Defense Federal Acquisition Regulation Supplement: Pilot Program To Incentivize Contracting With Employee-Owned Businesses (DFARS Case 2024-D004), 46831-46836 [2024-11517]

Agencies

• Defense Acquisition Regulations System
• DEPARTMENT OF DEFENSE

[Federal Register Volume 89, Number 105 (Thursday, May 30, 2024)]
[Proposed Rules]
[Pages 46831-46836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11517]


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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 206, 212, 252, and 270

[Docket DARS-2024-0017]
RIN 0750-AM01


Defense Federal Acquisition Regulation Supplement: Pilot Program 
To Incentivize Contracting With Employee-Owned Businesses (DFARS Case 
2024-D004)

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

ACTION: Proposed rule.

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SUMMARY: DoD is proposing to amend the Defense Federal Acquisition 
Regulation Supplement (DFARS) to implement sections of the National 
Defense Authorization Acts for Fiscal Year 2022 and Fiscal Year 2024 
that authorize DoD to establish a pilot program that allows for the 
noncompetitive award of certain follow-on contracts to certain 
employee-owned businesses.

DATES: Comments on the proposed rule should be submitted in writing to 
the address shown below on or before July 29, 2024, to be considered in 
the formation of a final rule.

ADDRESSES: Submit comments identified by DFARS Case 2024-D004, using 
either of the following methods:
    [cir] Federal eRulemaking Portal: https://www.regulations.gov. 
Search for DFARS Case 2024-D004. Select ``Comment'' and follow the 
instructions to submit a comment. Please include ``DFARS Case

[[Page 46832]]

2024-D004'' on any attached documents.
    [cir] Email: [email protected]. Include DFARS Case 2024-D004 in 
the subject line of the message.
    Comments received generally will be posted without change to 
https://www.regulations.gov, including any personal information 
provided. To confirm receipt of your comment(s), please check https://www.regulations.gov, approximately two to three days after submission 
to verify posting.

FOR FURTHER INFORMATION CONTACT: Ms. Jeanette Snyder, telephone 703-
508-7524.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD is proposing to revise the DFARS to implement section 874 of 
the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022 
(Pub. L. 117-81; 10 U.S.C. 3204 note) as amended by section 872 of the 
NDAA for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note). Sections 874 
and 872 authorize DoD to establish a pilot program that allows for the 
noncompetitive award of certain follow-on contracts to employee-owned 
businesses that meet the definition of a qualified business. The Office 
of the Under Secretary of Defense (Acquisition and Sustainment), 
Defense Pricing and Contracting implemented section 874 via a contract 
policy memorandum dated November 8, 2022.

II. Discussion and Analysis

    This rule proposes to add new DFARS part 270, Defense Contracting 
Programs, to include new subpart 270.X, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses, to implement section 874 of 
the NDAA for FY 2022 and section 872 of the NDAA for FY 2024. This 
proposed new part 270 will contain contracting programs that are unique 
to DoD but are not socioeconomic programs such as those located in 
DFARS part 226, Other Socioeconomic Programs. The proposed subpart 
270.X provides the scope, definition, policy, limitations, procedures, 
solicitation provisions, and contract clause associated with the pilot 
program. This proposed rule, at DFARS 270.X02, Policy, authorizes 
contracting officers to award one sole-source, follow-on contract for 
the continued development, production, or provision of products or 
services that are the same or substantially similar to those procured 
under previous contracts awarded by or for DoD to contractors that meet 
the definition of a qualified business. Although section 874 allows for 
noncompetitive awards, the proposed rule requires such awards to be 
supported by written justifications and approvals as required at 
Federal Acquisition Regulation (FAR) 6.303 and FAR 6.304.
    Under the pilot program, contracts are awarded to qualified 
businesses. Therefore, a definition of ``qualified business'' is added 
to DFARS 270.X01, Definition, as follows: An S corporation as defined 
in 26 U.S.C. 1361(a)(1) for which 100 percent of the outstanding stock 
is held through an employee stock ownership plan as defined in 26 
U.S.C. 4975(e)(7).
    The proposed rule, at 270.X03, Limitations, specifies that--
     Only a contracting officer may submit an application to 
participate in the pilot program;
     Contracting officers may only award contracts to 
contractors that meet the definition of a qualified business;
     Contracting officers may only award one sole-source, 
follow-on contract to a qualified business for each predecessor 
contract, unless a waiver is obtained; and
     Unless waived, a qualified business shall not pay more 
than 50 percent of the amount paid by the Government for contract 
performance to subcontractors that are not qualified businesses, except 
when the contract is for a product and subcontracts for materials are 
not available from another qualified business.
    Proposed section 270.X00, Scope of subpart, provides references to 
the NDAA sections implemented by the subpart. In addition, this section 
also advises contracting officers the authority to award contracts 
under the pilot program expires on December 27, 2029.
    The proposed solicitation provision, 252.270-70WW, Pilot Program to 
Incentivize Contracting with Employee-Owned Businesses--Representation, 
requires offerors to represent that they are a qualified business. The 
proposed solicitation provision, 252.270-70XX, Pilot Program to 
Incentivize Contracting with Employee-Owned Businesses--Subcontracting 
Certification, requires offerors to certify that they will comply with 
the limitations on subcontracting.
    The proposed contract clause, 252.270-70YY, Pilot Program to 
Incentivize Contracting with Employee-Owned Businesses, requires 
contractors to comply with the limitations on subcontracting. In 
addition, the clause specifies the information contractors are required 
to report to contracting officers not later than 30 days after the end 
of the period of performance of the contract.
    Changes are proposed at DFARS 206.302-5 to add the pilot program to 
the list of authorities agencies may utilize to justify the use of 
other than full and open competitive procedures. Changes are also 
proposed at DFARS 212.301 to add the proposed solicitation provisions 
and contract clause to the list of provisions and clauses that apply to 
DoD solicitations and contracts using FAR part 12 procedures for the 
acquisition of commercial products and commercial services.

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

    This proposed rule proposes two new provisions and a new clause to 
implement the requirements of section 874 of the NDAA for FY 2022 (Pub. 
L. 117-81; 10 U.S.C. 3204 note) as amended by section 872 of the NDAA 
for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note): (1) DFARS clause 
252.270-70WW, Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Representation; (2) DFARS 252.270-70XX, Pilot Program 
to Incentivize Contracting with Employee-Owned Businesses--
Certification; and (3) DFARS 252.270-70YY, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses. The provisions and clause 
at DFARS 252.270-70WW, 252.270-70XX and 252.270-70YY are prescribed at 
DFARS 270.X05 for use in solicitations and contracts for approved 
acquisitions under the Pilot Program to Incentivize Contracting with 
Employee-Owned Businesses. DoD does not intend to apply the proposed 
rule to contracts at or below the SAT. DoD does intend to apply the 
proposed rule to contracts for the acquisition of commercial products, 
excluding COTS items, and commercial services.

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

    41 U.S.C. 1905 governs the applicability of laws to contracts or 
subcontracts in amounts not greater than the simplified acquisition 
threshold. It is intended to limit the applicability of laws to such 
contracts or subcontracts. 41 U.S.C. 1905 provides that if a provision 
of law contains criminal or civil penalties, or if the Federal 
Acquisition Regulatory Council makes a written determination that it is 
not in the best interest of the Federal Government to exempt contracts 
or

[[Page 46833]]

subcontracts at or below the SAT, the law will apply to them. The 
Principal Director, Defense Pricing and Contracting (DPC), is the 
appropriate authority to make comparable determinations for regulations 
to be published in the DFARS, which is part of the Federal Acquisition 
Regulation system of regulations. DoD does not intend to make that 
determination. Therefore, this proposed rule will not apply at or below 
the simplified acquisition threshold.

B. Applicability to Contracts for the Acquisition of Commercial 
Products Including COTS Items and for the Acquisition of Commercial 
Services

    10 U.S.C. 3452 exempts contracts and subcontracts for the 
acquisition of commercial products, including COTS items, and 
commercial services from provisions of law enacted after October 13, 
1994, unless the Under Secretary of Defense (Acquisition and 
Sustainment) (USD(A&S)) makes a written determination that it would not 
be in the best interest of DoD to exempt contracts for the procurement 
of commercial products and commercial services from the applicability 
of the provision or contract requirement, except for a provision of law 
that--
     Provides for criminal or civil penalties;
     Requires that certain articles be bought from American 
sources pursuant to 10 U.S.C. 4862, or that strategic materials 
critical to national security be bought from American sources pursuant 
to 10 U.S.C. 4863; or
     Specifically refers to 10 U.S.C. 3452 and states that it 
shall apply to contracts and subcontracts for the acquisition of 
commercial products (including COTS items) and commercial services.
    The statutes implemented in this proposed rule do not impose 
criminal or civil penalties, do not require purchase pursuant to 10 
U.S.C. 4862 or 4863, and do not refer to 10 U.S.C. 3452. Therefore, 
section 874 of the NDAA for FY 2022, as amended by section 872 of the 
NDAA for FY 2024, will not apply to the acquisition of commercial 
products, including COTS items, or commercial services unless a written 
determination is made. Due to delegations of authority, the Principal 
Director, DPC is the appropriate authority to make this determination. 
DoD intends to make that determination to apply the statutes to the 
acquisition of commercial products, excluding COTS items, and to the 
acquisition of commercial services. Therefore, this proposed rule will 
apply to the acquisition of commercial products, excluding COTS items, 
and to the acquisition of commercial services.

C. Determination

    Given that the requirements of section 874 of the NDAA for FY 2022 
and section 872 of the NDAA for FY 2024 were enacted to authorize DoD 
to establish a pilot program to incentivize contracting with employee-
owned businesses for the continued development, production, or 
provision of products or services, and since the pilot program, thus 
far, has been utilized for commercial products and commercial services, 
it is in the best interest of the Government to apply the statutes to 
contracts for the acquisition of commercial products, excluding COTS 
items, and commercial services, as defined at Federal Acquisition 
Regulation 2.101. An exception for contracts for the acquisition of 
commercial products, excluding COTS items, and commercial services 
would exclude the contracts intended to be covered by the law, thereby 
undermining the overarching public policy purpose of the law.

IV. Expected Impact of the Rule

    This proposed rule implements section 874 of the NDAA for FY 2022, 
as amended by section 872 of the NDAA for FY 2024, which authorizes DoD 
to establish a pilot program to incentivize contracting with employee-
owned businesses that meet the proposed definition of ``qualified 
business.'' This proposed rule, when finalized, is expected to impact 
the Government and contractors that participate in the pilot program. 
This proposed rule is expected to incentivize and expedite the award of 
follow-on contracts to qualified businesses for the continued 
development, production, or provision of products or services 
previously procured by or for DoD. As a result, employee-owned 
businesses may benefit from more opportunities to contract with DoD, 
which may benefit DoD by expanding the defense industrial base.

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, as amended.

VI. Regulatory Flexibility Act

    DoD does not expect this proposed rule, when finalized, to have a 
significant economic impact on a substantial number of small entities 
within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et 
seq., because it only allows for the award of sole-source, follow-on 
contracts to qualified businesses under certain circumstances. However, 
an initial regulatory flexibility analysis has been performed and is 
summarized as follows:
    This proposed rule is necessary to implement section 874 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022 
(Pub. L. 117-81; 10 U.S.C. 3204 note) and section 872 of the NDAA for 
FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note). Sections 874 and 872 
authorize DoD to establish a pilot program to incentivize contracting 
with employee-owned businesses. The pilot program provides for the use 
of noncompetitive procedures for certain follow-on contracts to 
qualified businesses wholly-owned through an employee stock ownership 
plan. A ``qualified business'' is defined as an S corporation (as 
defined in 26 U.S.C. 1361(a)(1)) for which 100 percent of the 
outstanding stock is held through an employee stock ownership plan as 
defined in 26 U.S.C. 4975(e)(7).
    The objective of this proposed rule is to implement section 874 of 
the NDAA for FY 2022 and section 872 of the NDAA for FY 2024 to 
establish a pilot program to incentivize contracting with employee-
owned businesses. The legal basis for the rule is section 874 of the 
NDAA for FY 2022 and section 872 of the NDAA for FY 2024.
    Data from the System for Award Management (SAM) revealed there were 
330,704 small entities registered in SAM as of June 2023. Data on the 
number of small entities that are a qualified business, as defined in 
the proposed rule, is not available.
    The pilot program was implemented on November 8, 2022. To date, 
eight businesses are participating in the pilot, six of which are small 
entities. DoD cannot estimate the number of contracting officers who 
will submit applications for participation in the pilot program, how 
many applications will be approved for participation, or how many of 
the subsequent awards will be made to small entities. However, based on 
current participation, DoD

[[Page 46834]]

expects that the pilot program will grow to approximately 16 
contractors per year, of which approximately 12 may be small entities.
    This proposed rule imposes a new reporting requirement. Not later 
than 30 days after the end of the period of performance of the 
contract, contractors participating in the pilot program will be 
required to submit to the contracting officer the following 
information: (1) the number of years the contractor has been wholly-
owned by its employee stock ownership plan; (2) the contractor's 
challenges in attracting and retaining a talented workforce; (3) 
challenges the contractor experienced due to its corporate ownership 
structure that hinder its ability to contract with DoD in order to 
scale its technologies and capabilities due to its corporate ownership 
structure; and (4) challenges the contractor experienced due to its 
corporate ownership structure in obtaining capital necessary to bridge 
funding gaps, for example, between prototype demonstration and full-
scale development. The annual reporting burden is estimated as follows: 
16 respondents, with 16 total annual responses (1 response per 
respondent), and a total annual burden of 16 hours.
    The proposed rule does not duplicate, overlap, or conflict with any 
other Federal rules.
    There are no known alternatives that would accomplish the stated 
objectives of the applicable statutes.
    DoD invites comments from small business concerns and other 
interested parties on the expected impact of this proposed rule on 
small entities.
    DoD will also consider comments from small entities concerning the 
existing regulations in subparts affected by this proposed rule in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 610 (DFARS Case 2024-
D004), in correspondence.

VII. Paperwork Reduction Act

    This proposed rule contains information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35). Accordingly, DoD 
has submitted a request for approval of a new information collection 
requirement concerning DFARS case 2024-D004, Pilot Program to 
Incentivize Contracting with Employee-Owned Businesses, to the Office 
of Management and Budget.

A. Estimate of Public Burden

    Public reporting burden for this collection of information is 
estimated to average 1 hour per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    The annual reporting burden is estimated as follows:
    Respondents: 16.
    Total annual responses: 16.
    Total annual burden hours: 16.

B. Request for Comments Regarding Paperwork Burden

    Written comments and recommendations on the proposed information 
collection, including suggestions for reducing this burden, should be 
submitted using the Federal eRulemaking Portal at https://www.regulations.gov or by email to [email protected]. Comments can be 
received up to 60 days after the date of this notice.
    Public comments are particularly invited on: whether this 
collection of information is necessary for the proper performance of 
the functions of DoD, including whether the information will have 
practical utility; the accuracy of DoD's estimate of the burden of this 
information collection; ways to enhance the quality, utility, and 
clarity of the information to be collected; and ways to minimize the 
burden of the information collection on respondents, including through 
the use of automated collection techniques or other forms of 
information technology.
    To obtain a copy of the supporting statement and associated 
collection instruments, please email [email protected]. Include DFARS 
Case 2024-D004 in the subject line of the message.

List of Subjects in 48 CFR Parts 206, 212, 252, and 270

    Government procurement.

Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.

    Therefore, Defense Acquisition Regulations System proposes to amend 
48 CFR parts 206, 212, and 252, and add 270 as follows:

PART 206--COMPETITION REQUIREMENTS

0
1. The authority citation for part 206 continues to read as follows:

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

0
2. Revise and republish section 206.302-5 to read as follows:


206.302-5  Authorized or required by statute.

    (b) Application. Agencies may use this authority to--
    (i) Acquire supplies and services from military exchange stores 
outside the United States for use by the armed forces outside the 
United States in accordance with 10 U.S.C. 2424(a) and subject to the 
limitations of 10 U.S.C. 2424(b). The limitations of 10 U.S.C. 
2424(b)(1) and (2) do not apply to the purchase of soft drinks that are 
manufactured in the United States. For the purposes of 10 U.S.C. 2424, 
soft drinks manufactured in the United States are brand name carbonated 
sodas, manufactured in the United States, as evidenced by product 
markings.
    (ii) Acquire police, fire protection, airfield operation, or other 
community services from local governments at military installations to 
be closed under the circumstances in 237.7401 (section 2907 of Fiscal 
Year 1994 Defense Authorization Act (Pub. L. 103-160)).
    (iii) Acquire products and services under the Pilot Program to 
Incentivize Contracting with Employee-Owned Businesses (see subpart 
270.X).
    (c) Limitations.
    (i) 10 U.S.C. 4141 precludes use of this exception for awards to 
colleges or universities for the performance of research and 
development, or for the construction of any research or other facility, 
unless--
    (A) The statute authorizing or requiring award specifically--
    (1) States that the statute modifies or supersedes the provisions 
of 10 U.S.C. 4141;
    (2) Identifies the particular college or university involved; and
    (3) States that award is being made in contravention of 10 U.S.C. 
4141(a); and
    (B) The Secretary of Defense provides Congress written notice of 
intent to award. The contract cannot be awarded until 180 days have 
elapsed since the date Congress received the notice of intent to award. 
Contracting activities must submit a draft notice of intent with 
supporting documentation through channels to the Principal Director, 
Defense Pricing and Contracting, Office of the Under Secretary of 
Defense (Acquisition and Sustainment).
    (ii) The limitation in paragraph (c)(i) of this subsection applies 
only if the statute authorizing or requiring award was enacted after 
September 30, 1989.
    (iii) Subsequent statutes may provide different or additional 
constraints on the award of contracts to specified colleges and 
universities. Contracting officers should consult legal counsel on a 
case-by-case basis.
0
Part 212--Acquisition of Commercial Products and Commercial Services
0
3. The authority citation for part 212 continues to read as follows:


[[Page 46835]]


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

0
4. Amend section 212.301 by adding paragraph (f)(xxii) to read as 
follows:


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

* * * * *
    (f) * * *
    (xxii) Part 270--Defense Contracting Programs.
    (A) Use the provision at 252.270-70WW, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses--Representation, as 
prescribed at 270.X05(a) to comply with section 874 of the National 
Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L. 
117-81; 10 U.S.C. 3204 note) and section 872 of the NDAA for FY 2024 
(Pub. L. 118-31; 10 U.S.C. 3204 note).
    (B) Use the provision at 252.270-70XX, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses--Subcontracting 
Certification, as prescribed at 270.X05(b), to comply with section 874 
of the NDAA for FY 2022 (Pub. L. 117-81; 10 U.S.C. 3204 note) and 
section 872 of the NDAA for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 
note).
    (C) Use the clause at 252.270-70YY, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses, as prescribed at 
270.X05(c), to comply with section 874 of the NDAA for FY 2022 (Pub. L. 
117-81; 10 U.S.C. 3204 note) and section 872 of the NDAA for FY 2024 
(Pub. L. 118-31; 10 U.S.C. 3204 note).

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
5. The authority citation for part 252 continues to read as follows:

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

0
6. Add section 252.270-70WW to read as follows:


252.270-70WW  Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Representation.

    As prescribed in 270.X05(a), use the following provision:

Pilot Program To Incentivize Contracting With Employee-Owned 
Businesses--Representation (Date)

    (a) Definition. As used in this provision, qualified business 
has the meaning given in the Defense Federal Acquisition Regulation 
Supplement 252.270-70YY, Pilot Program to Incentivize Contracting 
with Employee-Owned Businesses, clause of this solicitation.
    (b) Representation. The Offeror represents that it is a 
qualified business.

    (End of provision)
0
7. Add section 252.270-70XX to read as follows:


252.270-70XX  Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Subcontracting Certification.

    As prescribed in 270.X05(b), use the following provision:

Pilot Program To Incentivize Contracting With Employee-Owned 
Businesses--Subcontracting Certification (Date)

    (a) Definition. As used in this provision, qualified business 
has the meaning given in the Defense Federal Acquisition Regulation 
Supplement 252.270-70YY, Pilot Program to Incentivize Contracting 
with Employee-Owned Businesses, clause of this solicitation.
    (b) Limitations on subcontracting. The Offeror certifies that in 
performance of the contract it will not expend more than 50 percent 
of the amount paid under the contract on subcontracts unless--
    (1) The subcontract is awarded to a qualified business;
    (2) The contract is for products and the subcontract is for 
materials not available from another qualified business; or
    (3) A waiver is granted.

    (End of provision)
0
8. Add section 252.270-70YY to read as follows:


252.270-70YY  Pilot Program to Incentivize Contracting with Employee-
Owned Businesses.

    As prescribed in 270.X05(b), use the following clause:

Pilot Program To Incentivize Contracting With Employee-Owned Businesses 
(Date)

    (a) Definition. As used in this clause--
    Qualified business means an S corporation as defined in 26 
U.S.C. 1361(a)(1) for which 100 percent of the outstanding stock is 
held through an employee stock ownership plan as defined in 26 
U.S.C. 4975(e)(7).
    (b) Limitations on subcontracting. In performance of the 
contract, the Contractor shall not expend more than 50 percent of 
the amount paid under the contract on subcontracts, unless--
    (1) The subcontract is awarded to a qualified business;
    (2) The contract is for products and the subcontract is for 
materials not available from another qualified business; or
    (3) A waiver is granted.
    (c) Reporting requirement. Not later than 30 days after the end 
of the contract period of performance, the Contractor shall submit 
to the Contracting Officer the following information in writing:
    (1) The number of years the Contractor has been wholly-owned by 
its employee stock ownership plan.
    (2) Challenges the Contractor experienced in attracting and 
retaining a talented workforce in a competitive market.
    (3) Challenges the Contractor experienced that hinder its 
ability to contract with DoD to scale its technologies and 
capabilities due to the Contractor's corporate ownership structure.
    (4) Challenges the Contractor experienced due to its corporate 
ownership structure in obtaining capital necessary to bridge funding 
gaps, for example, between prototype demonstration and full-scale 
development.

    (End of clause)
0
9. Add part 270 to read as follows:

PART 270--DEFENSE CONTRACTING PROGRAMS

Sec.
270.000 Scope of part.
Subpart 270.X--Pilot Program to Incentivize Contracting With Employee-
Owned Businesses
270.X00 Scope of subpart.
270.X01 Definition.
270.X02 Policy.
270.X03 Limitations.
270.X04 Procedures.
270.X05 Solicitation provision and contract clause.

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


270.000  Scope of part.

    This part has been created to facilitate promulgation of additional 
DFARS coverage of defense-specific contracting programs that do not 
properly fall under DFARS subchapter D, Socioeconomic Programs, and 
neither implement nor supplement existing FAR part 19 or parts 22 
through 25.

Subpart 270.X--Pilot Program To Incentivize Contracting With 
Employee-Owned Businesses


270.X00  Scope of subpart.

    (a) This subpart implements section 874 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L. 117-81; 10 
U.S.C. 3204 note) and section 872 of the NDAA for FY 2024 (Pub. L. 118-
31; 10 U.S.C. 3204 note). Sections 874 and 872 authorize the 
establishment of a pilot program that allows for the noncompetitive 
award of certain follow-on contracts to contractors that meet the 
definition of a qualified business (see 270.X01).
    (b) The authority to award contracts under this subpart expires on 
December 27, 2029.


270.X01  Definition.

    As used in this subpart--
    Qualified business means an S corporation as defined in 26 U.S.C. 
1361(a)(1) for which 100 percent of the outstanding stock is held 
through an employee stock ownership plan as defined in 26 U.S.C. 
4975(e)(7).

[[Page 46836]]

270.X02  Policy.

    (a) The contracting officer may only award one sole-source, follow-
on contract to the incumbent contractor if--
    (1) The contractor has represented that it is a qualified business; 
and
    (2) The contract is for the continued development, production, or 
provision of products or services that are the same or substantially 
similar to those procured under the prior contract awarded to the 
contractor by or for DoD.
    (b) The contracting officer shall not begin negotiations for a 
sole-source, follow-on contract unless the contracting officer 
justifies the use of a sole-source contract in accordance with FAR 
6.303 and 6.304, citing FAR 6.302-5, Authorized or required by statute, 
as the exception to full and open competition.


270.X03  Limitations.

    (a) Participation in the pilot program is subject to approval by 
the Under Secretary of Defense (Acquisition and Sustainment), Office of 
the Principal Director, Defense Pricing and Contracting (Contract 
Policy). Only a contracting officer may submit an application to 
participate in the pilot program. See PGI 270.7X04(a).
    (b) Contracting officers shall only award--
    (1) One sole-source, follow-on contract per predecessor contract to 
the incumbent contractor unless waived by the head of the contracting 
activity, delegable to a level no lower than one level above the 
contracting officer;
    (2) Contracts to qualified businesses that have a minimum 
performance rating of satisfactory for the predecessor contract in the 
Contractor Performance Assessment Reporting System (see FAR subpart 
42.15); and
    (3) Contracts to qualified businesses that have certified they will 
not pay more than 50 percent of the amount paid by the Government for 
contract performance to subcontractors that are not qualified 
businesses, except for subcontracts for materials not available from 
another qualified business when the contract is for products, unless 
waived by the head of the contracting activity, delegable to a level no 
lower than one level above the contracting officer.


270.X04  Procedures.

    See PGI 270.X04 for procedures and information concerning the pilot 
program.


270.X05  Solicitation provision and contract clause.

    (a) Use the provision at 252.270-70WW, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses--Representation, in 
solicitations, including solicitations using FAR part 12 procedures for 
the acquisition of commercial products and commercial services, that 
include the clause at 252.270-70YY, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses.
    (b) Unless waived in accordance with 270.7X03(b)(3), use the 
provision at 252.270-70XX, Pilot Program to Incentivize Contracting 
with Employee-Owned Businesses--Subcontracting Certification, in 
solicitations, including solicitations using FAR part 12 procedures for 
the acquisition of commercial products and commercial services that 
include the clause at 252.270-70YY, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses.
    (c) Use the clause at 252.270-70YY, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses, in solicitations and 
contracts, including solicitations and contracts using FAR part 12 
procedures for the acquisition of commercial products and commercial 
services, for approved pilot program acquisitions.

[FR Doc. 2024-11517 Filed 5-29-24; 8:45 am]
BILLING CODE 6001-FR-P