Defense Federal Acquisition Regulation Supplement: Pilot Program To Incentivize Contracting With Employee-Owned Businesses (DFARS Case 2024-D004), 82183-82188 [2024-23226]
Download as PDF
<![CDATA[
Federal Register / Vol. 89, No. 197 / Thursday, October 10, 2024 / Rules and Regulations
List of Subjects in 48 CFR Parts 205,
212, 214, 215, and 237
PART 215—CONTRACTING BY
NEGOTIATION
Government procurement.
5. Add section 215.205 to read as
follows:
■
Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition
Regulations System.
215.205
Issuing solicitations.
See the procedures at PGI 205.102–70
for use of the Solicitation Module
within the Procurement Integrated
Enterprise Environment.
Therefore, the Defense Acquisition
Regulations System amends 48 CFR
parts 205, 212, 214, 215, and 237 as
follows:
1. The authority citation for 48 CFR
parts 205, 212, 214, 215, and 237
continues to read as follows:
[FR Doc. 2024–23228 Filed 10–9–24; 8:45 am]
A. Summary of Significant Changes
From the Proposed Rule
[Removed and Reserved]
6. Remove and reserve section
237.102–77.
BILLING CODE 6001–FR–P
PART 205—PUBLICIZING CONTRACT
ACTIONS
2. Add subpart 205.1 to read as
follows:
■
RIN 0750–AM01
Defense Acquisition
Regulations System, Department of
Defense (DoD).
ACTION: Final rule.
205.102–70 Availability of DoD
solicitations.
AGENCY:
See PGI 205.102–70 for policy and
procedures related to the Solicitation
Module within the Procurement
Integrated Enterprise Environment.
3. Amend section 212.203 by adding
paragraph (6) to read as follows:
■
212.203 Procedures for solicitation,
evaluation, and award.
*
*
*
*
*
(6) See the procedures at PGI
205.102–70 for use of the Solicitation
Module within the Procurement
Integrated Enterprise Environment.
SUPPLEMENTARY INFORMATION:
I. Background
PART 214—SEALED BIDDING
4. Add section 214.203 to read as
follows:
lotter on DSK11XQN23PROD with RULES1
■
Methods of soliciting bids.
See the procedures at PGI 205.102–70
for use of the Solicitation Module
within the Procurement Integrated
Enterprise Environment.
Jkt 265001
DoD is issuing a final rule
amending 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 followon contracts to certain employee-owned
businesses.
DATES: Effective November 25, 2024.
FOR FURTHER INFORMATION CONTACT: Ms.
Jeanette Snyder, telephone 703–508–
7524.
SUMMARY:
PART 212— ACQUISITION OF
COMMERCIAL PRODUCTS AND
COMMERCIAL SERVICES
16:07 Oct 09, 2024
1. Support for the Rule
Comment: The respondents expressed
support for the rule.
Response: DoD acknowledges the
respondents’ support for the rule.
2. Clarifications
Defense Federal Acquisition
Regulation Supplement: Pilot Program
To Incentivize Contracting With
Employee-Owned Businesses (DFARS
Case 2024–D004)
Availability of solicitations.
VerDate Sep<11>2014
B. Analysis of Public Comments
[Docket DARS–2024–0017]
Subpart 205.1—Dissemination of
Information
214.203
DEPARTMENT OF DEFENSE
48 CFR Parts 206, 212, 252, and 270
Sec.
205.102 Availability of solicitations.
205.102–70 Availability of DoD
solicitations.
205.102
There are no significant changes from
the proposed rule.
Defense Acquisition Regulations
System
Subpart 205.1—Dissemination of
Information
II. Discussion and Analysis
■
237.102–77
Authority: 41 U.S.C. 1303 and 48 CFR
chapter 1.
authorize DoD to establish a pilot
program that allows for the
noncompetitive award of certain followon contracts to employee-owned
businesses that meet the definition of a
qualified business. Five respondents
submitted public comments in response
to the proposed rule.
DoD reviewed the public comments in
the development of the final rule. A
discussion of the comments and the
changes made to the rule as a result of
those comments is provided, as follows:
PART 237—SERVICE CONTRACTING
■
82183
DoD published a proposed rule in the
Federal Register at 89 FR 46831 on May
30, 2024, 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
PO 00000
Frm 00025
Fmt 4700
Sfmt 4700
Comment: One respondent
recommended revising the proposed
rule text at DFARS 270.X02 to clarify
that a reference to Federal Acquisition
Regulation (FAR) 6.302–5 is sufficient to
justify a sole-source award under the
pilot program. The respondent also
recommended adding the following
sentence to the text: ‘‘A justification that
cites FAR 6.302–5, makes reference to
48 CFR 206.302–5(b)(iii), and meets the
requirements of subparts 207.X03 and
207.X04 shall be considered complete
and sufficient for an exception to full an
open competition.’’ One respondent
indicated that a justification and
approval (J&A) that only references FAR
6.302–5 is likely to be found insufficient
by audit agencies.
Response: The proposed rule text at
DFARS 270.102(b) requires the
contracting officer to justify the use of
a sole-source contract in accordance
with FAR 6.303 and 6.304 prior to
conducting negotiations and to cite FAR
6.302–5, Authorized or required by
statute, as the exception to full and open
competitive procedures. FAR 6.303
specifies the requirements for and the
content of a justification. The statute did
not modify the requirements for or
content of a justification; therefore, DoD
cannot make the recommended change.
However, the final rule text at DFARS
270–X02(b) has been amended to
remove duplicative text addressed at
FAR 6.303–1(a).
E:\FR\FM\10OCR1.SGM
10OCR1
82184
Federal Register / Vol. 89, No. 197 / Thursday, October 10, 2024 / Rules and Regulations
lotter on DSK11XQN23PROD with RULES1
3. Exceptions to Implementation
Comment: Two respondents took
exception to the fact that the proposed
rule does not provide a process for a
contractor to apply to participate in the
pilot program to ensure a transparent
and accessible process. One respondent
indicated the inability for a contractor to
apply to participate in the pilot program
is overly restrictive and inconsistent
with the statute.
Response: Section 874 required the
Secretary of Defense to submit to the
congressional defense committees an
implementation plan for the pilot
program. This implementation plan
indicated that applications for
participation in the pilot program will
be submitted by contracting officers.
The proposed rule text at DFARS
270.103 is consistent with the
implementation plan. As such, a
contractor is not able to submit an
application for participation in the pilot
program.
Comment: One respondent took
exception to the requirement for a J&A,
indicating that it is inconsistent with
the statute. The respondent further
indicated that such a requirement may
limit the number of businesses that may
participate in the pilot program, citing
the fact that there are only eight
businesses currently participating in the
pilot program.
Response: While sections 872 and 874
authorize the use of other than
competitive procedures for the award of
certain contracts under this pilot
program, neither waived the
requirement for a J&A; therefore, a J&A
is required. The Office of the Under
Secretary of Defense (Acquisition and
Sustainment), Defense Pricing,
Contracting, and Acquisition Policy
implemented section 874 via a contract
policy memorandum dated November 8,
2022, and limited participation in the
pilot program to nine contractors.
Therefore, the requirement for a J&A has
not limited participation in the pilot
program.
Comment: Three respondents took
exception to the proposed rule reporting
requirements, while one respondent
expressed support for the reporting
requirements. One respondent indicated
that some of the proposed reporting
requirements are open-ended and
subjective, which will lead to confusion
as to whether the data provided by the
contractor is sufficient. One respondent
indicated that the proposed reporting
requirements focus on challenges of
employee ownership rather than
performance and value and indicated
that the contractor’s past performance
rating in the Contractor Performance
VerDate Sep<11>2014
16:07 Oct 09, 2024
Jkt 265001
Assessment Reporting System (CPARS)
would be more useful in assessing the
success of the pilot program. One
respondent recommended DoD develop
a comprehensive plan to monitor the
implementation and impact of the
Employee Stock Ownership Plan (ESOP)
pilot program, allowing for adjustments
and improvements over time to
optimize its effectiveness. One
respondent stated that its member
companies who participated in the
original, limited pilot program found
the data collection to be straightforward
and to require minimal time. Another
respondent indicated that DoD’s
estimate of 16 hours to collect and
submit the data required by the clause
at DFARS 252.270–70YY should be 80
to 120 hours.
Response: Section 874 required the
Secretary of Defense to establish
mechanisms to collect and analyze data
on the pilot program for the purposes of
developing and sharing best practices
with leadership and the congressional
defense committees. Section 874 also
required the Secretary of Defense to
submit to the congressional defense
committees a data collection and
reporting strategy for the pilot program.
The information to be reported in
accordance with the contract clause at
DFARS 252.270–7002, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses, is consistent with
this strategy. This information will be
submitted to DoD leadership and the
congressional defense committees and
may be used to determine if additional
measures should be taken to assist ESOP
businesses in overcoming challenges
associated with their corporate
structure.
Additionally, the proposed rule text at
DFARS Procedures, Guidance, and
Information (PGI) 270.104, paragraph(d),
specifies the reporting requirements for
contracting officers, which include, but
are not limited to, a summary of the
contractor’s performance and the
benefits experienced from using the
pilot program. This information will be
used to assess the success of the pilot
program and the need for adjustments
and improvements over time. In
reporting the contractor’s performance
pursuant to DFARS PGI 270.104, the
contracting officer may use information
from CPARS. To minimize the time
required to collect and submit the data,
the reporting requirements in the clause
at DFARS 252.270–7002 are amended to
clarify that data regarding challenges
faced due to the contractor’s corporate
ownership structure is only required
when applicable. In addition,
contractors are only required to report
data collected during the period of
PO 00000
Frm 00026
Fmt 4700
Sfmt 4700
performance of the contract; therefore,
the data should be readily available.
4. Outside the Scope of the Rule
Comment: One respondent
recommended DoD establish evaluation
criteria to give preference to qualified
businesses during the source-selection
process in lieu of limiting the pilot
program to sole-source, follow-on
contracts. The respondent also
recommended that DoD prioritize efforts
to on-ramp qualified businesses onto
multiple-award contracts to create a
larger pool of qualified businesses
eligible for follow-on contracts under
this pilot program.
Response: These comments are
outside the scope of this rule. Sections
872 and 874 do not authorize DoD to
establish source selection evaluation
criteria to give preference to qualified
businesses or to use on-ramps under the
pilot program.
C. Other Changes
DFARS 270.102(b) is revised in the
final rule to simplify the direction to
contracting officers. The final rule
revises the prescriptions for the
solicitation provisions at DFARS
252.270–7000 and 252.270–7001 and
the clause at DFARS 252.270–7002 to
specify that they are not to be included
in solicitations and contracts solely for
the acquisition of commercially
available off-the-shelf items. These
provisions and this clause are added to
the list of provisions and clauses that
are not applicable to COTS items,
located at DFARS 212.371. The
reporting requirements are clarified in
the clause at DFARS 252.270–7002.
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
The two provisions and the clause at
DFARS 252.270–7000, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses-Representation;
DFARS 252.270–7001, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses—Certification; and
DFARS 252.270–7002, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses, are prescribed at
DFARS 270.105 for use in solicitations
and contracts for approved acquisitions
under the Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses. Consistent with the analysis
that DoD provided in the proposed rule
with regard to the application of the
requirements of section 874 of the
NDAA for FY 2022, as amended by
E:\FR\FM\10OCR1.SGM
10OCR1
Federal Register / Vol. 89, No. 197 / Thursday, October 10, 2024 / Rules and Regulations
section 872 of the NDAA for FY 2024,
DoD has decided to not apply the
statutes to contracts at or below the
SAT, and DoD has made the
determination to apply the statutes, as
implemented in the provisions and
clause at 252.270–7000, 252.270–7001,
and 252.270–7002, to contracts for the
acquisition of commercial products
excluding COTS items and for the
acquisition of commercial services, as
defined at Federal Acquisition
Regulation 2.101.
IV. Expected Impact of the Rule
This final rule is expected to impact
the Government and contractors that
participate in the Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses. This final 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 additional opportunities to
contract with DoD, which may benefit
DoD by expanding the defense
industrial base.
lotter on DSK11XQN23PROD with RULES1
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. 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
will submit a copy of the interim or
final rule with the form, Submission of
Federal Rules Under the Congressional
Review Act, to the U.S. Senate, the U.S.
House of Representatives, and the
Comptroller General of the United
States. A major rule under the
Congressional Review Act cannot take
effect until 60 days after it is published
in the Federal Register. The Office of
Information and Regulatory Affairs has
determined that this rule is not a major
rule as defined by 5 U.S.C. 804.
VerDate Sep<11>2014
16:07 Oct 09, 2024
Jkt 265001
VII. Regulatory Flexibility Act
A final regulatory flexibility analysis
has been prepared consistent with the
Regulatory Flexibility Act, 5 U.S.C. 601,
et seq. and is summarized as follows:
This final 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). The objective of
the rule is to implement sections 874
and 872, which 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. 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).
There were no significant issues
raised by the public comments in
response to the initial regulatory
flexibility analysis. One respondent took
exception to the number of hours DoD
estimated it would take a contractor to
comply with the reporting requirement.
DoD reviewed the data to be collected
and modified the reporting requirement
to clarify that the contractor is required
to only report challenges it faced, if any.
Although not specified in the DFARS
text, because this is a contract clause,
contractors are only required to report
data collected during the period of
performance of the contract.
Data from the System for Award
Management (SAM) revealed there were
384,145 small entities registered in SAM
as of August 2024. Data on the number
of small entities that are a qualified
business, as defined in the final 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 that 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
expects that the pilot program will grow
to approximately 16 contractors per
year, of which approximately 12 may be
small entities.
This final rule imposes a new
reporting requirement. Not later than 30
days after the end of the period of
PO 00000
Frm 00027
Fmt 4700
Sfmt 4700
82185
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, if any, in attracting and
retaining a talented workforce due to its
corporate ownership structure; (3)
challenges, if any, the contractor
experienced 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, if any, 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.
There are no known significant
alternative approaches that would
accomplish the stated objectives.
VIII. Paperwork Reduction Act
This final rule contains information
collection requirements that have been
approved by the Office of Management
and Budget under the Paperwork
Reduction Act (44 U.S.C. chapter 35).
This information collection requirement
has been assigned OMB Control Number
0750–0012, Defense Federal Acquisition
Regulation Supplement Part 270,
Defense Contracting Programs—Pilot
Program to Incentivize Contracting with
Employee-Owned Businesses, and
Related Clause.
List of Subjects in 48 CFR Parts 206,
212, 252, and 270
Government procurement.
Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition
Regulations System.
Therefore, the Defense Acquisition
Regulations System amends 48 CFR
chapter 2 as follows as follows:
PART 206—COMPETITION
REQUIREMENTS
1. The authority citation for part 206
continues to read as follows:
■
Authority: 41 U.S.C. 1303 and 48 CFR
chapter 1.
2. Revise and republish section
206.302–5 to read as follows:
■
E:\FR\FM\10OCR1.SGM
10OCR1
82186
lotter on DSK11XQN23PROD with RULES1
206.302–5
statute.
Federal Register / Vol. 89, No. 197 / Thursday, October 10, 2024 / Rules and Regulations
Authorized or required by
(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 270.1).
(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, Contracting, and
Acquisition Policy, Office of the Under
Secretary of Defense (Acquisition and
Sustainment).
(ii) The limitation in paragraph (c)(i)
of this section 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 caseby-case basis.
VerDate Sep<11>2014
16:07 Oct 09, 2024
Jkt 265001
PART 212—ACQUISITION OF
COMMERCIAL PRODUCTS AND
COMMERCIAL SERVICES
PART 252—SOLICITATION
PROVISIONS AND CONTRACT
CLAUSES
■
3. The authority citation for part 212
continues to read as follows:
■
Authority: 41 U.S.C. 1303 and 48 CFR
chapter 1.
Authority: 41 U.S.C. 1303 and 48 CFR
chapter 1.
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
252.270–7000, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses—Representation, as
prescribed at 270.105(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–
7001, Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses—Subcontracting
Certification, as prescribed at
270.105(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 252.270–7002,
Pilot Program to Incentivize Contracting
with Employee-Owned Businesses, as
prescribed at 270.105(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).
5. Amend section 212.371 by adding
paragraphs (b), (c), and (d) to read as
follows:
■
212.371 Inapplicability of certain
provisions and clauses to contracts for the
acquisition of commercially available offthe-shelf items.
*
*
*
*
*
(b) 252.270–7000, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses—Representation.
(c) 252.270–7001, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses—Subcontracting
Certification.
(d) 252.270–7002, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses.
PO 00000
Frm 00028
Fmt 4700
Sfmt 4700
6. The authority citation for part 252
continues to read as follows:
7. Add sections 252.270–7000,
252.270–7001, and 252.270–7002 to
read as follows:
*
*
*
*
*
■
Sec.
252.270–7000 Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses—Representation.
252.270–7001 Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses—Subcontracting
Certification.
252.270–7002 Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses.
*
*
*
*
*
252.270–7000 Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses—Representation.
As prescribed in 270.105(a), use the
following provision:
Pilot Program To Incentivize
Contracting With Employee-Owned
Businesses—Representation (NOV
2024)
(a) Definition. As used in this
provision, qualified business has the
meaning given in the Defense Federal
Acquisition Regulation Supplement
252.270–7002, Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses, clause of this
solicitation.
(b) Representation. The Offeror
represents that it is a qualified business.
(End of provision)
252.270–7001 Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses—Subcontracting Certification.
As prescribed in 270.105(b), use the
following provision:
Pilot Program To Incentivize
Contracting With Employee-Owned
Businesses—Subcontracting
Certification (NOV 2024)
(a) Definition. As used in this
provision, qualified business has the
meaning given in the Defense Federal
Acquisition Regulation Supplement
252.270–7002, Pilot Program to
Incentivize Contracting with EmployeeOwned 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—
E:\FR\FM\10OCR1.SGM
10OCR1
Federal Register / Vol. 89, No. 197 / Thursday, October 10, 2024 / Rules and Regulations
(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.
PART 270—DEFENSE CONTRACTING
PROGRAMS
Sec.
270.000
(End of provision)
252.270–7002 Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses.
lotter on DSK11XQN23PROD with RULES1
As prescribed in 270.105(c), use the
following clause:
Scope of part.
Subpart 270.1—Pilot Program to Incentivize
Contracting with Employee-Owned
Businesses
270.100 Scope of subpart.
270.101 Definition.
270.102 Policy.
270.103 Limitations.
270.104 Procedures.
270.105 Solicitation provisions and
contract clause.
Pilot Program To Incentivize
Contracting With Employee-Owned
Businesses (NOV 2024)
Authority: 41 U.S.C. 1303 and 48 CFR
chapter 1.
(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, if any, the Contractor
experienced in attracting and retaining
a talented workforce in a competitive
market due to the Contractor’s corporate
ownership structure.
(3) Challenges, if any, 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, if any, 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.
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.
(End of clause)
8. Add part 270 to read as follows:
■
VerDate Sep<11>2014
16:07 Oct 09, 2024
Jkt 265001
270.000
Scope of part.
Subpart 270.1—Pilot Program to
Incentivize Contracting with EmployeeOwned Businesses
270.100
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 followon contracts to contractors that meet the
definition of a qualified business (see
270.101).
(b) The authority to award contracts
under this subpart expires on December
27, 2029.
270.101
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).
270.102
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
as or substantially similar to those
PO 00000
Frm 00029
Fmt 4700
Sfmt 4700
82187
procured under the prior contract
awarded to the contractor by or for DoD.
(b) The contracting officer shall justify
the use of a sole-source contract in
accordance with FAR 6.303 and 6.304
and cite FAR 6.302–5 as the exception
to full and open competition.
270.103
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, Contracting,
and Acquisition Policy (Contract
Policy). Only a contracting officer may
submit an application to participate in
the pilot program. See PGI 270.104(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.
270.104
Procedures.
See PGI 270.104 for procedures and
information concerning the pilot
program.
270.105 Solicitation provisions and
contract clause.
(a) Use the provision at 252.270–7000,
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, except for solicitations solely
for the acquisition of commercially
available off-the-shelf (COTS) items,
that include the clause at 252.270–7002,
Pilot Program to Incentivize Contracting
with Employee-Owned Businesses.
(b) Unless waived in accordance with
270.103(b)(3), use the provision at
252.270–7001, Pilot Program to
E:\FR\FM\10OCR1.SGM
10OCR1
82188
Federal Register / Vol. 89, No. 197 / Thursday, October 10, 2024 / Rules and Regulations
Incentivize Contracting with EmployeeOwned Businesses—Subcontracting
Certification, in solicitations, including
solicitations using FAR part 12
procedures for the acquisition of
commercial products and commercial
services, except for solicitations solely
for the acquisition of COTS items, that
include the clause at 252.270–7002,
Pilot Program to Incentivize Contracting
with Employee-Owned Businesses.
(c) Use the clause at 252.270–7002,
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, except for solicitations and
contracts solely for the acquisition of
COTS items, for approved pilot program
acquisitions.
[FR Doc. 2024–23226 Filed 10–9–24; 8:45 am]
BILLING CODE 6001–FR–P
DEPARTMENT OF DEFENSE
Defense Acquisition Regulations
System
48 CFR Part 252
[Docket DARS–2024–0018]
RIN 0750–AM03
Defense Federal Acquisition
Regulation Supplement: Procurement
Technical Assistance Program (DFARS
Case 2024–D006)
Defense Acquisition
Regulations System, Department of
Defense (DoD).
ACTION: Final rule.
AGENCY:
DoD is issuing a final rule
amending the Defense Federal
Acquisition Regulation Supplement
(DFARS) to implement a section of the
National Defense Authorization Act for
Fiscal Year 2024 that modifies certain
definitions associated with the
Procurement Technical Assistance
Program.
SUMMARY:
DATES:
Effective October 10, 2024.
FOR FURTHER INFORMATION CONTACT:
Jeanette Snyder, telephone 703–508–
7524.
lotter on DSK11XQN23PROD with RULES1
SUPPLEMENTARY INFORMATION:
I. Background
DoD published a proposed rule in the
Federal Register at 89 FR 46836 on May
30, 2024, to implement section 853 of
the National Defense Authorization Act
(NDAA) for Fiscal Year (FY) 2024 (Pub.
L. 118–31; 10 U.S.C. 4951). Section 853
VerDate Sep<11>2014
16:07 Oct 09, 2024
Jkt 265001
amends the definitions of ‘‘nonprofit
organization’’ and ‘‘business entities’’ at
10 U.S.C. 4951 for the Procurement
Technical Assistance Program (PTAP).
One respondent submitted public
comments in response to the proposed
rule.
II. Discussion and Analysis
DoD reviewed the public comments in
the development of the final rule. A
discussion of the comments is provided,
as follows:
A. Summary of Significant Changes
From the Proposed Rule
There are no significant changes from
the proposed rule.
B. Analysis of Public Comments
Comment: The respondent indicated
that the statement: ‘‘In addition,
business entities, including
corporations, associations, partnerships,
limited liability companies, limited
liability partnerships, consortia, not-forprofit, or other legal entities will also be
able to be a cooperative agreement
holder’’ in section IV of the proposed
rule preamble is inaccurate. The
respondent indicated that the term
‘‘eligible entity’’ refers to the entities
that may be served by cooperative
agreement holders. The respondent also
indicated that ‘‘(as defined in 10 U.S.C.
4951)’’ added to DFARS clause 252.205–
7000(a) is misleading, as ‘‘business
entities’’ are the recipients of
procurement technical assistance, not
the providers.
Response: Subsection (1) of 10 U.S.C.
4951 defines the term ‘‘eligible entity’’
to mean a state, local government,
nonprofit organization, and tribal
organization. Subsection (5) of 10 U.S.C.
4951 defines the term ‘‘business entity’’
to mean a corporation, association,
partnership, limited liability company,
limited liability partnership, consortia,
not-for-profit, or other legal entity. The
statute at 10 U.S.C. 4952 specifies that
the purpose of the PTAP is, in part, to
increase assistance provided by DoD to
‘‘eligible entities’’ furnishing
procurement technical assistance to
‘‘business entities’’. Therefore, the
referenced statement in section IV of the
proposed rule preamble is inaccurate
and is corrected in this final rule.
However, the parenthetical ‘‘as defined
in 10 U.S.C. 4951’’ in the contract clause
at DFARS 252.205–7000, Provision of
Information to Cooperative Agreement
Holders, is accurate as ‘‘business
entities’’ in this context refers to those
entities that may receive assistance.
PO 00000
Frm 00030
Fmt 4700
Sfmt 4700
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 final rule amends the clause at
DFARS 252.205–7000, Provision of
Information to Cooperative Agreement
Holders. However, this final rule does
not impose any new requirements on
contracts at or below the SAT, for
commercial products including COTS
items, or for commercial services. The
clause will continue to not apply to
acquisitions at or below the SAT, and
will continue to apply to acquisitions of
commercial products excluding COTS
items, and to acquisitions of commercial
services.
IV. Expected Impact of the Rule
This final rule is expected to impact
DoD contractors whose contracts
include the clause at DFARS 252.205–
7000. The clause requires contractors to
provide cooperative agreement holders
under the PTAP, upon request, with a
list of the contractor’s employees or
offices responsible for entering into
subcontracts under defense contracts.
As a result of this final rule, such
contractors may be required to provide
the list to different entities that are
cooperative agreement holders under
the PTAP.
The changes in section 853 allow any
type of nonprofit organization to be a
cooperative agreement holder under the
PTAP. In addition, section 853 provides
a definition of ‘‘business entities’’ to
specify the entities that may receive
assistance under the PTAP, including
corporations, associations, partnerships,
limited liability companies, limited
liability partnerships, consortia, not-forprofit, or other legal entities. These
changes are reflected in the revisions to
the clause at DFARS 252.205–7000. As
a result, there may be increases in the
number of entities that become
cooperative agreement holders and in
the number of business entities that
receive assistance under the PTAP.
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
E:\FR\FM\10OCR1.SGM
10OCR1
]]>Agencies
[Federal Register Volume 89, Number 197 (Thursday, October 10, 2024)]
[Rules and Regulations]
[Pages 82183-82188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-23226]
-----------------------------------------------------------------------
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: Final rule.
-----------------------------------------------------------------------
SUMMARY: DoD is issuing a final rule amending 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: Effective November 25, 2024.
FOR FURTHER INFORMATION CONTACT: Ms. Jeanette Snyder, telephone 703-
508-7524.
SUPPLEMENTARY INFORMATION:
I. Background
DoD published a proposed rule in the Federal Register at 89 FR
46831 on May 30, 2024, 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. Five respondents submitted
public comments in response to the proposed rule.
II. Discussion and Analysis
DoD reviewed the public comments in the development of the final
rule. A discussion of the comments and the changes made to the rule as
a result of those comments is provided, as follows:
A. Summary of Significant Changes From the Proposed Rule
There are no significant changes from the proposed rule.
B. Analysis of Public Comments
1. Support for the Rule
Comment: The respondents expressed support for the rule.
Response: DoD acknowledges the respondents' support for the rule.
2. Clarifications
Comment: One respondent recommended revising the proposed rule text
at DFARS 270.X02 to clarify that a reference to Federal Acquisition
Regulation (FAR) 6.302-5 is sufficient to justify a sole-source award
under the pilot program. The respondent also recommended adding the
following sentence to the text: ``A justification that cites FAR 6.302-
5, makes reference to 48 CFR 206.302-5(b)(iii), and meets the
requirements of subparts 207.X03 and 207.X04 shall be considered
complete and sufficient for an exception to full an open competition.''
One respondent indicated that a justification and approval (J&A) that
only references FAR 6.302-5 is likely to be found insufficient by audit
agencies.
Response: The proposed rule text at DFARS 270.102(b) requires the
contracting officer to justify the use of a sole-source contract in
accordance with FAR 6.303 and 6.304 prior to conducting negotiations
and to cite FAR 6.302-5, Authorized or required by statute, as the
exception to full and open competitive procedures. FAR 6.303 specifies
the requirements for and the content of a justification. The statute
did not modify the requirements for or content of a justification;
therefore, DoD cannot make the recommended change. However, the final
rule text at DFARS 270-X02(b) has been amended to remove duplicative
text addressed at FAR 6.303-1(a).
[[Page 82184]]
3. Exceptions to Implementation
Comment: Two respondents took exception to the fact that the
proposed rule does not provide a process for a contractor to apply to
participate in the pilot program to ensure a transparent and accessible
process. One respondent indicated the inability for a contractor to
apply to participate in the pilot program is overly restrictive and
inconsistent with the statute.
Response: Section 874 required the Secretary of Defense to submit
to the congressional defense committees an implementation plan for the
pilot program. This implementation plan indicated that applications for
participation in the pilot program will be submitted by contracting
officers. The proposed rule text at DFARS 270.103 is consistent with
the implementation plan. As such, a contractor is not able to submit an
application for participation in the pilot program.
Comment: One respondent took exception to the requirement for a
J&A, indicating that it is inconsistent with the statute. The
respondent further indicated that such a requirement may limit the
number of businesses that may participate in the pilot program, citing
the fact that there are only eight businesses currently participating
in the pilot program.
Response: While sections 872 and 874 authorize the use of other
than competitive procedures for the award of certain contracts under
this pilot program, neither waived the requirement for a J&A;
therefore, a J&A is required. The Office of the Under Secretary of
Defense (Acquisition and Sustainment), Defense Pricing, Contracting,
and Acquisition Policy implemented section 874 via a contract policy
memorandum dated November 8, 2022, and limited participation in the
pilot program to nine contractors. Therefore, the requirement for a J&A
has not limited participation in the pilot program.
Comment: Three respondents took exception to the proposed rule
reporting requirements, while one respondent expressed support for the
reporting requirements. One respondent indicated that some of the
proposed reporting requirements are open-ended and subjective, which
will lead to confusion as to whether the data provided by the
contractor is sufficient. One respondent indicated that the proposed
reporting requirements focus on challenges of employee ownership rather
than performance and value and indicated that the contractor's past
performance rating in the Contractor Performance Assessment Reporting
System (CPARS) would be more useful in assessing the success of the
pilot program. One respondent recommended DoD develop a comprehensive
plan to monitor the implementation and impact of the Employee Stock
Ownership Plan (ESOP) pilot program, allowing for adjustments and
improvements over time to optimize its effectiveness. One respondent
stated that its member companies who participated in the original,
limited pilot program found the data collection to be straightforward
and to require minimal time. Another respondent indicated that DoD's
estimate of 16 hours to collect and submit the data required by the
clause at DFARS 252.270-70YY should be 80 to 120 hours.
Response: Section 874 required the Secretary of Defense to
establish mechanisms to collect and analyze data on the pilot program
for the purposes of developing and sharing best practices with
leadership and the congressional defense committees. Section 874 also
required the Secretary of Defense to submit to the congressional
defense committees a data collection and reporting strategy for the
pilot program. The information to be reported in accordance with the
contract clause at DFARS 252.270-7002, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses, is consistent with this
strategy. This information will be submitted to DoD leadership and the
congressional defense committees and may be used to determine if
additional measures should be taken to assist ESOP businesses in
overcoming challenges associated with their corporate structure.
Additionally, the proposed rule text at DFARS Procedures, Guidance,
and Information (PGI) 270.104, paragraph(d), specifies the reporting
requirements for contracting officers, which include, but are not
limited to, a summary of the contractor's performance and the benefits
experienced from using the pilot program. This information will be used
to assess the success of the pilot program and the need for adjustments
and improvements over time. In reporting the contractor's performance
pursuant to DFARS PGI 270.104, the contracting officer may use
information from CPARS. To minimize the time required to collect and
submit the data, the reporting requirements in the clause at DFARS
252.270-7002 are amended to clarify that data regarding challenges
faced due to the contractor's corporate ownership structure is only
required when applicable. In addition, contractors are only required to
report data collected during the period of performance of the contract;
therefore, the data should be readily available.
4. Outside the Scope of the Rule
Comment: One respondent recommended DoD establish evaluation
criteria to give preference to qualified businesses during the source-
selection process in lieu of limiting the pilot program to sole-source,
follow-on contracts. The respondent also recommended that DoD
prioritize efforts to on-ramp qualified businesses onto multiple-award
contracts to create a larger pool of qualified businesses eligible for
follow-on contracts under this pilot program.
Response: These comments are outside the scope of this rule.
Sections 872 and 874 do not authorize DoD to establish source selection
evaluation criteria to give preference to qualified businesses or to
use on-ramps under the pilot program.
C. Other Changes
DFARS 270.102(b) is revised in the final rule to simplify the
direction to contracting officers. The final rule revises the
prescriptions for the solicitation provisions at DFARS 252.270-7000 and
252.270-7001 and the clause at DFARS 252.270-7002 to specify that they
are not to be included in solicitations and contracts solely for the
acquisition of commercially available off-the-shelf items. These
provisions and this clause are added to the list of provisions and
clauses that are not applicable to COTS items, located at DFARS
212.371. The reporting requirements are clarified in the clause at
DFARS 252.270-7002.
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
The two provisions and the clause at DFARS 252.270-7000, Pilot
Program to Incentivize Contracting with Employee-Owned Businesses-
Representation; DFARS 252.270-7001, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses--Certification; and DFARS
252.270-7002, Pilot Program to Incentivize Contracting with Employee-
Owned Businesses, are prescribed at DFARS 270.105 for use in
solicitations and contracts for approved acquisitions under the Pilot
Program to Incentivize Contracting with Employee-Owned Businesses.
Consistent with the analysis that DoD provided in the proposed rule
with regard to the application of the requirements of section 874 of
the NDAA for FY 2022, as amended by
[[Page 82185]]
section 872 of the NDAA for FY 2024, DoD has decided to not apply the
statutes to contracts at or below the SAT, and DoD has made the
determination to apply the statutes, as implemented in the provisions
and clause at 252.270-7000, 252.270-7001, and 252.270-7002, to
contracts for the acquisition of commercial products excluding COTS
items and for the acquisition of commercial services, as defined at
Federal Acquisition Regulation 2.101.
IV. Expected Impact of the Rule
This final rule is expected to impact the Government and
contractors that participate in the Pilot Program to Incentivize
Contracting with Employee-Owned Businesses. This final 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 additional
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. 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 will submit a copy of
the interim or final rule with the form, Submission of Federal Rules
Under the Congressional Review Act, to the U.S. Senate, the U.S. House
of Representatives, and the Comptroller General of the United States. A
major rule under the Congressional Review Act cannot take effect until
60 days after it is published in the Federal Register. The Office of
Information and Regulatory Affairs has determined that this rule is not
a major rule as defined by 5 U.S.C. 804.
VII. Regulatory Flexibility Act
A final regulatory flexibility analysis has been prepared
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.
and is summarized as follows:
This final 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). The objective of the
rule is to implement sections 874 and 872, which 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. 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).
There were no significant issues raised by the public comments in
response to the initial regulatory flexibility analysis. One respondent
took exception to the number of hours DoD estimated it would take a
contractor to comply with the reporting requirement. DoD reviewed the
data to be collected and modified the reporting requirement to clarify
that the contractor is required to only report challenges it faced, if
any. Although not specified in the DFARS text, because this is a
contract clause, contractors are only required to report data collected
during the period of performance of the contract.
Data from the System for Award Management (SAM) revealed there were
384,145 small entities registered in SAM as of August 2024. Data on the
number of small entities that are a qualified business, as defined in
the final 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 that
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 expects that the pilot program will grow to
approximately 16 contractors per year, of which approximately 12 may be
small entities.
This final 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, if any, in
attracting and retaining a talented workforce due to its corporate
ownership structure; (3) challenges, if any, the contractor experienced
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, if any, 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.
There are no known significant alternative approaches that would
accomplish the stated objectives.
VIII. Paperwork Reduction Act
This final rule contains information collection requirements that
have been approved by the Office of Management and Budget under the
Paperwork Reduction Act (44 U.S.C. chapter 35). This information
collection requirement has been assigned OMB Control Number 0750-0012,
Defense Federal Acquisition Regulation Supplement Part 270, Defense
Contracting Programs--Pilot Program to Incentivize Contracting with
Employee-Owned Businesses, and Related Clause.
List of Subjects in 48 CFR Parts 206, 212, 252, and 270
Government procurement.
Jennifer D. Johnson,
Editor/Publisher, Defense Acquisition Regulations System.
Therefore, the Defense Acquisition Regulations System amends 48 CFR
chapter 2 as follows 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:
[[Page 82186]]
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
270.1).
(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, Contracting, and Acquisition Policy, Office of the
Under Secretary of Defense (Acquisition and Sustainment).
(ii) The limitation in paragraph (c)(i) of this section 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.
PART 212--ACQUISITION OF COMMERCIAL PRODUCTS AND COMMERCIAL
SERVICES
0
3. The authority citation for part 212 continues to read as follows:
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 252.270-7000, Pilot Program to Incentivize Contracting
with Employee-Owned Businesses--Representation, as prescribed at
270.105(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 252.270-7001, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses--Subcontracting
Certification, as prescribed at 270.105(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 252.270-7002, Pilot Program to Incentivize
Contracting with Employee-Owned Businesses, as prescribed at
270.105(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).
0
5. Amend section 212.371 by adding paragraphs (b), (c), and (d) to read
as follows:
212.371 Inapplicability of certain provisions and clauses to
contracts for the acquisition of commercially available off-the-shelf
items.
* * * * *
(b) 252.270-7000, Pilot Program to Incentivize Contracting with
Employee-Owned Businesses--Representation.
(c) 252.270-7001, Pilot Program to Incentivize Contracting with
Employee-Owned Businesses--Subcontracting Certification.
(d) 252.270-7002, Pilot Program to Incentivize Contracting with
Employee-Owned Businesses.
PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES
0
6. The authority citation for part 252 continues to read as follows:
Authority: 41 U.S.C. 1303 and 48 CFR chapter 1.
0
7. Add sections 252.270-7000, 252.270-7001, and 252.270-7002 to read as
follows:
* * * * *
Sec.
252.270-7000 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Representation.
252.270-7001 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Subcontracting Certification.
252.270-7002 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses.
* * * * *
252.270-7000 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Representation.
As prescribed in 270.105(a), use the following provision:
Pilot Program To Incentivize Contracting With Employee-Owned
Businesses--Representation (NOV 2024)
(a) Definition. As used in this provision, qualified business has
the meaning given in the Defense Federal Acquisition Regulation
Supplement 252.270-7002, 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)
252.270-7001 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Subcontracting Certification.
As prescribed in 270.105(b), use the following provision:
Pilot Program To Incentivize Contracting With Employee-Owned
Businesses--Subcontracting Certification (NOV 2024)
(a) Definition. As used in this provision, qualified business has
the meaning given in the Defense Federal Acquisition Regulation
Supplement 252.270-7002, 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--
[[Page 82187]]
(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)
252.270-7002 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses.
As prescribed in 270.105(c), use the following clause:
Pilot Program To Incentivize Contracting With Employee-Owned Businesses
(NOV 2024)
(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, if any, the Contractor experienced in attracting
and retaining a talented workforce in a competitive market due to the
Contractor's corporate ownership structure.
(3) Challenges, if any, 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, if any, 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
8. Add part 270 to read as follows:
PART 270--DEFENSE CONTRACTING PROGRAMS
Sec.
270.000 Scope of part.
Subpart 270.1--Pilot Program to Incentivize Contracting with Employee-
Owned Businesses
270.100 Scope of subpart.
270.101 Definition.
270.102 Policy.
270.103 Limitations.
270.104 Procedures.
270.105 Solicitation provisions 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 270.1--Pilot Program to Incentivize Contracting with
Employee-Owned Businesses
270.100 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 270.101).
(b) The authority to award contracts under this subpart expires on
December 27, 2029.
270.101 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).
270.102 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 as or substantially
similar to those procured under the prior contract awarded to the
contractor by or for DoD.
(b) The contracting officer shall justify the use of a sole-source
contract in accordance with FAR 6.303 and 6.304 and cite FAR 6.302-5 as
the exception to full and open competition.
270.103 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, Contracting, and Acquisition
Policy (Contract Policy). Only a contracting officer may submit an
application to participate in the pilot program. See PGI 270.104(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.
270.104 Procedures.
See PGI 270.104 for procedures and information concerning the pilot
program.
270.105 Solicitation provisions and contract clause.
(a) Use the provision at 252.270-7000, 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, except
for solicitations solely for the acquisition of commercially available
off-the-shelf (COTS) items, that include the clause at 252.270-7002,
Pilot Program to Incentivize Contracting with Employee-Owned
Businesses.
(b) Unless waived in accordance with 270.103(b)(3), use the
provision at 252.270-7001, Pilot Program to
[[Page 82188]]
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, except for solicitations solely for the acquisition of COTS
items, that include the clause at 252.270-7002, Pilot Program to
Incentivize Contracting with Employee-Owned Businesses.
(c) Use the clause at 252.270-7002, 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, except for solicitations and contracts solely for the
acquisition of COTS items, for approved pilot program acquisitions.
[FR Doc. 2024-23226 Filed 10-9-24; 8:45 am]
BILLING CODE 6001-FR-P
