plan’’ at both FAR VerDate Sep<11>2014 23:19 Aug 10, 2021 Jkt 253001 19.701 and in the clause at FAR 52.219– 16. No changes were made to the final rule as a result of this comment. d. Clarify Applicability to Contracts at or Below the Simplified Acquisition Threshold b. Clarify the Intent of the Proposed Language at FAR 19.705–7(b)(2)(vi) Comment: One respondent stated FAR 19.705–7(b)(2)(vi), as written, could be misinterpreted to hold a lower-tier contractor to the terms of a prime contractor’s contract with the Government and recommended a revision to provide the intent of the text is to ensure a contractor pays its small business subcontractors in accordance with the terms of their contract with the small business. Response: The current text states, ‘‘Failure to pay small business subcontractors in accordance with the terms of the contract with the prime contractor;’’ and provides that the intent pertains to the subcontractor’s contract with the prime contractor. The final rule FAR text will not be revised to include the recommended text. Comment: One respondent stated that the preamble to the proposed rule indicates that the FAR Council is considering expanding the scope of the rule to include contracts at or below the simplified acquisition threshold (SAT) and recommended that the final FAR rule under this case should specify that it does not apply to contracts at or below the SAT. The respondent further stated that contracts at or below the SAT must be exempt from any policy or regulatory requirements pertaining to Small Business Plans. Response: Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) requires subcontracting plans only for acquisitions valued above $750,000 ($1.5 million for construction contracts). As stated in section III of this preamble, the requirements of section 1821 of the NDAA for FY 2017 (Pub. L. 114–328; 15 U.S.C 637 note) do not apply to contracts at or below the SAT. c. Clarify Intent of FAR 19.705– 7(b)(2)(vii) e. Clarify Intent of FAR 19.705– 7(b)(1)(v) Comment: One respondent stated that the language at FAR 19.705–7(b)(2)(vii) should be revised to expressly require prime contractors to attend training as a remedy to any performance review findings. The respondent further stated that this is necessary given that a failure to attend the training offered by the Government could be perceived as a failure to make a good faith effort. The respondent provided recommended revisions to 19.705–7(b)(2)(vii). Response: The respondent’s interpretation of the language at FAR 19.705–7(b)(2)(vii) is correct. If a contractor does not either correct substantiated findings or participate in subcontracting plan management training offered by the Government, it could be perceived by the contracting officer as a failure to make a good faith effort. This is not all inclusive of failure to make a good faith effort, but is one of many instances and examples used to show a lack of good faith effort on behalf of the prime contractor. Additionally, the contracting officer has the choice of requiring or recommending other corrective remedies as deemed necessary. The respondent’s recommended language is more restrictive by suggesting ‘‘and’’ instead of ‘‘or’’ as written in the SBA rule. The final rule FAR text will not be revised to include the recommended text. PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 Comment: One respondent stated that the language at FAR 19.705–7(b)(1)(v) does not make clear how a contracting officer would make a determination that a contractor has ‘‘negotiated in good faith with interested small business.’’ The respondent also states that it is not clear how a contractor would negotiate with a small business that is merely interested in participating as a subcontractor. Response: The language at FAR 19.705–7(b)(1)(v) is broadly written, as the intent is not to restrict or limit the contracting officer’s authority or ability to determine the prime contractor’s effort to negotiate in good faith. No changes were made to the FAR final rule as a result of this comment. 4. Outside the Scope of This Rule Comment: One respondent had no issue with the proposed changes and clarifications in the language (FAR text) and agreed that the requirements should be consistent. However, the respondent disagreed with commercial subcontracting plans allowing large businesses to ‘‘capture and be credited for small dollars spent’’ that have nothing to do with the specific awarded Federal contract. The respondent recommended a maximum cap proposed at 0.5 percent to the large business and that any remaining credit or subcontracting expenditure allowed be with the small business directly involved and subcontracted to the E:\FR\FM\11AUR2.SGM 11AUR2 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations specific awarded Federal contract. The respondent further reiterated the original intent of the subcontracting law was to encourage large business primes to work and subcontract with small businesses in support of the Federal contract awarded and not to receive credit for unrelated work. Another respondent acknowledged the importance of prime contractors making a good faith effort to comply with SBA’s small business subcontracting plan. The respondent further stated that the country is in the midst of a deadly pandemic and offered additional political commentary irrelevant to the subject FAR case. Response: The comments are outside the scope of this rule. The intent of this rule is to provide guidance on evaluating whether a prime contractor made a good faith effort to comply with its small business subcontracting plan and to provide a list of examples of activities reflective of a failure to make a good faith effort. Additionally, this rule is amending the FAR to require that all indirect costs, minus certain exceptions, are included in both commercial plans and summary subcontract reports. jbell on DSKJLSW7X2PROD with RULES2 III. Applicability to Contracts at or Below the Simplified Acquisition Threshold (SAT) and for Commercial Items, Including Commercially Available Off-the-Shelf (COTS) Items This rule implements a statutory requirement to provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan. The Federal Acquisition Regulatory Council (FAR Council) does not intend to apply the requirements of section 1821 of the NDAA for FY 2017 (Pub. L. 114–328; 15 U.S.C 637 note) to contracts at or below the SAT, but intends to apply those requirements to contracts for the acquisition of commercial items, including COTS items. The clauses at FAR 52.219–9 and 52.219–16 are revised by this rule. A. Applicability to Contracts at or Below the SAT Pursuant to 41 U.S.C. 1905, a provision of law is not applicable to acquisitions at or below the SAT unless the law (i) contains criminal or civil penalties; (ii) specifically refers to 41 U.S.C. 1905 and states that the law applies to acquisitions at or below the SAT; or (iii) the FAR Council makes a written determination that it is not in the best interest of the Federal Government to exempt contracts or subcontracts at or below the SAT. If VerDate Sep<11>2014 23:19 Aug 10, 2021 Jkt 253001 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 1821 of the NDAA for FY 2017. Section 1821 requires SBA to provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan. The FAR Council does not intend to apply this 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 the acquisition of commercial items. The purpose of this rule is to implement section 1821 of the NDAA for FY 2017 and SBA’s implementing regulations. Section 1821 requires SBA to provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan. Both the FAR and SBA’s regulations require contractors with small business subcontracting plans—including commercial plans—to make a good faith effort to comply with the plans. SBA’s final rule did not exempt the acquisition of commercial items. Section 1821 furthers the Administration’s goal of supporting small business. It advances the interests of small business subcontractors by promoting good faith efforts by large prime contractors to find and use small business concerns as subcontractors, thereby providing valuable opportunities for small business concerns. For these reasons, it is in the best interest of the Federal Government to apply the requirements of this rule to the acquisition of commercial items. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 44251 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 it 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 the acquisition of COTS items. The purpose of this rule is to implement section 1821 of the NDAA for FY 2017 and SBA’s implementing regulations. Section 1821 requires SBA to provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan. Both the FAR and SBA’s regulations require contractors with small business subcontracting plans—including commercial plans—to make a good faith effort to comply with the plans. SBA’s final rule did not exempt the acquisition of COTS items. Section 1821 furthers the Administration’s goal of supporting small business. It advances the interests of small business subcontractors by promoting good faith efforts by large prime contractors to find and use small business concerns as subcontractors, thereby providing valuable opportunities for small business concerns. For these reasons, it is in the best interest of the Federal Government to apply the requirements of this rule to the acquisition of COTS items. IV. Expected Impact of the Rule This rule provides examples of activities that contracting officers may consider when evaluating whether the prime contractor made a good faith effort to comply with its small business subcontracting plan. The contracting officers also have consistent and uniform examples to identify and hold large prime contractors accountable for failing to make a good faith effort to E:\FR\FM\11AUR2.SGM 11AUR2 44252 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations comply with their subcontracting plans. Encouraging large prime contractors to meet their subcontracting goals may have a positive economic impact on any small business entity that wishes to participate in Federal procurement as a subcontractor. The final rule also requires prime contractors with commercial subcontracting plans to include indirect costs, with certain exceptions, in their subcontracting goals. This will ensure that the data reported in the summary subcontract report is consistent with the goals in the commercial subcontracting plan. V. Executive Orders 12866 and 13563 Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. 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 send the rule and the ‘‘Submission of Federal Rules Under the Congressional Review Act’’ form 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 (OIRA) 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 jbell on DSKJLSW7X2PROD with RULES2 DoD, GSA, and NASA have prepared a Final Regulatory Flexibility Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 U.S.C. 601–612. The FRFA is summarized as follows: The objective of this final rule is to implement section 1821 of the NDAA for FY 2017 and SBA’s implementing regulations, which provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan. SBA amended 13 CFR 125.3(d)(3) to provide guidance on evaluating whether the prime contractor made a good VerDate Sep<11>2014 23:19 Aug 10, 2021 Jkt 253001 faith effort to comply with its small business subcontracting plan and a list of examples of activities reflective of a failure to make a good faith effort. Additionally, SBA amended 13 CFR 125.3(c)(1)(iv) to require that large prime contractors with commercial subcontracting plans include indirect costs in the commercial subcontracting plan goals. Large prime contractors that have a commercial subcontracting plan report on performance through a Summary Subcontract Report (SSR) in the Electronic Subcontracting Reporting System (eSRS). The FAR currently requires—as SBA’s regulations required prior to publication of SBA’s final rule—that a contractor using a commercial subcontracting plan include all indirect costs in its SSR. However, these regulations did not require contractors to include indirect costs in their commercial subcontracting plan goals, which leads to inconsistencies when comparing the data reported in the SSR to the goals in the commercial subcontracting plan. There were no significant issues raised by the public comments in response to the initial regulatory flexibility analysis. This rule may have a positive economic impact on any small entity that wishes to participate in Federal procurement as a subcontractor. DoD, GSA, and NASA do not expect this rule to have a significant economic impact on a substantial number of small entities. This rule provides guidance to the contracting officer on evaluating whether the prime contractor made a good faith effort to comply with its small business subcontracting plan and a list of examples of activities reflective of a failure to make a good faith effort. By providing examples of a failure to make a good faith effort to comply with small business subcontracting plans, the FAR will enable contracting officers to determine more easily whether large prime contractors have made a good faith effort to comply with their subcontracting plans and to hold large prime contractors accountable for failing to make a good faith effort to comply with their subcontracting plans. More diligence in developing and meeting subcontracting goals on the part of large prime contractors could have a positive impact of giving small business concerns more opportunities to subcontract on Federal contracts. Data from the Federal Procurement Data System for fiscal years 2018 through 2020 indicate that there were 7,656 entities with 30,414 new awards that required subcontracting plans. Of the 30,414 new awards, 18 percent or 5,399 required commercial subcontracting plans. Additionally, 31 percent or 2,318 of the 7,656 unique awardees required commercial subcontracting plans. According to the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS), there are 19,596 unique entities who are subcontractors. Approximately 80 percent of the entities registered in the System for Award Management are small entities. Therefore, we estimate that 80 percent (15,677) of the subcontractors in FSRS are small entities. These small entities may benefit from this rule. PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 This final rule requires a large prime contractor with a commercial subcontracting plan to include indirect costs in its subcontracting goals. The benefit of requiring that indirect costs be included in subcontracting goals in commercial subcontracting plans is that it will increase the small business subcontracting goal and thus, increase the amount of funds the prime contractor will subcontract to small business concerns, providing more opportunities for subcontract awards to small business concerns. This final rule does not include any new reporting, recordkeeping, or other compliance requirements for small entities. There are no known significant alternative approaches that would accomplish the stated objectives of the applicable statute. 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 the Small Business Administration. VIII. Paperwork Reduction Act The Paperwork Reduction Act (44 U.S.C. 3501–3521) applies to this rule; however, these changes to the FAR do not impose additional information collection requirements to the paperwork burden previously approved under OMB Control Number 9000–0007, Subcontracting Plans. List of Subjects in 48 CFR Parts 19, 42, 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 amend 48 CFR parts 19, 42, and 52 as set forth below: ■ 1. The authority citation for 48 CFR parts 19, 42, and 52 continues to read as follows: Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113. PART 19—SMALL BUSINESS PROGRAMS 2. Amend section 19.704 by— a. In paragraph (a)(6) removing the phrase ‘‘subcontracting goals’’ and adding the phrase ‘‘subcontracting goals (for commercial plans, see paragraph (d) of this section)’’ in its place; ■ b. Revising paragraph (d) introductory text; and ■ c. In paragraph (d)(4) removing the phrase ‘‘one SSR’’ and adding the phrase ‘‘one SSR that includes all indirect costs, except as described in paragraph (d) of this section,’’ in its place. ■ ■ E:\FR\FM\11AUR2.SGM 11AUR2 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations The revision reads as follows: 19.704 Subcontracting plan requirements. * * * * * (d) A commercial plan (as defined in 19.701) is the preferred type of subcontracting plan for contractors furnishing commercial items. The subcontracting goals established for a commercial plan shall include all indirect costs with the exception of those such as the following: Employee salaries and benefits; payments for petty cash; depreciation; interest; income taxes; property taxes; lease payments; bank fees; fines, claims, and dues; original equipment manufacturer relationships during warranty periods (negotiated up front with the product); utilities and other services purchased from a municipality or an entity solely authorized by the municipality to provide those services in a particular geographical region; and philanthropic contributions. Once a contractor’s commercial plan has been approved, the Government shall not require another subcontracting plan from the same contractor while the plan remains in effect, as long as the product or service being provided by the contractor continues to meet the definition of a commercial item. The contractor shall— * * * * * 19.705–4 [Amended] 3. In section 19.705–4 amend paragraph (c), in the fourth sentence, by removing the phrase ‘‘faith effort’’ and adding the phrase ‘‘faith effort (see 19.705–7)’’ in its place. ■ 4. Amend section 19.705–6 by revising paragraphs (g)(1), (h), and (i) to read as follows: ■ 19.705–6 Postaward responsibilities of the contracting officer. jbell on DSKJLSW7X2PROD with RULES2 * * * * * (g) * * * (1) Assess whether the prime contractor made a good faith effort to comply with its small business subcontracting plan. See 19.705–7(b) for more information on the determination of good faith effort. * * * * * (h) Initiate action to assess liquidated damages in accordance with 19.705–7 upon a recommendation by the administrative contracting officer, if one is assigned, or receipt of other reliable evidence to indicate that assessing liquidated damages is warranted. (i) Take action to enforce the terms of the contract upon receipt of a notice from the contract administration office under 19.706(f). * * * * * VerDate Sep<11>2014 23:19 Aug 10, 2021 Jkt 253001 5. Amend section 19.705–7 by— a. Revising the section heading; b. In paragraph (a)— i. Adding a paragraph heading; ii. Removing the phrase ‘‘small disadvantaged business’’ and adding the phrase ‘‘small disadvantaged business,’’ in its place; ■ c. Revising paragraphs (b), (c), (d), and (e); ■ d. Adding a paragraph heading to the introductory text of paragraph (f); ■ e. Removing paragraph (g); and ■ f. Redesignating paragraph (h) as paragraph (f)(5). The revisions and additions read as follows: ■ ■ ■ ■ ■ 19.705–7 Compliance with the subcontracting plan. (a) General. * * * (b) Determination of good faith effort. (1) In determining whether a contractor failed to make a good faith effort to comply with its subcontracting plan, a contracting officer must look to the totality of the contractor’s actions, consistent with the information and assurances provided in its plan. The fact that the contractor failed to meet its subcontracting goals does not, in and of itself, constitute a failure to make a good faith effort (see 19.701). For example, notwithstanding a contractor’s diligent effort to identify and solicit offers from any of the small business, veteranowned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and womenowned small business concerns, factors such as unavailability of anticipated sources or unreasonable prices may frustrate achievement of the contractor’s subcontracting goals. The contracting officer may consider any of the following, though not all inclusive, to be indicators of a good faith effort: (i) Breaking out work to be subcontracted into economically feasible units, as appropriate, to facilitate small business participation. (ii) Conducting market research to identify potential small business subcontractors through all reasonable means, such as searching SAM, posting notices or solicitations on SBA’s SUBNet, participating in business matchmaking events, and attending preproposal conferences. (iii) Soliciting small business concerns as early in the acquisition process as practicable to allow them sufficient time to submit a timely offer for the subcontract. (iv) Providing interested small businesses with adequate and timely information about plans, specifications, and requirements for performance of the PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 44253 prime contract to assist them in submitting a timely offer for the subcontract. (v) Negotiating in good faith with interested small businesses. (vi) Directing small businesses that need additional assistance to SBA. (vii) Assisting interested small businesses in obtaining bonding, lines of credit, required insurance, necessary equipment, supplies, materials, or services. (viii) Utilizing the available services of small business associations; local, state, and Federal small business assistance offices; and other organizations. (ix) Participating in a formal mentorprote´ge´ program with one or more small business prote´ge´s that results in developmental assistance to the prote´ge´s. (x) Although failing to meet the subcontracting goal in one socioeconomic category, exceeding the goal by an equal or greater amount in one or more of the other categories. (xi) Fulfilling all of the requirements of the subcontracting plan. (2) When considered in the context of the contractor’s total effort in accordance with its plan, the contracting officer may consider any of the following, though not all inclusive, to be indicators of a failure to make a good faith effort: (i) Failure to attempt through market research to identify, contact, solicit, or consider for contract award small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, or women-owned small business concerns, through all reasonable means including outreach, industry days, or the use of Federal systems such as SBA’s Dynamic Small Business Search or SUBNet systems. (ii) Failure to designate and maintain a company official to administer the subcontracting program and monitor and enforce compliance with the plan. (iii) Failure to submit an acceptable ISR, or the SSR, using the eSRS, or as provided in agency regulations, by the report due dates specified in 52.219–9, Small Business Subcontracting Plan. (iv) Failure to maintain records or otherwise demonstrate procedures adopted to comply with the plan including subcontracting flowdown requirements. (v) Adoption of company policies or documented procedures that have as their objectives the frustration of the objectives of the plan. (vi) Failure to pay small business subcontractors in accordance with the E:\FR\FM\11AUR2.SGM 11AUR2 jbell on DSKJLSW7X2PROD with RULES2 44254 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations terms of the contract with the prime contractor. (vii) Failure to correct substantiated findings from Federal subcontracting compliance reviews or participate in subcontracting plan management training offered by the Government. (viii) Failure to provide the contracting officer with a written explanation if the contractor fails to acquire articles, equipment, supplies, services, or materials or obtain the performance of construction work as described in 19.704(a)(12). (ix) Falsifying records of subcontract awards to small business concerns. (c) Documentation of good faith effort. If, at completion of the basic contract or any option, or in the case of a commercial plan, at the close of the fiscal year for which the plan is applicable, a contractor has failed to comply with the requirements of its subcontracting plan, which includes meeting its subcontracting goals, the contracting officer shall review all available information for an indication that the contractor has not made a good faith effort to comply with the plan. If no such indication is found, the contracting officer shall document the file accordingly. (d) Notice of failure to make a good faith effort. If the contracting officer decides in accordance with paragraph (b) of this section that the contractor failed to make a good faith effort to comply with its subcontracting plan, the contracting officer shall give the contractor written notice in accordance with 52.219–16, Liquidated Damages— Subcontracting Plan, specifying the material breach, which may be included in the contractor’s past performance information, advising the contractor of the possibility that the contractor may have to pay to the Government liquidated damages, and providing a period of 15 working days (or longer period as necessary) within which to respond. The notice shall give the contractor an opportunity to demonstrate what good faith efforts have been made before the contracting officer issues the final decision and shall further state that failure of the contractor to respond may be taken as an admission that no valid explanation exists. (e) Payment of liquidated damages. (1) If, after consideration of all the pertinent data, the contracting officer finds that the contractor failed to make a good faith effort to comply with its subcontracting plan, the contracting officer shall issue a final decision to the contractor to that effect and require the payment of liquidated damages in an amount stated. The contracting officer’s VerDate Sep<11>2014 00:26 Aug 11, 2021 Jkt 253001 final decision shall state that the contractor has the right to appeal under the clause in the contract entitled Disputes. Calculations and procedures shall be in accordance with 52.219–16, Liquidated Damages—Subcontracting Plan. (2) The amount of damages attributable to the contractor’s failure to comply shall be an amount equal to the actual dollar amount by which the contractor failed to achieve each subcontracting goal. For calculations for commercial plans see paragraph (f) of this section. (3) Liquidated damages shall be in addition to any other remedies that the Government may have. (f) Commercial plans. * * * 19.706 [Amended] 6. In section 19.706 amend paragraph (f) by removing the phrase ‘‘subcontracting plan’’ and adding the phrase ‘‘subcontracting plan (see 19.705–7(b) for more information on the determination of good faith effort)’’ in its place. ■ PART 42—CONTRACT ADMINISTRATION AND AUDIT SERVICES 7. Amend section 42.1501 by redesignating paragraphs (a)(5) thru (a)(7) as paragraphs (a)(6) thru (a)(8) and adding a new paragraph (a)(5) to read as follows: ■ 42.1501 General. (a) * * * (5) Complying with the requirements of the small business subcontracting plan (see 19.705–7(b)); * * * * * PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES 8. Amend section 52.212–5 by revising the date of the clause and paragraphs (b)(17)(i), (b)(17)(v), and (b)(20) 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) * * * ll(17)(i) 52.219–9, Small Business Subcontracting Plan (SEP 2021) (15 U.S.C. 637(d)(4)). * * * * * PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 ll(v) Alternate IV (SEP 2021) of 52.219–9. * * * * * ll(20) 52.219–16, Liquidated Damages—Subcontracting Plan (SEP 2021) (15 U.S.C. 637(d)(4)(F)(i)). * * * * * ■ 9. Amend section 52.219–9 by— ■ a. Revising the date of the clause; ■ b. In paragraph (d)(2)(i) removing the word ‘‘subcontracts’’ and adding the phrase ‘‘subcontracts, including all indirect costs except as described in paragraph (g) of this clause,’’ in its place; ■ c. Adding a new fifth sentence to paragraph (g); ■ d. Revising the date of Alternate IV, and paragraph (d)(2)(i) of Alternate IV. The revised and added text reads as follows: 52.219–9 Plan. * * Small Business Subcontracting * * * Small Business Subcontracting Plan (SEP 2021) * * * * * (g) * * * A Contractor authorized to use a commercial subcontracting plan shall include in its subcontracting goals and in its SSR all indirect costs, with the exception of those such as the following: Employee salaries and benefits; payments for petty cash; depreciation; interest; income taxes; property taxes; lease payments; bank fees; fines, claims, and dues; original equipment manufacturer relationships during warranty periods (negotiated up front with the product); utilities and other services purchased from a municipality or an entity solely authorized by the municipality to provide those services in a particular geographical region; and philanthropic contributions. * * * * * * * * Alternate IV (SEP 2021). * * * (d) * * * (2) * * * (i) Total dollars planned to be subcontracted for an individual subcontracting plan; or the Contractor’s total projected sales, expressed in dollars, and the total value of projected subcontracts to support the sales for a commercial plan, including all indirect costs, with the exception of those such as the following: Employee salaries and benefits; payments for petty cash; depreciation; interest; income taxes; property taxes; lease payments; bank fees; fines, claims, and dues; original equipment manufacturer relationships during warranty periods (negotiated up front with the product); utilities and E:\FR\FM\11AUR2.SGM 11AUR2 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations other services purchased from a municipality or an entity solely authorized by the municipality to provide those services in a particular geographical region; and philanthropic contributions; * * * * * 10. Amend 52.219–16 by— ■ a. Revising the date of the clause; and ■ b. In paragraph (b) in the second sentence removing the phrase ‘‘plan, established’’ and adding ‘‘plan (see 19.705–7), established’’ in its place. The revision reads as follows: ■ 52.219–16 Liquidated Damages— Subcontracting Plan. * * * * List of Subjects in 48 CFR Parts 42 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 amend 48 CFR parts 42 and 52 as set forth below: ■ 1. The authority citation for 48 CFR parts 42 and 52 continues to read as follows: Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 U.S.C. 20113. PART 42—CONTRACT ADMINISTRATION AND AUDIT SERVICES * Liquidated Damages—Subcontracting Plan (SEP 2021) 42.709–0 through 42.709–6 [Redesignated as 42.709–1 through 42.709–7] * ■ * * * 2. Redesignate sections 42.709–0 through 42.709–6 as sections 42.709–1 through 42.709–7. * [FR Doc. 2021–16366 Filed 8–10–21; 8:45 am] BILLING CODE P 42.709–3 GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 42 and 52 [FAC 2021–07; Item V; Docket No. FAR– 2021–0052; Sequence No. 3] 42.709–4 Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). AGENCY: Final rule. This document makes amendments to the Federal Acquisition Regulation (FAR) in order to make needed editorial changes. SUMMARY: DATES: Effective September 10, 2021. Ms. Lois Mandell, Regulatory Secretariat Division (MVCB), at 202–501–4755 or GSARegSec@gsa.gov. Please cite FAC 2021–07, Technical Amendments. jbell on DSKJLSW7X2PROD with RULES2 FOR FURTHER INFORMATION CONTACT: This document makes editorial changes to 48 CFR parts 42 and 52. SUPPLEMENTARY INFORMATION: VerDate Sep<11>2014 23:19 Aug 10, 2021 Jkt 253001 [Amended] 4. Amend newly designated section 42.709–4 by— ■ a. In the introductory text removing ‘‘42.709–5’’ and adding ‘‘42.709–6’’ in its place; ■ b. In paragraph (a) removing ‘‘42.709– 1(a)(1)’’ and adding ‘‘42.709–2(a)(1)’’ in its place; and ■ c. In paragraph (b) introductory text removing ‘‘42.709–1(a)(2)’’ and adding ‘‘42.709–2(a)(2)’’ in its place. 42.709–5 5. Amend newly designated section 42.709–5 by removing from the introductory text ‘‘42.709–1(a)(1)(ii)’’ and adding ‘‘42.709–2(a)(1)(ii)’’ in its place. [Amended] 6. Amend newly designated section 42.709–6 by— ■ a. In the introductory text removing ‘‘42.709–1(a)’’ and adding ‘‘42.709–2(a)’’ in its place; and ■ b. In paragraph (b) removing ‘‘42.709(b)’’ and adding ‘‘42.709–1(b)’’ in its place. ■ PO 00000 Frm 00029 Fmt 4701 7. Amend section 52.242–3 by— a. Removing from the prescription text ‘‘42.709–6’’ and adding ‘‘42.709–7’’ in its place; ■ b. Revising the date of the clause; ■ c. Removing from paragraph (c) ‘‘Subpart’’ and adding ‘‘subpart’’ in its place; and ■ d. Removing from paragraph (g) ‘‘42.709–5’’ and adding ‘‘42.709–6’’ in its place. The revision reads as follows: ■ ■ 52.242–3 * * Penalties for Unallowable Costs. * * * Penalties for Unallowable Costs (SEP 2021) * * * * * 8. Amend section 52.245–1 by— a. Revising the date of clause; and b. Removing paragraphs (j)(2)(iii)(A) through (G). The revision reads as follows: ■ ■ ■ * * Government Property. * * * Government Property (SEP 2021) * * * * * [FR Doc. 2021–16367 Filed 8–10–21; 8:45 am] BILLING CODE 6820–EP–P DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Chapter 1 [Docket No. FAR–2021–0051, Sequence No. 4] Federal Acquisition Regulation; Federal Acquisition Circular 2021–07; Small Entity Compliance Guide Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Small Entity Compliance Guide. AGENCY: [Amended] ■ 42.709–6 PART 52—SOLICITATION PROVISIONS AND CONTRACT CLAUSES 52.245–1 ■ Federal Acquisition Regulation; Technical Amendments ACTION: [Amended] 3. Amend newly redesignated section 42.709–3 by— ■ a. In paragraph (a)(1) removing ‘‘42.709–1(a)’’ and adding ‘‘42.709–2(a)’’ in its place; ■ b. In paragraph (a)(2) removing ‘‘42.709–5’’ and adding ‘‘42.709–6’’ in its place; and ■ c. In paragraph (b)(1) removing ‘‘42.709–1(a)’’ and adding ‘‘42.709–2(a)’’ in its place. ■ DEPARTMENT OF DEFENSE 44255 Sfmt 4700 This document is issued under the joint authority of DoD, GSA, and NASA. This Small Entity Compliance Guide has been prepared in accordance with section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996. It consists of a summary of the rules appearing in Federal Acquisition Circular (FAC) 2021–07, which amends the Federal Acquisition Regulation (FAR). SUMMARY: E:\FR\FM\11AUR2.SGM 11AUR2

Agencies

[Federal Register Volume 86, Number 152 (Wednesday, August 11, 2021)]
[Rules and Regulations]
[Pages 44249-44255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16366]



[[Page 44249]]

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 19, 42, and 52

[FAC 2021-07; FAR Case 2019-004; Item IV; Docket No. FAR-2019-0030, 
Sequence No. 1]
RIN 9000-AN87


Federal Acquisition Regulation: Good Faith in Small Business 
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 to implement a section of the National 
Defense Authorization Act for Fiscal Year 2017, which requires examples 
of failure to make good faith efforts to comply with a small business 
subcontracting plan.

DATES: Effective September 10, 2021.

FOR FURTHER INFORMATION CONTACT: Ms. Dana Bowman, Procurement Analyst, 
at 202-803-3188, or by email at [email protected], for clarification 
of content. For information pertaining to status or publication 
schedules, contact the Regulatory Secretariat at 202-501-4755 or 
[email protected]. Please cite FAC 2021-07, FAR Case 2019-004.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published a proposed rule on June 3, 2020, at 85 
FR 34155, to implement section 1821 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2017 (section 1821(c) of 
Pub. L. 114-328; 15 U.S.C. 637 note). Section 1821 requires the Small 
Business Administration (SBA) to amend its regulations to provide 
examples of activities that would be considered a failure to make a 
good faith effort to comply with a small business subcontracting plan. 
SBA issued a final rule at 84 FR 65647, dated November 29, 2019, to 
implement section 1821 of the NDAA for FY 2017. In its final rule, SBA 
amended 13 CFR 125.3(d)(3) to provide guidance on evaluating whether 
the prime contractor made a good faith effort to comply with its small 
business subcontracting plan and a list of examples of activities 
reflective of a failure to make a good faith effort.
    Additionally, SBA revised 13 CFR 125.3(c)(1)(iv) to require that 
prime contractors with commercial subcontracting plans include indirect 
costs in their subcontracting goals. Other than small business concerns 
that have a commercial subcontracting plan report on performance 
through a summary subcontract report (SSR). Prior to the publication of 
its final rule, SBA's regulations required that contractors using a 
commercial subcontracting plan must include all indirect costs in their 
SSRs, but did not require these contractors to include indirect costs 
in their subcontracting goals, which led to inconsistencies when 
comparing the data reported in the SSR to the goals in the commercial 
subcontracting plan.
    Small business subcontracting plans are required from large prime 
contractors when a contract is expected to exceed $750,000 ($1.5 
million for construction) and has subcontracting possibilities. FAR 
19.704 lists the elements of the plan, which include the contractor's 
goals for subcontracting to small business concerns and a description 
of the efforts the contractor will make to ensure that small business, 
veteran-owned small business, service-disabled veteran-owned small 
business, HUBZone small business, small disadvantaged business, and 
women-owned small business concerns have an equitable opportunity to 
compete for subcontracts. Failure to make a good faith effort to comply 
with the plan may result in the assessment of liquidated damages per 
FAR 52.219-16, Liquidated Damages--Subcontracting Plan.
    This final FAR rule requires that all indirect costs, with certain 
exceptions, are included in commercial plans and SSRs.
    FAR 19.705-7 contains examples of a good faith effort, and examples 
of a failure to make a good faith effort.
    Four respondents submitted public comments in response to 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 received 
and any changes made to the rule as a result of the public comments are 
provided as follows:

A. Summary of Significant Changes From the Proposed Rule

    There are no changes made to the final rule.

B. Analysis of Public Comments

1. Clarify Applicability to Subcontracts for Commercial Items and 
Commercially Available Off-the-Shelf (COTS) Items
    Comment: One respondent commented that the rule should clarify that 
the ``good faith'' requirement is not applicable to subcontracts for 
commercial and COTS items under prime contracts. The respondent 
commented that the proposed rule does not address FAR 52.219-9(j), 
which states that subcontracting plans are not required from 
subcontractors when the prime contract contains the clause at 52.212-5, 
Contract Terms and Conditions Required to Implement Statutes or 
Executive Orders--Commercial Items, or when the subcontractor provides 
a commercial item subject to the clause at 52.244-6, Subcontracts for 
Commercial Items, under a prime contract.
    Response: This rule does not revise the conditions for when a 
subcontracting plan is required. If a subcontracting plan is not 
required, then the examples of activities that would be considered a 
failure to make a good faith effort to comply with a small business 
subcontracting plan are not applicable. No changes were made to the 
final rule as a result of this comment.
2. Material Breach
a. FAR Language Broader Than SBA Language
    Comment: One respondent stated that the proposed FAR language at 
19.705-7(d) is much broader than the SBA final rule and is unclear on 
whether ``material breach'' refers to the subcontracting plan or a 
breach of the contract itself.
    Response: FAR 19.705-5(a)(5) requires that the subcontracting plan 
become a ``material part of the contract upon award.'' The final rule 
text at FAR 19.705-7(d), similar to the SBA final rule, cites FAR 
52.219-16, Liquidated Damages--Subcontracting Plan, which provides the 
corrective actions available to all Federal Government contracting 
officers when a contractor fails to make a good faith effort to comply 
with the subcontracting plan, while also giving consideration to other 
Federal contracting regulations. In this context, a failure to make a 
good faith effort to comply with a subcontracting plan is a material 
breach, sufficient for the assessment of liquidated damages, and also 
for other remedies the Government may have. No changes were made to the 
final rule as a result of this comment.

[[Page 44250]]

b. Recommended Language To Be Added to Final Rule
    Comment: One respondent requested the proposed FAR language at 
19.705-7(d) include language to indicate that the contractor has an 
opportunity to rebut and appeal before a determination of noncompliance 
is rendered and provided recommended text.
    Response: The clause at FAR 52.219-16, Liquidated Damages--
Subcontracting Plan, which is cited in proposed FAR text 19.705-7(d), 
specifically 52.219-16(c), allows the contractor an opportunity to 
demonstrate what good faith efforts have been made and to discuss the 
matter, before the contracting officer's final decision. No changes 
were made to the final rule as a result of this comment.
3. Clarifications
a. Ensure Consistency Between FAR 52.219-16 and Proposed FAR 19.705-
7(b)(2)
    Comment: One respondent recommended that to remain consistent, the 
proposed language at FAR 19.705-7(b)(2) should either include the 
language contained in 52.219-16 or include references to the intent of 
52.219-16, as the examples provided at FAR 19.705-7(b)(2) may occur 
without willful or intentional behavior. The respondent also 
recommended that intent and examples should be read together providing 
that an occurrence of the examples without intent would not constitute 
a violation. Specifically, failure to make a good faith effort must 
meet the ``willful or intentional'' standard. The respondent also 
provided various reasons why the FAR should make it clear that an 
occurrence of the examples without intent would not constitute a 
violation.
    Response: This final rule is implementing current SBA regulation. 
SBA's language at 13 CFR 125.3(d)(3) provides guidance on evaluating 
whether the prime contractor made a good faith effort to comply with 
its small business subcontracting plan. This language parallels the 
language in SBA's rule providing contracting officers with examples to 
consider, in the context of the contractor's total effort, as possible 
indicators of a failure to make a good faith effort. SBA's rule does 
not reference the ``willful and intentional'' language. The FAR text 
will not be revised to incorporate the requested language as the 
``willful and intentional'' language already appears in the definition 
of ``failure to make a good faith effort to comply with the 
subcontracting plan'' at both FAR 19.701 and in the clause at FAR 
52.219-16. No changes were made to the final rule as a result of this 
comment.
b. Clarify the Intent of the Proposed Language at FAR 19.705-
7(b)(2)(vi)
    Comment: One respondent stated FAR 19.705-7(b)(2)(vi), as written, 
could be misinterpreted to hold a lower-tier contractor to the terms of 
a prime contractor's contract with the Government and recommended a 
revision to provide the intent of the text is to ensure a contractor 
pays its small business subcontractors in accordance with the terms of 
their contract with the small business.
    Response: The current text states, ``Failure to pay small business 
subcontractors in accordance with the terms of the contract with the 
prime contractor;'' and provides that the intent pertains to the 
subcontractor's contract with the prime contractor. The final rule FAR 
text will not be revised to include the recommended text.
c. Clarify Intent of FAR 19.705-7(b)(2)(vii)
    Comment: One respondent stated that the language at FAR 19.705-
7(b)(2)(vii) should be revised to expressly require prime contractors 
to attend training as a remedy to any performance review findings. The 
respondent further stated that this is necessary given that a failure 
to attend the training offered by the Government could be perceived as 
a failure to make a good faith effort. The respondent provided 
recommended revisions to 19.705-7(b)(2)(vii).
    Response: The respondent's interpretation of the language at FAR 
19.705-7(b)(2)(vii) is correct. If a contractor does not either correct 
substantiated findings or participate in subcontracting plan management 
training offered by the Government, it could be perceived by the 
contracting officer as a failure to make a good faith effort. This is 
not all inclusive of failure to make a good faith effort, but is one of 
many instances and examples used to show a lack of good faith effort on 
behalf of the prime contractor. Additionally, the contracting officer 
has the choice of requiring or recommending other corrective remedies 
as deemed necessary. The respondent's recommended language is more 
restrictive by suggesting ``and'' instead of ``or'' as written in the 
SBA rule. The final rule FAR text will not be revised to include the 
recommended text.
d. Clarify Applicability to Contracts at or Below the Simplified 
Acquisition Threshold
    Comment: One respondent stated that the preamble to the proposed 
rule indicates that the FAR Council is considering expanding the scope 
of the rule to include contracts at or below the simplified acquisition 
threshold (SAT) and recommended that the final FAR rule under this case 
should specify that it does not apply to contracts at or below the SAT. 
The respondent further stated that contracts at or below the SAT must 
be exempt from any policy or regulatory requirements pertaining to 
Small Business Plans.
    Response: Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) 
requires subcontracting plans only for acquisitions valued above 
$750,000 ($1.5 million for construction contracts). As stated in 
section III of this preamble, the requirements of section 1821 of the 
NDAA for FY 2017 (Pub. L. 114-328; 15 U.S.C 637 note) do not apply to 
contracts at or below the SAT.
e. Clarify Intent of FAR 19.705-7(b)(1)(v)
    Comment: One respondent stated that the language at FAR 19.705-
7(b)(1)(v) does not make clear how a contracting officer would make a 
determination that a contractor has ``negotiated in good faith with 
interested small business.'' The respondent also states that it is not 
clear how a contractor would negotiate with a small business that is 
merely interested in participating as a subcontractor.
    Response: The language at FAR 19.705-7(b)(1)(v) is broadly written, 
as the intent is not to restrict or limit the contracting officer's 
authority or ability to determine the prime contractor's effort to 
negotiate in good faith. No changes were made to the FAR final rule as 
a result of this comment.
4. Outside the Scope of This Rule
    Comment: One respondent had no issue with the proposed changes and 
clarifications in the language (FAR text) and agreed that the 
requirements should be consistent. However, the respondent disagreed 
with commercial subcontracting plans allowing large businesses to 
``capture and be credited for small dollars spent'' that have nothing 
to do with the specific awarded Federal contract. The respondent 
recommended a maximum cap proposed at 0.5 percent to the large business 
and that any remaining credit or subcontracting expenditure allowed be 
with the small business directly involved and subcontracted to the

[[Page 44251]]

specific awarded Federal contract. The respondent further reiterated 
the original intent of the subcontracting law was to encourage large 
business primes to work and subcontract with small businesses in 
support of the Federal contract awarded and not to receive credit for 
unrelated work. Another respondent acknowledged the importance of prime 
contractors making a good faith effort to comply with SBA's small 
business subcontracting plan. The respondent further stated that the 
country is in the midst of a deadly pandemic and offered additional 
political commentary irrelevant to the subject FAR case.
    Response: The comments are outside the scope of this rule. The 
intent of this rule is to provide guidance on evaluating whether a 
prime contractor made a good faith effort to comply with its small 
business subcontracting plan and to provide a list of examples of 
activities reflective of a failure to make a good faith effort. 
Additionally, this rule is amending the FAR to require that all 
indirect costs, minus certain exceptions, are included in both 
commercial plans and summary subcontract reports.

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

    This rule implements a statutory requirement to provide examples of 
activities that would be considered a failure to make a good faith 
effort to comply with a small business subcontracting plan. The Federal 
Acquisition Regulatory Council (FAR Council) does not intend to apply 
the requirements of section 1821 of the NDAA for FY 2017 (Pub. L. 114-
328; 15 U.S.C 637 note) to contracts at or below the SAT, but intends 
to apply those requirements to contracts for the acquisition of 
commercial items, including COTS items. The clauses at FAR 52.219-9 and 
52.219-16 are revised by this rule.

A. Applicability to Contracts at or Below the SAT

    Pursuant to 41 U.S.C. 1905, a provision of law is not applicable to 
acquisitions at or below the SAT unless the law (i) contains criminal 
or civil penalties; (ii) specifically refers to 41 U.S.C. 1905 and 
states that the law applies to acquisitions at or below the SAT; or 
(iii) the FAR Council makes a written determination that it is not in 
the best interest of the Federal Government to exempt contracts or 
subcontracts at or below the SAT. If none of these conditions are met, 
the FAR is required to include the statutory requirement(s) on a list 
of provisions of law that are inapplicable to acquisitions at or below 
the SAT.
    The purpose of this rule is to implement section 1821 of the NDAA 
for FY 2017. Section 1821 requires SBA to provide examples of 
activities that would be considered a failure to make a good faith 
effort to comply with a small business subcontracting plan.
    The FAR Council does not intend to apply this 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 the acquisition of commercial items.
    The purpose of this rule is to implement section 1821 of the NDAA 
for FY 2017 and SBA's implementing regulations. Section 1821 requires 
SBA to provide examples of activities that would be considered a 
failure to make a good faith effort to comply with a small business 
subcontracting plan. Both the FAR and SBA's regulations require 
contractors with small business subcontracting plans--including 
commercial plans--to make a good faith effort to comply with the plans. 
SBA's final rule did not exempt the acquisition of commercial items.
    Section 1821 furthers the Administration's goal of supporting small 
business. It advances the interests of small business subcontractors by 
promoting good faith efforts by large prime contractors to find and use 
small business concerns as subcontractors, thereby providing valuable 
opportunities for small business concerns.
    For these reasons, it is in the best interest of the Federal 
Government to apply the requirements of this 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 it 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 
the acquisition of COTS items.
    The purpose of this rule is to implement section 1821 of the NDAA 
for FY 2017 and SBA's implementing regulations. Section 1821 requires 
SBA to provide examples of activities that would be considered a 
failure to make a good faith effort to comply with a small business 
subcontracting plan. Both the FAR and SBA's regulations require 
contractors with small business subcontracting plans--including 
commercial plans--to make a good faith effort to comply with the plans. 
SBA's final rule did not exempt the acquisition of COTS items.
    Section 1821 furthers the Administration's goal of supporting small 
business. It advances the interests of small business subcontractors by 
promoting good faith efforts by large prime contractors to find and use 
small business concerns as subcontractors, thereby providing valuable 
opportunities for small business concerns.
    For these reasons, it is in the best interest of the Federal 
Government to apply the requirements of this rule to the acquisition of 
COTS items.

IV. Expected Impact of the Rule

    This rule provides examples of activities that contracting officers 
may consider when evaluating whether the prime contractor made a good 
faith effort to comply with its small business subcontracting plan. The 
contracting officers also have consistent and uniform examples to 
identify and hold large prime contractors accountable for failing to 
make a good faith effort to

[[Page 44252]]

comply with their subcontracting plans. Encouraging large prime 
contractors to meet their subcontracting goals may have a positive 
economic impact on any small business entity that wishes to participate 
in Federal procurement as a subcontractor.
    The final rule also requires prime contractors with commercial 
subcontracting plans to include indirect costs, with certain 
exceptions, in their subcontracting goals. This will ensure that the 
data reported in the summary subcontract report is consistent with the 
goals in the commercial subcontracting plan.

V. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, dated September 30, 1993.

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 
send the rule and the ``Submission of Federal Rules Under the 
Congressional Review Act'' form 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 (OIRA) 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. 601-612. The FRFA is summarized as follows:

    The objective of this final rule is to implement section 1821 of 
the NDAA for FY 2017 and SBA's implementing regulations, which 
provide examples of activities that would be considered a failure to 
make a good faith effort to comply with a small business 
subcontracting plan. SBA amended 13 CFR 125.3(d)(3) to provide 
guidance on evaluating whether the prime contractor made a good 
faith effort to comply with its small business subcontracting plan 
and a list of examples of activities reflective of a failure to make 
a good faith effort.
    Additionally, SBA amended 13 CFR 125.3(c)(1)(iv) to require that 
large prime contractors with commercial subcontracting plans include 
indirect costs in the commercial subcontracting plan goals. Large 
prime contractors that have a commercial subcontracting plan report 
on performance through a Summary Subcontract Report (SSR) in the 
Electronic Subcontracting Reporting System (eSRS). The FAR currently 
requires--as SBA's regulations required prior to publication of 
SBA's final rule--that a contractor using a commercial 
subcontracting plan include all indirect costs in its SSR. However, 
these regulations did not require contractors to include indirect 
costs in their commercial subcontracting plan goals, which leads to 
inconsistencies when comparing the data reported in the SSR to the 
goals in the commercial subcontracting plan.
    There were no significant issues raised by the public comments 
in response to the initial regulatory flexibility analysis.
    This rule may have a positive economic impact on any small 
entity that wishes to participate in Federal procurement as a 
subcontractor.
    DoD, GSA, and NASA do not expect this rule to have a significant 
economic impact on a substantial number of small entities. This rule 
provides guidance to the contracting officer on evaluating whether 
the prime contractor made a good faith effort to comply with its 
small business subcontracting plan and a list of examples of 
activities reflective of a failure to make a good faith effort.
    By providing examples of a failure to make a good faith effort 
to comply with small business subcontracting plans, the FAR will 
enable contracting officers to determine more easily whether large 
prime contractors have made a good faith effort to comply with their 
subcontracting plans and to hold large prime contractors accountable 
for failing to make a good faith effort to comply with their 
subcontracting plans. More diligence in developing and meeting 
subcontracting goals on the part of large prime contractors could 
have a positive impact of giving small business concerns more 
opportunities to subcontract on Federal contracts.
    Data from the Federal Procurement Data System for fiscal years 
2018 through 2020 indicate that there were 7,656 entities with 
30,414 new awards that required subcontracting plans. Of the 30,414 
new awards, 18 percent or 5,399 required commercial subcontracting 
plans. Additionally, 31 percent or 2,318 of the 7,656 unique 
awardees required commercial subcontracting plans. According to the 
Federal Funding Accountability and Transparency Act Subaward 
Reporting System (FSRS), there are 19,596 unique entities who are 
subcontractors. Approximately 80 percent of the entities registered 
in the System for Award Management are small entities. Therefore, we 
estimate that 80 percent (15,677) of the subcontractors in FSRS are 
small entities. These small entities may benefit from this rule.
    This final rule requires a large prime contractor with a 
commercial subcontracting plan to include indirect costs in its 
subcontracting goals. The benefit of requiring that indirect costs 
be included in subcontracting goals in commercial subcontracting 
plans is that it will increase the small business subcontracting 
goal and thus, increase the amount of funds the prime contractor 
will subcontract to small business concerns, providing more 
opportunities for subcontract awards to small business concerns.
    This final rule does not include any new reporting, 
recordkeeping, or other compliance requirements for small entities.
    There are no known significant alternative approaches that would 
accomplish the stated objectives of the applicable statute.

    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 
the Small Business Administration.

VIII. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. 3501-3521) applies to this 
rule; however, these changes to the FAR do not impose additional 
information collection requirements to the paperwork burden previously 
approved under OMB Control Number 9000-0007, Subcontracting Plans.

List of Subjects in 48 CFR Parts 19, 42, 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 amend 48 CFR parts 19, 42, and 52 as 
set forth below:

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

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

PART 19--SMALL BUSINESS PROGRAMS

0
2. Amend section 19.704 by--
0
a. In paragraph (a)(6) removing the phrase ``subcontracting goals'' and 
adding the phrase ``subcontracting goals (for commercial plans, see 
paragraph (d) of this section)'' in its place;
0
b. Revising paragraph (d) introductory text; and
0
c. In paragraph (d)(4) removing the phrase ``one SSR'' and adding the 
phrase ``one SSR that includes all indirect costs, except as described 
in paragraph (d) of this section,'' in its place.

[[Page 44253]]

    The revision reads as follows:


19.704  Subcontracting plan requirements.

* * * * *
    (d) A commercial plan (as defined in 19.701) is the preferred type 
of subcontracting plan for contractors furnishing commercial items. The 
subcontracting goals established for a commercial plan shall include 
all indirect costs with the exception of those such as the following: 
Employee salaries and benefits; payments for petty cash; depreciation; 
interest; income taxes; property taxes; lease payments; bank fees; 
fines, claims, and dues; original equipment manufacturer relationships 
during warranty periods (negotiated up front with the product); 
utilities and other services purchased from a municipality or an entity 
solely authorized by the municipality to provide those services in a 
particular geographical region; and philanthropic contributions. Once a 
contractor's commercial plan has been approved, the Government shall 
not require another subcontracting plan from the same contractor while 
the plan remains in effect, as long as the product or service being 
provided by the contractor continues to meet the definition of a 
commercial item. The contractor shall--
* * * * *


19.705-4  [Amended]

0
3. In section 19.705-4 amend paragraph (c), in the fourth sentence, by 
removing the phrase ``faith effort'' and adding the phrase ``faith 
effort (see 19.705-7)'' in its place.

0
4. Amend section 19.705-6 by revising paragraphs (g)(1), (h), and (i) 
to read as follows:


19.705-6  Postaward responsibilities of the contracting officer.

* * * * *
    (g) * * *
    (1) Assess whether the prime contractor made a good faith effort to 
comply with its small business subcontracting plan. See 19.705-7(b) for 
more information on the determination of good faith effort.
* * * * *
    (h) Initiate action to assess liquidated damages in accordance with 
19.705-7 upon a recommendation by the administrative contracting 
officer, if one is assigned, or receipt of other reliable evidence to 
indicate that assessing liquidated damages is warranted.
    (i) Take action to enforce the terms of the contract upon receipt 
of a notice from the contract administration office under 19.706(f).
* * * * *

0
5. Amend section 19.705-7 by--
0
a. Revising the section heading;
0
b. In paragraph (a)--
0
i. Adding a paragraph heading;
0
ii. Removing the phrase ``small disadvantaged business'' and adding the 
phrase ``small disadvantaged business,'' in its place;
0
c. Revising paragraphs (b), (c), (d), and (e);
0
d. Adding a paragraph heading to the introductory text of paragraph 
(f);
0
e. Removing paragraph (g); and
0
f. Redesignating paragraph (h) as paragraph (f)(5).
    The revisions and additions read as follows:


19.705-7  Compliance with the subcontracting plan.

    (a) General. * * *
    (b) Determination of good faith effort. (1) In determining whether 
a contractor failed to make a good faith effort to comply with its 
subcontracting plan, a contracting officer must look to the totality of 
the contractor's actions, consistent with the information and 
assurances provided in its plan. The fact that the contractor failed to 
meet its subcontracting goals does not, in and of itself, constitute a 
failure to make a good faith effort (see 19.701). For example, 
notwithstanding a contractor's diligent effort to identify and solicit 
offers from any of the small business, veteran-owned small business, 
service-disabled veteran-owned small business, HUBZone small business, 
small disadvantaged business, and women-owned small business concerns, 
factors such as unavailability of anticipated sources or unreasonable 
prices may frustrate achievement of the contractor's subcontracting 
goals. The contracting officer may consider any of the following, 
though not all inclusive, to be indicators of a good faith effort:
    (i) Breaking out work to be subcontracted into economically 
feasible units, as appropriate, to facilitate small business 
participation.
    (ii) Conducting market research to identify potential small 
business subcontractors through all reasonable means, such as searching 
SAM, posting notices or solicitations on SBA's SUBNet, participating in 
business matchmaking events, and attending preproposal conferences.
    (iii) Soliciting small business concerns as early in the 
acquisition process as practicable to allow them sufficient time to 
submit a timely offer for the subcontract.
    (iv) Providing interested small businesses with adequate and timely 
information about plans, specifications, and requirements for 
performance of the prime contract to assist them in submitting a timely 
offer for the subcontract.
    (v) Negotiating in good faith with interested small businesses.
    (vi) Directing small businesses that need additional assistance to 
SBA.
    (vii) Assisting interested small businesses in obtaining bonding, 
lines of credit, required insurance, necessary equipment, supplies, 
materials, or services.
    (viii) Utilizing the available services of small business 
associations; local, state, and Federal small business assistance 
offices; and other organizations.
    (ix) Participating in a formal mentor-prot[eacute]g[eacute] program 
with one or more small business prot[eacute]g[eacute]s that results in 
developmental assistance to the prot[eacute]g[eacute]s.
    (x) Although failing to meet the subcontracting goal in one 
socioeconomic category, exceeding the goal by an equal or greater 
amount in one or more of the other categories.
    (xi) Fulfilling all of the requirements of the subcontracting plan.
    (2) When considered in the context of the contractor's total effort 
in accordance with its plan, the contracting officer may consider any 
of the following, though not all inclusive, to be indicators of a 
failure to make a good faith effort:
    (i) Failure to attempt through market research to identify, 
contact, solicit, or consider for contract award small business, 
veteran-owned small business, service-disabled veteran-owned small 
business, HUBZone small business, small disadvantaged business, or 
women-owned small business concerns, through all reasonable means 
including outreach, industry days, or the use of Federal systems such 
as SBA's Dynamic Small Business Search or SUBNet systems.
    (ii) Failure to designate and maintain a company official to 
administer the subcontracting program and monitor and enforce 
compliance with the plan.
    (iii) Failure to submit an acceptable ISR, or the SSR, using the 
eSRS, or as provided in agency regulations, by the report due dates 
specified in 52.219-9, Small Business Subcontracting Plan.
    (iv) Failure to maintain records or otherwise demonstrate 
procedures adopted to comply with the plan including subcontracting 
flowdown requirements.
    (v) Adoption of company policies or documented procedures that have 
as their objectives the frustration of the objectives of the plan.
    (vi) Failure to pay small business subcontractors in accordance 
with the

[[Page 44254]]

terms of the contract with the prime contractor.
    (vii) Failure to correct substantiated findings from Federal 
subcontracting compliance reviews or participate in subcontracting plan 
management training offered by the Government.
    (viii) Failure to provide the contracting officer with a written 
explanation if the contractor fails to acquire articles, equipment, 
supplies, services, or materials or obtain the performance of 
construction work as described in 19.704(a)(12).
    (ix) Falsifying records of subcontract awards to small business 
concerns.
    (c) Documentation of good faith effort. If, at completion of the 
basic contract or any option, or in the case of a commercial plan, at 
the close of the fiscal year for which the plan is applicable, a 
contractor has failed to comply with the requirements of its 
subcontracting plan, which includes meeting its subcontracting goals, 
the contracting officer shall review all available information for an 
indication that the contractor has not made a good faith effort to 
comply with the plan. If no such indication is found, the contracting 
officer shall document the file accordingly.
    (d) Notice of failure to make a good faith effort. If the 
contracting officer decides in accordance with paragraph (b) of this 
section that the contractor failed to make a good faith effort to 
comply with its subcontracting plan, the contracting officer shall give 
the contractor written notice in accordance with 52.219-16, Liquidated 
Damages--Subcontracting Plan, specifying the material breach, which may 
be included in the contractor's past performance information, advising 
the contractor of the possibility that the contractor may have to pay 
to the Government liquidated damages, and providing a period of 15 
working days (or longer period as necessary) within which to respond. 
The notice shall give the contractor an opportunity to demonstrate what 
good faith efforts have been made before the contracting officer issues 
the final decision and shall further state that failure of the 
contractor to respond may be taken as an admission that no valid 
explanation exists.
    (e) Payment of liquidated damages. (1) If, after consideration of 
all the pertinent data, the contracting officer finds that the 
contractor failed to make a good faith effort to comply with its 
subcontracting plan, the contracting officer shall issue a final 
decision to the contractor to that effect and require the payment of 
liquidated damages in an amount stated. The contracting officer's final 
decision shall state that the contractor has the right to appeal under 
the clause in the contract entitled Disputes. Calculations and 
procedures shall be in accordance with 52.219-16, Liquidated Damages--
Subcontracting Plan.
    (2) The amount of damages attributable to the contractor's failure 
to comply shall be an amount equal to the actual dollar amount by which 
the contractor failed to achieve each subcontracting goal. For 
calculations for commercial plans see paragraph (f) of this section.
    (3) Liquidated damages shall be in addition to any other remedies 
that the Government may have.
    (f) Commercial plans. * * *


19.706  [Amended]

0
6. In section 19.706 amend paragraph (f) by removing the phrase 
``subcontracting plan'' and adding the phrase ``subcontracting plan 
(see 19.705-7(b) for more information on the determination of good 
faith effort)'' in its place.

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

0
7. Amend section 42.1501 by redesignating paragraphs (a)(5) thru (a)(7) 
as paragraphs (a)(6) thru (a)(8) and adding a new paragraph (a)(5) to 
read as follows:


42.1501  General.

    (a) * * *
    (5) Complying with the requirements of the small business 
subcontracting plan (see 19.705-7(b));
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
8. Amend section 52.212-5 by revising the date of the clause and 
paragraphs (b)(17)(i), (b)(17)(v), and (b)(20) 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) * * *
    __(17)(i) 52.219-9, Small Business Subcontracting Plan (SEP 2021) 
(15 U.S.C. 637(d)(4)).
* * * * *
    __(v) Alternate IV (SEP 2021) of 52.219-9.
* * * * *
    __(20) 52.219-16, Liquidated Damages--Subcontracting Plan (SEP 
2021) (15 U.S.C. 637(d)(4)(F)(i)).
* * * * *

0
9. Amend section 52.219-9 by--
0
a. Revising the date of the clause;
0
b. In paragraph (d)(2)(i) removing the word ``subcontracts'' and adding 
the phrase ``subcontracts, including all indirect costs except as 
described in paragraph (g) of this clause,'' in its place;
0
c. Adding a new fifth sentence to paragraph (g);
0
d. Revising the date of Alternate IV, and paragraph (d)(2)(i) of 
Alternate IV.
    The revised and added text reads as follows:


52.219-9  Small Business Subcontracting Plan.

* * * * *

Small Business Subcontracting Plan (SEP 2021)

* * * * *
    (g) * * * A Contractor authorized to use a commercial 
subcontracting plan shall include in its subcontracting goals and in 
its SSR all indirect costs, with the exception of those such as the 
following: Employee salaries and benefits; payments for petty cash; 
depreciation; interest; income taxes; property taxes; lease payments; 
bank fees; fines, claims, and dues; original equipment manufacturer 
relationships during warranty periods (negotiated up front with the 
product); utilities and other services purchased from a municipality or 
an entity solely authorized by the municipality to provide those 
services in a particular geographical region; and philanthropic 
contributions. * * *
* * * * *
    Alternate IV (SEP 2021). * * *
    (d) * * *
    (2) * * *
    (i) Total dollars planned to be subcontracted for an individual 
subcontracting plan; or the Contractor's total projected sales, 
expressed in dollars, and the total value of projected subcontracts to 
support the sales for a commercial plan, including all indirect costs, 
with the exception of those such as the following: Employee salaries 
and benefits; payments for petty cash; depreciation; interest; income 
taxes; property taxes; lease payments; bank fees; fines, claims, and 
dues; original equipment manufacturer relationships during warranty 
periods (negotiated up front with the product); utilities and

[[Page 44255]]

other services purchased from a municipality or an entity solely 
authorized by the municipality to provide those services in a 
particular geographical region; and philanthropic contributions;
* * * * *

0
10. Amend 52.219-16 by--
0
a. Revising the date of the clause; and
0
b. In paragraph (b) in the second sentence removing the phrase ``plan, 
established'' and adding ``plan (see 19.705-7), established'' in its 
place.
    The revision reads as follows:


52.219-16  Liquidated Damages--Subcontracting Plan.

* * * * *

Liquidated Damages--Subcontracting Plan (SEP 2021)

* * * * *
[FR Doc. 2021-16366 Filed 8-10-21; 8:45 am]
BILLING CODE P


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