Government Contracting: Subcontracting Program, 103709-103717 [2024-29267]

Agencies

• SMALL BUSINESS ADMINISTRATION

[Federal Register Volume 89, Number 244 (Thursday, December 19, 2024)]
[Proposed Rules]
[Pages 103709-103717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29267]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 125

RIN 3245-AI09


Government Contracting: Subcontracting Program

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
revise its Small Business Subcontracting Program regulations to 
encourage faster payments to small business subcontractors and 
streamline the reporting process for prime contracts. This proposed 
rule will require prime contractors notify contracting officers in 
writing when it fails to make full or timely payments to the 
subcontractor within 30 days past due; require prime contractors 
cooperate with contracting officers to correct/mitigate this failure 
until payment is made in full to the subcontractor; and allow 
contracting officers to modify a prime contractor's past performance 
for failure to make full or timely payments.

DATES: Comments must be received on or before February 18, 2025.

ADDRESSES: You may submit comments, identified by RIN 3245-AI09, by any 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov 
and follow the instructions for submitting comments.
     Email: Kunmi Ageh, Procurement Policy Analyst (Attorney), 
Office of Policy Planning and Liaison, Small Business Administration, 
at [email protected].
    SBA will post all comments on https://www.regulations.gov.
    Instructions: All submissions received must include the agency name 
and docket number or Regulatory Information Number (RIN) for this 
rulemaking. All comments received will be posted on https://www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at https://www.regulations.gov, please submit the comments to Kunmi Ageh and 
highlight the information that you consider to be CBI and explain why 
you believe this information should be held confidential.

FOR FURTHER INFORMATION CONTACT: Kunmi Ageh, Procurement Policy Analyst 
(Attorney), Office of Policy Planning and Liaison, Small Business 
Administration, at [email protected], 202-374-8454.
    Electronic copies of this Federal Register are available at https://www.regulations.gov. The docket is available at https://www.regulations.gov, the Federal eRulemaking Portal. A ``100-word 
summary'' is also available on https://www.regulations.gov. For 
additional information on submitting items to, or accessing items in, 
the docket, please refer to the ADDRESSES section of this NPRM.

SUPPLEMENTARY INFORMATION:

Background Information

    The SBA proposes to revise its Small Business Subcontracting 
Program regulations in 13 CFR 125.3 in response to changes made in 
section 862 of the National Defense Authorization Act (NDAA) for Fiscal 
Year 2024, Public Law 118-31. Section 862 made changes to section 
8(d)(13) of the Small Business Act, 15 U.S.C. 637(d)(13)(B)(i), by 
amending the time in which a prime contractor must notify the 
contracting officer in writing if, upon completion of the 
responsibilities of the small business subcontractor, payment to the 
subcontractor is past due under the terms of the subcontract by 30 
days. This means a prime contractor must notify a contracting officer 
in writing when it failed to make fully or timely payments to a 
subcontractor within 30 days past the payment due date. Section

[[Page 103710]]

862 also requires that the prime contractor cooperate (act or work 
together) with the contracting officer to correct and mitigate the 
failure to make a full or timely payment to a subcontractor. The prime 
contractor has the duty to cooperate with the contracting officer until 
the subcontractor receives full payment, is made whole or the 
contracting officer's determination is no longer effective, regardless 
of performance or status of the contract in question. Lastly, a 
contracting officer has the option to include the failure to make full 
and timely payments in the prime contractor's past performance rating 
before or after close-out of the covered contract.
    SBA intends to simplify the subcontracting reporting process by 
proposing additional changes to the Subcontracting Program. This 
proposed rule will allow contractors the option to base their 
commercial subcontracting plans on the Federal Government's fiscal year 
(FY), as well as allow prime contractors the option to base a 
subcontractor's size status on its primary NAICS code for subcontracts, 
but only limited to subcontracts under commercial subcontracting plans, 
subcontracts under the Micro-Purchase Threshold (MPT), and for indirect 
costs subcontracts in instances where the subcontract does not result 
from a solicitation with a NAICS code. This proposed rule also intends 
to explain how to calculate an agency's allocation on the Commercial 
Summary Subcontract Reports (SSRs) and provide a clear due date for 
when to submit Commercial SSRs. SBA proposes to clarify which agencies 
should receive Individual Subcontract Reports (ISRs) or SSRs, provide 
the deadline for submissions of ISRs or SSRs, and list the individuals 
with the authority to sign SSRs.
    With these revisions, SBA plans to simplify the subcontract 
reporting process and address common concerns with subcontract 
reporting.

Severability

    SBA anticipates for the provisions of this proposed rule, if 
finalized, to be severable from each other such that if a court were to 
hold that any provision is invalid or unenforceable as to a particular 
person or circumstance, the rule would remain in effect as to any other 
person or circumstance.

Section-by-Section Analysis

Section 125.3(a)(1)(i)(B)

    SBA proposes to add language to Sec.  125.3(a)(1)(i)(B) that the 
subcontracting plan must be submitted by the entity awarded the 
contract, which must reflect all subcontracting to be performed by 
itself and its affiliates. With this amendment, SBA proposes to clarify 
that this section also applies to prime contractors that are considered 
a joint venture. SBA will eliminate the issue where two other than 
small business concerns submit an offer as a joint venture and use 
individual subcontracting plans to fulfill the subcontracting plan 
requirement, whereas instead, the subcontracting plan should name the 
joint venture offeror.

Section 125.3(a)(1)(iii)

    SBA proposes to add text to Sec.  125.3(a)(1)(iii) to clarify that 
utilities purchased from a municipality or solely authorized by that 
municipality to provide services in a particular geographic region 
should not be included in a subcontracting base.

Section 125.3(b)(3)(ii)

    SBA proposes to add language to Sec.  125.3(b)(3)(ii) to include 
the Dynamic Small Business Search (DSBS) to the list of tools for 
conducting market research. DSBS is a research tool meant to help 
contractors identify small business concerns capable of performing all 
or part of the contract as a subcontractor. The addition of DSBS will 
promote practicable subcontracting opportunities. Therefore, in 
addition to System for Award Management (SAM.gov) and SBA's SUBNet, SBA 
proposes to add DSBS to the list of tools for conducting market 
research to assist contractors in locating small business concerns.

Section 125.3(c)(1)(v)

    Currently, Sec.  125.3(c)(1)(v) requires the contractor to assign a 
NAICS code that best describes the nature of the subcontract, and its 
corresponding size standard, to each subcontract and to each 
solicitation if a solicitation is utilized. Further, a contractor may 
rely on a subcontractor's electronic representations and 
certifications, if the solicitation for the subcontract contains a 
clause that requires the subcontractor verify, by the submission of its 
offer, that the size or socioeconomic representations and 
certifications are current, accurate, and complete as of the date of 
the offer for the subcontract.
    SBA proposes to add language to Sec.  125.3(c)(1)(v) that a 
subcontractor's primary NAICS code may be used as its size 
classification for all subcontracts under commercial subcontracting 
plans, for subcontracts under the Micro-Purchase Threshold (MPT), and 
for the indirect costs of subcontracts. The prime can only use the 
primary NAICS code for classifying the subcontractor where the 
subcontract does not result from a solicitation with a NAICS code. If 
the prime contractor issues a solicitation for a subcontract that has a 
NAICS code, then that prime contractor must use the size representation 
for the NAICS code in that solicitation, rather than the primary NAICS 
code for the subcontractor. This will ensure all responses to the 
solicitation for the subcontract are assessed against the same NAICS 
code and corresponding size standard. SBA has noticed contractor 
challenges to determine the size of subcontractors for indirect costs 
and accurately counting all indirect costs in the ``other than small'' 
category. Thus, SBA intends to increase the correct size classification 
for subcontractors by providing an alternate method to classify their 
suppliers. This change simplifies prime contractor's ability to 
identify the size status of a subcontractor for indirect costs (for 
companies with all plan types), for subcontracts issued under 
commercial subcontracting plans, and for subcontracts under the MPT.
    A contractor cannot require a subcontractor to register in SAM.gov 
to identify a potential subcontractor's size and socio-economic status; 
however, Contractors can determine a subcontractor's size and 
socioeconomic status for their primary NAICS code through written size 
representations or electronic representations. For HUBZone small 
businesses and service-disabled veteran-owned small businesses 
(SDVOSBs), SBA requires the contractor or subcontractor be registered 
in DSBS, SAM.gov, or successor system, prior to submitting a 
certification application to SBA. For a contractor to verify the status 
of a HUBZone or SDVOSB subcontractor, it must verify the status of the 
concern in DSBS. Any contractor or subcontractor that does not submit a 
certification application for SDVOSBs status to SBA by December 22, 
2024, cannot self-certify for a Federal prime or subcontract that 
counts towards SDVOSB goaling purposes or SDVOSB subcontracting goals 
under 13 CFR 128.200(c)(2). If the contractor chooses to register in 
SAM.gov, the contractor's primary NAICS is indicated in the Assertions, 
Service Classifications, portion of a contractor's SAM profile. 
Subcontracts are still required to include a clause in the solicitation 
or subcontract that require subcontractors verify by submission of the 
offer or acceptance that the subcontractor's size

[[Page 103711]]

and socioeconomic representations and certifications in SAM (or in the 
contractor's electronic database) are current, accurate and complete as 
of the date of the offer for the subcontract (or, if an offer is not a 
part of the procurement process, as of the date of award).
    Finally, SBA proposes to clarify that the size certification and 
recertification requirements of 13 CFR 121.404(g) do not apply to 
subcontracts. However, if there is a merger or acquisition that causes 
the reissuance of the subcontract, this is considered a new 
subcontract.

Section 125.3(c)(1)(vi)

    SBA proposes four revisions to Sec.  125.3(c)(1)(vi). First, SBA 
plans to amend this section to clarify what reports must be submitted 
for orders against multi-agency indefinite delivery, indefinite 
quantity (IDIQ) contracts. Unlike Commercial Plans under FAR 52-219-
9(l)(2)(i)(e), contractors cannot allocate a percentage of work in the 
SSR to more than one executive agency when submitting reports. An 
individual SSR is directed to a single agency. Thus, SBA proposes a 
separate SSR should be submitted to the ordering agency when orders are 
placed under multi-agency multiple award contracts. This will ensure a 
separate SSR is submitted for each ordering agency to capture 
subcontracts awarded during the fiscal year for that agency's order, so 
the ordering agency receives credit in accordance with 13 CFR 
125.3(h)(3). Further, this SSR need only reflect subcontract awards 
that result from that agency's orders. Any dollar value subcontract 
should be included in the ISR (or SF 294, if applicable) and SSR 
reports. Contractors with individual subcontracting plans must submit 
ISRs during contract performance as required under this provision. 
Although uncommon, if the agency that issued the underlying contract 
does not award any orders, then the contractor must still submit an SSR 
with zero dollars. For example, XYZ Company has a contract with U.S. 
General Services Administration (GSA), under the Federal Supply 
Schedule (FSS), that contains an individual subcontracting plan. The 
FSS allows other agencies to place an order under this contract. The 
U.S. Department of Veterans Affairs (VA) places an order against the 
FSS with XYZ Company. XYZ Company must submit two SSRs. One to VA, 
reflecting a subcontracting that occurred during the reporting period 
pertaining to its order; and the other to GSA, reflecting no 
subcontracting because GSA did not place any orders itself. If the 
contractor has another prime or subcontract with the VA, that 
contractor would combine all its subcontracting under VA into one SSR.
    Second, this rule proposes the contractor submit its SSR within 45 
days after the end of the Government's fiscal year (e.g., by November 
14th for the September 30th reporting period). This mirrors the 
recently proposed change in 13 CFR 125.3(d)(2), which would extend the 
due dates for subcontracting reports by 15 days, from 30 days to 45 
days.
    Third, SBA proposes to amend this section to clarify that SSRs 
should be submitted to the executive agency level unless otherwise 
directed by the agency. SBA proposes to define Executive agency as an 
executive department, a military department, or any independent 
establishment within the meaning of 5 U.S.C. 101, 102, and 104(1), 
respectively, and any wholly owned Government corporation within the 
meaning of 31 U.S.C. 9101 (as defined in FAR 2.101). For example, XYZ 
Company submits SSRs to Centers for Disease Control and Prevention, 
Centers for Medicare and Medicaid Services, and Food and Drug 
Administration--all lower-level agencies that fall under the U.S. 
Department of Health and Human Services (HHS). Here, XYZ Company should 
have submitted only one SSR to HHS, the executive agency. Contractors 
may continue to file commercial SSRs at the awarding level.
    Lastly, SBA proposes to amend this section to increase individuals 
who may sign the SSR. Specifically, the contractor's President (or 
equivalent at education institutions), CEO, Vice President, General 
Manager, or most Senior Executive for Government Procurement may sign 
the SSR. Currently, the contractor's President is the only individual 
that may sign the SSR. This is an issue because the contractor's 
President may not be available for signature or may not have subject 
matter knowledge. Thus, SBA intends to ease the SSRs process by 
allowing signatures from individuals who have knowledge of the content 
and are readily available to sign the reports in lieu of the CEO.

Section 125.3(c)(1)(xiii)(C)

    SBA proposes to add a definition of contract completion in 
accordance with physically completed contracts under FAR 4.804-4. More 
specifically, under FAR 4.804-4, a contract is considered physically 
complete when the contractor has performed all services and/or provided 
all required deliveries, and the Government has accepted the services 
and/or accepted the supplies. In the instance of rental, use, or 
storage agreements, contract completion occurs when the Government has 
provided the contractor a notice of complete contract termination or 
the contract period has expired.
    Under the past performance ratings program, the prime contractor 
must rate the first-tier small business subcontractor using the five-
scale ratings system found in FAR 42.1503 (48 CFR 42.1503). The prime 
contractor must provide an exceptional, very good, satisfactory, 
marginal, or unsatisfactory rating to the first-tier small business 
subcontractor. In turn, subcontractors who intend to provide this 
rating when making an offer for a prime contract must include the 
following evaluation factors: (1) technical; (2) cost control; (3) 
schedule/timeliness; (4) management or business relations; and (5) 
other (as applicable).
    Thus, Sec.  125.3(c)(1)(xiii)(C) allows a first-tier subcontractor 
to request a subcontractor's past performance rating from the prime 
contractor within 30 calendar days of completion of the prime 
contractor's contract with the Government. This clarifies the time a 
contract is considered complete, which thereby starts the ``30 calendar 
day'' window for a first-tier subcontractor to request a performance 
rating from the prime contractor.

Section 125.3(c)(2)

    SBA proposes to amend Sec.  125.3(c)(2) to set forth the rules for 
commercial subcontracting plans. First, SBA proposes to provide 
contractors the option to base their commercial subcontracting plans on 
the Federal Government's fiscal year. Currently, Sec.  125.3(c)(2) only 
permits subcontractors to base their commercial subcontracting plans on 
their individual fiscal year. This revision permits contractors to base 
their commercial subcontracting plans on the Federal Government's 
fiscal year, if desired, so the subcontracting plan can match the SSR 
reporting period.
    Second, SBA proposes to amend Sec.  125.3(c)(2) to clarify how to 
calculate an agency's allocation on the Commercial SSR and provide a 
clear due date for submission of the Commercial SSR. The agency 
allocation percentage on the SSR is the percentage of revenue during 
the Government's fiscal year attributable to each Federal agency, when 
compared to the contractor's total revenue earned during the Government 
fiscal year. It should be noted that the contractor's total revenue, 
including its Federal and non-Federal revenue, is used in the 
denominator. All subcontracting with any Federal agency

[[Page 103712]]

should be included even if the contractor does not have a 
subcontracting plan with the agency; and the executive level of the 
agency should be selected unless otherwise directed by the agency.
    Third, SBA proposes to amend Sec.  125.3(c)(2) to permit the use of 
a subcontractor's primary NAICS as the size of the subcontractor under 
a commercial subcontracting plan. This change also applies to indirect 
costs subcontracts, and subcontracts below the Micro-Purchase Threshold 
(MPT).

Section 125.3(c)(5)

    Per the requirements of section 862 of the NDAA for FY2024, SBA 
proposes to revise the timeframe in Sec.  125.3(c)(5) in which a prime 
contractor must notify the contracting officer in writing, if upon 
completion of the responsibilities of the small business subcontractor, 
that payment to the subcontractor will be untimely under the terms of 
the subcontract. Previously, a prime contractor was required to notify 
the contracting officer in writing if payment was more than ``90'' days 
past due. Under this revision, a prime contractor must notify the 
contracting officer in writing when the payment to a small business 
subcontractor is more than ``30'' days past due under the terms of the 
subcontract.

Section 125.3(c)(6)

    SBA proposes to add text to Sec.  125.3(c)(6) that states a 
contractor has met its subcontracting goal when it has met or exceeded 
its percentage goal in its subcontracting plan--whether the goals are 
based on total contract value or total subcontracting. This change 
clarifies how contracting officers look to a contractor's percentage 
goal to determine whether that contractor has met its subcontracting 
goal. Specifically, a prime contractor's subcontracting plan must 
include a statement of total dollars planned to be subcontracted to 
small and disadvantaged businesses under FAR 19.704(a)(2). This 
allocated percentage of the total subcontract dollars is considered the 
percentage goal for the subcontracting plan. Thus, if the contractor 
fails to meet its percentage goal, the contractor is required to 
provide the contracting officer a written explanation why it failed to 
meet its planned small business subcontracting goals.

Section 125.3(d)(3)(i)

    SBA proposes to revise the language in Sec.  125.3(d)(3)(i) by 
replacing ``large'' with ``other than small'' with the intent to 
clarify that application of this section includes, but is not limited 
to, businesses, organizations, public utilities, and State and local 
governments. The current language includes the term ``large'' business, 
which could be interpreted to exclude municipalities; for example, 
State and local governments, non-profit organizations, and public 
utilities. Revising this rule will clarify the inclusion of all types 
of concerns, such as State and local governments, and other 
organizations that are not small business concerns.

Section 125.3(d)(5)

    Consistent with the requirements of section 862 of the NDAA for 
FY2024, SBA proposes to revise the timeframe of Sec.  125.3(d)(5) from 
``90'' days to ``30'' days. Under this revision, a contracting officer 
must evaluate a prime contractor's written explanation for an untimely 
payment to a subcontractor that is more than ``30'' days past due under 
the terms of the subcontract. The contracting officer may also consider 
that information when rating the contractor for past performance 
purposes. SBA proposes to mirror the mandatory statutory changes in 
Sec.  125.3(c)(5) by amending the timeframe for the contracting 
officer's evaluation from ``90'' to ``30'' days for consistency.

Section 125.3(d)(7) Through (8)

    SBA proposes to add new paragraph Sec.  125.3(d)(7) to implement 
the requirements of section 862 of the NDAA for FY 2024. Specifically, 
this section allows the contracting officer to enter and modify the 
prime contractor's past performance information when there is an 
unjustified failure to make a full or timely payment to a subcontractor 
subject to this section before or after close-out of the contract.
    This section further stipulates that once the contracting officer 
makes the determination that there was an unjustified failure by the 
prime contractor to make a full or timely payment to a subcontractor 
under this section, then the prime contractor must cooperate with the 
contracting officer to correct and mitigate the unjustified failure. 
During this process, the contracting officer consults with the Director 
of Small Business Programs or the Director of Small and Disadvantaged 
Business Utilization acting or other representatives of the Federal 
Government to ensure compliance with small business goals. The prime 
contractor has a duty to cooperate until the subcontractor is made 
whole or the contracting officer's determination is no longer 
effective, regardless of performance or close-out status of the subject 
contract.
    SBA intends to remove Sec.  125.3(d)(8) entirely because when the 
contract is awarded, the original subcontracting plan will include all 
options; therefore, this provision is unnecessary.
    As a result of removing Sec.  125.3(d)(8) and adding new paragraph 
Sec.  125.3(d)(7), SBA proposes to redesignate the current Sec.  
125.3(d)(7) as Sec.  125.3(d)(8).

Sections 125.3(e)(1) Through (e)(5)

    Similar to amendments made in Sec.  125.3(d)(3)(i), SBA proposes to 
revise the language in Sec.  125.3(e)(1) through (5) by revising 
``large'' to ``other than small'' with the intent to clarify that 
application of this section includes, but is not limited to, 
businesses, organizations, public utilities, and State and local 
governments.

Section 125.3(e)(3)

    In addition to revising ``large'' to ``other than small'' in Sec.  
125.3(e)(3), SBA proposes to add DSBS as an alternative market research 
tool for prime contractors to assist in identifying small business 
concerns that can perform all or part of the work as a subcontractor. 
This section currently omits DSBS as a market research tool, thus SBA 
intends to ensure this database is listed as one of the key market 
research alternatives available to contractors in addition to the 
currently listed tools, SAM, SUBnet and Business Matchmaking events.

Section 125.3(f)(1)

    First, SBA proposes to revise Sec.  125.3(f)(1) by removing the 
language ``on site'' because virtual meetings and calls are more common 
and widely accessible. Next, SBA proposes to remove the ``six to eight 
months'' for a follow-up review and replace that language with ``within 
a year''. This revision will clarify that SBA or the agency conducting 
the review has at least a year to conduct a follow-up compliance review 
to ensure the contractor has implemented all corrective actions. 
Lastly, SBA proposes to include the language ``the corrective actions'' 
after ``implemented''. This revision clarifies that contractors are 
required to complete any corrective actions by the time of its follow-
up review. Overall, this provides additional time to complete this 
segment of contract performance.

Section 125.3(f)(4)

    SBA proposes to amend the timeframe from ``30'' days to within 
``45'' days of receipt of the official compliance report. This provides 
a contractor that receives a marginal or unsatisfactory rating 
additional time to provide a written corrective action plan to SBA, or 
to both

[[Page 103713]]

SBA and the agency that conducted the compliance review (if the agency 
conducting the review has an agreement with SBA).

Section 125.3(h)(2)

    SBA proposes to revise the language in Sec.  125.3(h)(2) to include 
the text ``when order-level goals were required'' and the text ``on the 
underlying contract's ISR report.'' Specifically, this revision 
clarifies the time a contractor is required to submit small business 
subcontracting accomplishments, which is when order-level goals are 
required; and the correct agency to submit this information, which is 
the contracting agency on the underlying contract's ISR report. 
Summarily, SBA intends to update the requirements so contractors are 
aware that the order-level achievements must be reported on the 
underlying contract's ISR report when order-level goals are required.
    Second, SBA proposes to add the language ``[t]he order's 
subcontracting only needs to be included on the ISR's order-level 
report from the inception of the order until the order is completed, 
and on the ISR designated as `final'.'' This specifies the length of 
time an order level subcontracting must be included on the ISR's order-
level report.
    Compliance with Executive Orders 12866, 12988, 13132, 13175, 13563, 
the Congressional Review Act (5 U.S.C. 801-808), the Paperwork 
Reduction Act (44 U.S.C., Ch. 35), and the Regulatory Flexibility Act, 
(5 U.S.C. 601-612).

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
rulemaking is significant regulatory action for the purposes of 
Executive Order 12866.

SBA's Regulatory Impact Analysis

    1. Regulatory Impact Analysis: Is there a need for the regulatory 
action?
    This action proposes to implement a statutory requirement--the NDAA 
FY24--as well as simplify the subcontracting reporting process by 
proposing additional changes to the Subcontracting Program. The 
proposed rule provides an offeror with the option to base its 
commercial subcontracting plans on its fiscal year or the Federal 
Government's fiscal year; and allows for the size status of the 
subcontractor to be based on its primary NAICS code for commercial 
subcontracting plans, indirect costs subcontracts, and contracts under 
the MPT. The proposed rule defines executive agency and contract 
completion. It clarifies how to calculate the agency allocation on the 
Commercial SSR; when the higher tier contractors must review the lower 
tier ISR; and submission of SSRs for orders under multi-agency IDIQ 
contracts.
    2. What is the baseline, and the incremental benefits and costs of 
this regulatory action?
    There are three provisions associated with incremental benefits or 
incremental costs. SBA has determined that the remaining changes 
clarify or improve existing policies.
    First, NDAA FY 2024 amends section 8(d)(13) of the Small Business 
Act to encourage faster payments to small business subcontractors. 
Prime contractors are required to notify contracting officers of its 
failure to make full or timely payments to the subcontractor within 30 
days. The prime contractor must cooperate with the contracting officer 
until full and timely payments are made or the contracting officer's 
determinations are no longer effective. The contracting officer may 
consider the prime contractor's failure to make a full or timely 
payment to a subcontractor in past performance. The existing baseline 
without implementing the change provides prime contractors 90 days to 
notify a contracting officer of late payments without any effect to 
past performance or incentive to cooperate with the contracting officer 
to resolve the failure to make timely payments. As a result, 
subcontractors may not receive full payments until after performance 
and contract completion. The most significant benefits of this proposed 
rule will ensure subcontractors receive timely payments and incentivize 
the prime contractor to cooperate with contracting officers regarding 
full payments to subcontractors.
    Second, Sec.  125.3(c)(1)(vi) allows a contractor's CEO, president, 
vice president, general manager, or most senior executive for 
government procurement to sign the SSRs. The current baseline only 
allows the CEO/President to sign the SSR. As a result, submissions of 
SSRs take additional time, subject to the availability and subject-
matter knowledge of the CEO/President. This proposed change will 
benefit the process by allowing additional individuals within a firm to 
sign the SSRs report. SBA believes this will create more efficiency in 
the SSR reporting process.
    Lastly, Sec.  123.3(c)(1)(vi) would require prime contractors 
submit separate summary subcontracting reports (SSRs) for each ordering 
agency against each multi-agency indefinite delivery, indefinite 
quantity (IDIQ) contract. The existing baseline without implementing 
the change only requires prime contractors submit one SSR report to the 
IDIQ agency. As a result, the ordering agency may not receive proper 
credit towards its subcontracting goals.
    The proposed change will benefit program participants by ensuring 
each ordering agency receives credit as required under 13 CFR 
125.3(h)(3). Contractors are already required to submit SSRs to the 
agency that awarded the IDIQ contract, and the data should already 
exist. Thus, the only cost associated with the proposed change would be 
the cost to complete additional SSR reports and organize existing 
ordering data by agency. It is difficult to calculate the cost 
associated with submitting SSRs. To determine a cost for this change, 
SBA reviewed the Paperwork Reduction Act Supporting Statement for the 
FAR's Subcontracting Plan forms, under OMB Control No. 9000-0007. 
Considering the burdens estimated in the Supporting Statement, SBA 
estimates a contractor currently spends approximately three hours to 
submit an SSR, the equivalent to an individual subcontracting report 
(ISR). That equates to approximately $132.46 per hour, which is the 
mean hourly wage of $66.23 plus 100 percent for overhead and benefits 
for Management Occupation (see Management Occupations (bls.gov), 
retrieved September 4, 2024). In FY20, 4,389 contractors submitted an 
ISR. SBA estimates a 5% increase, which is an approximate increase of 
220 reports submitted annually. Thus, the aggregate cost of this 
proposed change amounts to $87,424 annually. This proposed rule also 
intends to concurrently provide 15 additional days to submit SSRs under 
Sec.  125.3(d)(2). Thus, SBA believes the additional time allocated in 
this rulemaking will resolve any undue burden, given the data for SSRs 
already exist.
    3. What alternatives have been considered?
    The alternative to the proposed rule would be to keep SBA's 
processes and procedures as currently stated in the Code of Federal 
Regulations. However, because the proposed rule intends to simplify the 
subcontracting reporting process, SBA does not believe this alternative 
will benefit the Subcontracting Program.
    Additionally, this rulemaking implements section 862 of NDAA FY24. 
There is no alternative to implementing this statutory requirement.

Executive Order 13563

    This Executive order directs agencies to, among other things: (a) 
Afford the public a meaningful opportunity to comment through the 
internet on proposed regulations, with a comment

[[Page 103714]]

period that should generally consist of not less than 60 days; (b) 
provide for an ``open exchange'' of information among Government 
officials, experts, stakeholders, and the public; and (c) seek the 
views of those who are likely to be affected by the rulemaking even 
before issuing a notice of proposed rulemaking. As far as practicable 
or relevant, SBA considers these requirements in developing this 
rulemaking as discussed below.
    1. Did the agency use the best available techniques to quantify 
anticipated present and future costs when responding to E.O. 12866 
(e.g., identifying changing future compliance costs that might result 
from technological innovation or anticipated behavioral changes)?
    To the extent possible the agency utilized the most recent data 
available in the System for Award Management (SAM.gov) and the 
Electronic Subcontracting Reporting System (eSRS). This proposed rule 
does not attempt to quantify anticipated present and future costs, and 
so the agency expects minimal impact.
    2. Public participation: Did the agency: (a) afford the public a 
meaningful opportunity to comment through the internet on any proposed 
regulation, with a comment period that should generally consist of not 
less than 60 days; (b) provide for an ``open exchange'' of information 
among government officials, experts, stakeholders, and the public; (c) 
provide timely online access to the rulemaking docket on 
Regulations.gov; and (d) seek the views of those who are likely to be 
affected by rulemaking?
    The notice of proposed rulemaking will have a 60-day comment period 
and will be posted on www.regulations.gov to allow the public to 
comment meaningfully on its provisions.
    3. Flexibility: Did the agency identify and consider regulatory 
approaches that reduce burdens and maintain flexibility and freedom of 
choice for the public.
    Yes, the notice of proposed rulemaking implements changes; provides 
offerors with the option to submit their commercial subcontracting 
plans using either the Government's fiscal year or their fiscal year; 
allows a subcontractor's size status to be based on its primary NAICS 
code for commercial subcontracting plans, indirect costs subcontracts, 
and contracts under the MPT only in instances where the subcontract 
does not result from a solicitation with a NAICS code; and provides 
other clarifications.

Executive Order 12988

    For purposes of Executive Order 12988, SBA has drafted this 
rulemaking, to the extent practicable, in accordance with the standards 
set forth in section 3(a) and 3(b)(2) of that Executive order, to 
minimize litigation, eliminate ambiguity, and reduce burden. This 
rulemaking has no preemptive or retroactive effect.

Executive Order 13175

    This rulemaking does not have Tribal implications under Executive 
Order 13175, Consultation and Coordination with Indian Tribal 
Governments, because it does not have a substantial direct effect on 
one or more Indian tribes, on the relationship between the Federal 
Government and Indian tribes, or on the distribution of power and 
responsibilities between the Federal Government and Indian tribes.

Executive Order 13132

    For the purpose of Executive Order 13132, SBA has determined that 
this rulemaking will not have substantial direct effects on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
layers of government. Therefore, SBA has determined that this 
rulemaking has no federalism implications warranting preparation of a 
federalism assessment.

Paperwork Reduction Act, 44 U.S.C. Ch. 35

    The notice of proposed rulemaking would make changes and 
clarifications to SBA's subcontracting regulation. Specifically, this 
rulemaking will require contractors submit a separate SSR for each 
ordering agency to capture subcontracts awarded during the fiscal year 
for that agency's order(s), so the ordering agency receives credit in 
accordance with 13 CFR 125.3(h)(3). This collection of information may 
require submission or retention of documents; however, SBA believes 
that this impact will be minimal. Contractors are already required to 
submit SSRs to the agency that awarded the IDIQ contract, so the data 
should already exist in the contractor's ordinary course of business 
recordkeeping.

Regulatory Flexibility Act, 5 U.S.C. 601-612

    According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601, 
when an agency issues a rulemaking, it must prepare a regulatory 
flexibility analysis to address the impact of the rule on small 
entities. However, section 605 of the RFA allows an agency to certify a 
rule, in lieu of preparing an analysis, if the rulemaking is not 
expected to have a significant economic impact on a substantial number 
of small entities. The RFA defines ``small entity'' to include ``small 
businesses,'' ``small organizations,'' and ``small governmental 
jurisdictions.'' This proposed rule concerns various aspects of SBA's 
contracting programs. As such, the rule relates to small business 
concerns but would not affect ``small organizations'' or ``small 
governmental jurisdictions'' because those programs generally apply 
only to ``business concerns'' as defined by SBA regulations, in other 
words, to small businesses organized for profit. ``Small 
organizations'' or ``small governmental jurisdictions'' are non-profits 
or governmental entities and do not generally qualify as ``business 
concerns'' within the meaning of SBA's regulations.
    There are approximately 350,000 concerns registered as small 
business concerns in the System for Award Management (SAM) that could 
potentially be impacted by the implementation of section 862. However, 
SBA cannot say with any certainty how many will be impacted because we 
do not know how many of these concerns participate in Government 
contracting as subcontractors. A firm is required to register in SAM in 
order to participate in Federal contracting as a prime contractor, but 
not for purposes of subcontracting. The data does not allow SBA to 
estimate the cost of the proposed rule on small business concerns.
    In sum, the proposed amendments would not have a disparate impact 
on small businesses and would increase their opportunities to 
participate in Federal Government contracting as subcontractors without 
imposing any additional costs. For the reasons discussed, SBA certifies 
that this proposed rule would not have a significant economic impact on 
a substantial number of small business concerns.

List of Subjects in 13 CFR Part 125

    Government contracts, Government procurement, Reporting and 
recordkeeping requirements, Small businesses, Small business 
subcontracting.

    For the reasons stated in the preamble, SBA proposes to amend 13 
CFR part 125 as follows:

[[Page 103715]]

PART 125--GOVERNMENT CONTRACTING PROGRAMS

0
1. The authority citation for part 125 is revised to read as follows:

    Authority:  15 U.S.C. 632(p), (q), 634(b)(6), 637, 644, 657f, 
657q, 657r, and 657s; 38 U.S.C. 501 and 8127.

0
2. Amend Sec.  125.3 by:
0
a. Revising paragraphs (a)(1)(i)(B), (a)(1)(iii), (b)(3)(ii), (c)(1)(v) 
and (vi), (c)(1)(xiii)(C), (c)(2), (5) and (6), (d)(3)(i), (d)(5);
0
b. Removing paragraph (d)(8);
0
c. Redesignating paragraph (d)(7) as paragraph (d)(8);
0
d. Adding new paragraph (d)(7); and
0
e. Revising paragraphs (e)(1) through (5), (f)(1) and (4) and (h)(2).
    The revisions and addition read as follows:


Sec.  125.3   What types of subcontracting assistance are available to 
small businesses?

    (a) * * *
    (1) * * *
    (i) * * *
    (B) Purchases from a corporation, company, or subdivision that is 
an affiliate of the prime contractor or subcontractor, or a joint 
venture in which the contractor is one of the joint venturers, are not 
included in the subcontracting base. Subcontracts by first-tier 
affiliates, and subcontracts by a joint venture in which the prime 
contractor is one of the joint venturers, shall be treated as 
subcontracts of the prime contractor. The subcontracting plan must be 
submitted by the entity awarded the contract, which reflects 
subcontracting done by itself, its affiliates and if a joint venture, 
its joint venture partners.
* * * * *
    (iii) The following should not be included in the subcontracting 
base: internally generated costs such as salaries and wages; employee 
insurance; other employee benefits; payments for petty cash; 
depreciation; interest; income taxes; property taxes; lease payments; 
fines; claims; and dues; Original Equipment Manufacturer relationships 
during warranty periods (negotiated up front with product); utilities 
and other services purchased from a municipality or solely authorized 
by the municipality to provide services in a particular geographic 
region such as electricity, water, natural gas and sewer; and 
philanthropic contributions. Utility companies may be eligible for 
additional exclusions unique to their industry, which may be approved 
by the contracting officer on a case-by-case basis. Exclusions from the 
subcontracting base include but are not limited to those listed in this 
section.
* * * * *
    (b) * * *
    (3) * * *
    (ii) Conducting market research to identify small business 
subcontractors and suppliers through all reasonable means, such as 
performing online searches via the System for Award Management (SAM) 
(or any successor system), the Dynamic Small Business Search (DSBS), 
posting Notices of Sources Sought and/or Requests for Proposal on SBA's 
SUBNet, participating in Business Matchmaking events, and attending 
pre-bid conferences;
* * * * *
    (c) * * *
    (1) * * *
    (v) The contractor must assign to each subcontract, and to each 
solicitation, if a solicitation is utilized, the NAICS code and 
corresponding size standard that best describes the principal purpose 
of the subcontract (see Sec.  121.401 of this chapter). A formal 
solicitation is not required for each subcontract, but the contractor 
must provide some form of written notice of the NAICS code and size 
standard assigned to potential offerors prior to acceptance and award 
of the subcontract. The prime contractor (or subcontractor) may rely on 
a subcontractor's electronic representations and certifications, if the 
solicitation for the subcontract contains a clause which provides that 
the subcontractor verifies by submission of the offer that the size or 
socioeconomic representations and certifications are current, accurate, 
and complete as of the date of the offer for the subcontract. Where the 
subcontract does not result from a solicitation with a NAICS code, a 
prime contractor may use a subcontractor's primary NAICS for size 
classification, only for indirect costs (in all plan types), for 
subcontracts issued under commercial subcontracting plans, and for 
subcontracts below the Micro-Purchase Threshold (MPT) as defined in FAR 
2.101. If relying upon an electronic size representation, the 
subcontract must still include a clause in the solicitation or 
subcontract which provides that the subcontractor verifies by 
submission of the offer, or acceptance of the subcontract if an offer 
is not part of the procurement process, that the size or socioeconomic 
representations and certifications in SAM (or in the contractor's 
electronic database) are current, accurate and complete as of the date 
of the offer for the subcontract (or as of the date of award is if an 
offer is not a part of the procurement process). The size certification 
and recertification requirements of Sec.  121.404(g) of this chapter do 
not apply to subcontracts. However, if there is a merger or acquisition 
that causes the reissuance of the subcontract, this is considered a new 
subcontract. Electronic submission may include any method acceptable to 
the prime contractor (or subcontractor) including, but not limited to, 
size or socioeconomic representations and certifications made in SAM 
(or any successor system). With the exception of service-disabled 
veteran-owned small business and HUBZone, prime contractor (or 
subcontractor) may not require the use of SAM (or any successor system) 
for purposes of representing size or socioeconomic status in connection 
with a subcontract.
    (vi) The contractor must submit timely and accurate ISRs and SSRs 
in eSRS (or any successor system), or if applicable, submit a timely SF 
294, Subcontracting Report for Individual Contract, such as when a 
particular procurement cannot be entered into eSRS. A ``final'' ISR 
must be submitted within 45 days of contract completion. A contract 
should be considered complete in accordance with FAR 4.804-4. For 
orders placed under multi-agency IDIQ contracting vehicles that contain 
an individual subcontracting plan, a separate SSR should be submitted 
for each ordering agency capturing subcontracts awarded during the 
fiscal year for that agency's orders. An SSR must also be submitted to 
the agency with the underlying contract even if no subcontracting 
occurred with this agency; this SSR reflects only subcontract awards as 
a result of orders from that agency, if any. SSRs should be submitted 
to the executive agency level unless otherwise directed by the agency. 
Commercial SSRs may be submitted to the lower-level awarding agency. 
Any dollar value of subcontract should be included in the ISR and SSR 
reports. Executive agency under this paragraph (c)(1)(vi) means an 
executive department, a military department, or any independent 
establishment within the meaning of 5 U.S.C. 101, 102, and 104(1), 
respectively, and any wholly owned Government corporation within the 
meaning of 31 U.S.C. 9101 (FAR 2.101). This is the highest hierarchical 
agency level such as ``Department of the Interior.'' For the SSRs, the 
contractor's President, CEO, Vice President, General Manager, or most 
Senior Executive for Government Procurement may sign the report. When a 
report is rejected by the contracting officer, the contractor must make 
the necessary corrections and

[[Page 103716]]

resubmit the report within 30 days of receiving the notice of 
rejection.
* * * * *
    (xiii) * * *
    (C) A first-tier small business subcontractor must make the request 
for a performance rating from the prime contractor within 30 calendar 
days after the completion of the period of performance for the prime 
contractor's contract with the Government. A contract should be 
considered complete in accordance with FAR 4.804-4. The prime 
contractor and the first-tier small business subcontractor may 
negotiate a later deadline for the request for a performance rating, 
but in no case can the prime contractor impose a deadline earlier than 
30 calendar days after the completion of the period of performance for 
the prime contractor's contract with the Government.
* * * * *
    (2) A commercial subcontracting plan covers the offeror's fiscal 
year or the Federal Government's fiscal year and applies to all of the 
commercial products and commercial services sold by either the entire 
company or a portion thereof (e.g., division, plant, or product line). 
Once approved, the plan remains in effect during the fiscal year for 
all Federal Government contracts in effect during that period. The 
contracting officer of the agency that originally approved the 
commercial subcontracting plan will exercise the functions of the 
contracting officer on behalf of all agencies that award contracts 
covered by the plan. The percentage allocation on the Commercial SSR 
should include all subcontracting as a prime contractor or a 
subcontractor with any Federal agency, even if the contractor does not 
have a contract or a subcontracting plan with the agency; the executive 
level of the agency should be selected unless otherwise directed by the 
agency; and the agency allocation should be each Executive Agency's 
percentage of revenue when compared to the contractor's total revenue 
for the Government's fiscal year. Unless the subcontract results from a 
solicitation with a NAICS code, a subcontractor may use its primary 
NAICS code for its size classification for commercial subcontracting 
plans. The contractor shall submit an SSR annually. SSRs are due within 
45 days after the end of the Government's fiscal year.
* * * * *
    (5) A prime contractor shall notify the contracting officer in 
writing if upon completion of the responsibilities of the small 
business subcontractor (i.e., the subcontractor is entitled to payment 
under the terms of the subcontract), the prime contractor pays a 
reduced price to a small business subcontractor for goods and services 
provided for the contract or the payment to a small business 
subcontractor is more than 30 days past due under the terms of the 
subcontract for goods and services provided for the contract and for 
which the Federal agency has paid the prime contractor. ``Reduced 
price'' means a price that is less than the price agreed upon in a 
written, binding contractual document. The prime contractor shall 
include the reason for the reduction in payment to or failure to pay a 
small business subcontractor in any written notice.
    (6) If at the conclusion of a contract the prime contractor did not 
meet all of the small business subcontracting goals in the 
subcontracting plan, the prime contractor shall provide the contracting 
officer with a written explanation as to why it did not meet the goals 
of the plan so that contracting officer can evaluate whether the prime 
contractor acted in good faith as set forth in paragraph (d)(3) of this 
section. A contractor has met its goal when it has met or exceeded its 
percentage goal.
* * * * *
    (d) * * *
    (3) * * *
    (i) Evidence that an other than small business prime contractor has 
made a good faith effort to comply with its subcontracting plan or 
other subcontracting responsibilities includes supporting documentation 
that:
* * * * *
    (5) Evaluating the prime contractor's written explanation 
concerning its payment of a reduced price to a small business 
subcontractor for goods and services upon completion of the 
responsibilities of the subcontractor or its payment to a subcontractor 
more than 30 days past due under the terms of the subcontract for goods 
and services provided for the contract and for which the Federal agency 
has paid the prime contractor, and considering that information when 
rating the contractor for past performance purposes.
* * * * *
    (7) Entering or modifying the prime contractor's past performance 
information when there is an unjustified failure to make a full or 
timely payment to a subcontractor subject to this section before or 
after close-out of the contract. If the contracting officer makes a 
determination that there was an unjustified failure by the prime 
contract to make a full or timely payment to a subcontractor under this 
section, then the prime contractor must cooperate with the contracting 
officer, who consults with the Director of Small Business Programs or 
the Director of Small and Disadvantaged Business Utilization acting, to 
correct and mitigate the unjustified failure. The prime contractor must 
cooperate with the contracting officer until payment is made in full to 
the subcontractor or the contracting officer's determination is no 
longer effective, before or after the closeout of the contract.
* * * * *
    (e) * * *
    (1) Facilitating the matching of other than small prime contractors 
with small business concerns;
    (2) Counseling other than small business contractors on their 
responsibilities to maximize subcontracting opportunities for small 
business concerns;
    (3) Instructing other than small prime contractors on identifying 
small business concerns by means of SAM (or any successor system), 
DSBS, SUBNet, Business Matchmaking events, and other resources and 
tools;
    (4) Counseling small business concerns on how to market themselves 
to other than small prime contractors;
    (5) Maintaining a portfolio of other than small prime contractors 
and conducting Subcontracting Orientation and Assistance Reviews 
(SOARs). SOARs are conducted for the purpose of assisting prime 
contractors in understanding and complying with their small business 
subcontracting responsibilities, including developing subcontracting 
goals that reflect maximum practicable opportunity for small business; 
maintaining acceptable books and records; and periodically submitting 
reports to the Federal Government; and
* * * * *
    (f) * * *
    (1) A prime contractor's performance under its subcontracting plan 
is evaluated by means of compliance reviews and follow-up reviews, as a 
supplement to evaluations performed by the contracting agency, either 
on a contract-by-contract basis or, in the case of contractors having 
multiple contracts, on an aggregate basis. A compliance review is a 
surveillance review that determines a contractor's achievements in 
meeting the goals and other elements in its subcontracting plan for 
both open contracts and contracts completed during the previous 12 
months. A follow-up review is done after a compliance review, generally 
within a year of SBA's receipt of the contractor's Corrective Action 
Plan, to determine if

[[Page 103717]]

the contractor has implemented the corrective actions.
* * * * *
    (4) Any contractor that receives a marginal or unsatisfactory 
rating must provide a written corrective action plan to SBA, or to both 
SBA and the agency that conducted the compliance review if the agency 
conducting the review has an agreement with SBA, within 45 days of its 
receipt of the official compliance report.
* * * * *
    (h) * * *
    (2) When order-level goals were required, contractors shall submit 
small business subcontracting accomplishments for individual orders to 
the contracting agency on the underlying contract's ISR report. The 
order-level goals only need to be included on the ISR's order-level 
report from the inception of the order until the order is completed, 
and on the ISR designated as final.
* * * * *

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-29267 Filed 12-18-24; 8:45 am]
BILLING CODE 8026-09-P