[Federal Register Volume 76, Number 51 (Wednesday, March 16, 2011)]
[Rules and Regulations]
[Pages 14559-14562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5554]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 6, 15, and 19

[FAC 2005-50; FAR Case 2009-038; Item III; Docket 2010-0095, Sequence 
1]
RIN 9000-AL55


Federal Acquisition Regulation; Justification and Approval of 
Sole-Source 8(a) Contracts

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Interim rule.

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SUMMARY: DoD, GSA, and NASA are issuing an interim rule amending the 
Federal Acquisition Regulation (FAR) to implement section 811 of the 
National Defense Authorization Act for Fiscal Year 2010. This FAR 
change encourages agencies to maximize the effective use of competition 
by making certain that the proper Justification and Approval (J&A) is 
obtained prior to award of 8(a) sole-source contracts over $20 million, 
as required by section 811.

DATES: Effective Date: March 16, 2011.
    Comment Date: Interested parties should submit written comments to 
the Regulatory Secretariat on or before May 16, 2011 to be considered 
in the formulation of a final rule.

ADDRESSES: Submit comments identified by FAC 2005-50, FAR Case 2009-
038, by any of the following methods:
    <bullet> Regulations.gov: http://www.regulations.gov. Submit 
comments via the Federal eRulemaking portal by inputting ``FAR Case 
2009-038'' under the heading ``Enter Keyword or ID'' and selecting 
``Search.'' Select the link ``Submit a Comment'' that corresponds with 
``FAR Case 2009-038.'' Follow the instructions provided at the ``Submit 
a Comment'' screen. Please include your name, company name (if any), 
and ``FAR Case 2009-038'' on your attached document.
    <bullet> Fax: (202) 501-4067.
    <bullet> Mail: General Services Administration, Regulatory 
Secretariat (MVCB), ATTN: Hada Flowers, 1275 First Street, NE., 7th 
Floor, Washington, DC 20417.
    Instructions: Please submit comments only and cite FAC 2005-50, FAR 
Case 2009-038, in all correspondence related to this case. All comments 
received will be posted without change to http://www.regulations.gov, 
including any personal and/or business confidential information 
provided.

FOR FURTHER INFORMATION CONTACT: Mr. Anthony Robinson, Procurement 
Analyst, at (202) 501-2658, for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAC 2005-50, FAR 
Case 2009-038.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA are issuing an interim rule amending the FAR, to 
implement section 811 of the National Defense Authorization Act for 
Fiscal Year 2010 (Pub. L. 111-84), enacted October 28, 2009. Section 
811 requires a J&A prior to awarding a sole-source contract in an 
amount over $20 million under the 8(a) program (15 U.S.C. 637(a)). This 
written J&A must be approved by an appropriate official and, after 
award, made public. Authorized by 15 U.S.C. 637(a), the 8(a) program 
enables contract awards to be made to small business concerns 
determined eligible for the 8(a) program by the Small Business 
Administration (SBA).
    The requirement for a J&A is not a ceiling or a ``cap'' on sole-
source awards over $20 million for 8(a) contractors. The statute 
requires execution of a J&A documenting the reasons for making the 
award on a sole-source basis rather than competing among the small 
businesses in the 8(a) program. Prior to the enactment of section 811, 
a sole-source award of a new contract made using the 8(a) contracting 
authority did not require a J&A, regardless of the dollar value, and 
the new statute does not institute any requirement for a J&A for sole-
source 8(a) awards that are less than or equal to $20 million.

II. Discussion and Analysis

    Section 811 became effective on the date of enactment, October 28, 
2009. Section 811 addresses requirements for the J&A of sole-source 
contracts over $20 million under the 8(a) small-business development 
program.
    The Federal Acquisition Regulatory Council (FAR Council) held three 
Tribal consultation and outreach meetings to discuss rulemaking 
associated with section 811.
    The meetings took place during October 2010 in Washington, DC; 
Albuquerque, New Mexico; and Fairbanks, Alaska (see the meeting notice 
that was published in the Federal Register on August 31, 2010 at 75 FR 
53269). Transcripts of the meetings are available at http://www.acq.osd.mil/dpap/dars/section811_docs.html.
    After the meetings, DoD, GSA, and NASA weighed the costs and 
benefits of publishing this rule as proposed or interim. The rule is 
being published as interim, rather than proposed, because the rule is 
implementing a statutory mandate, and the statutory date for issuance 
of regulations has already passed. Because this is an interim rule, the 
public will have another opportunity to comment. These additional 
comments could result in further changes in the final rule.
    A frequently heard comment at the October meetings was a request 
that the FAR not use the 12 elements currently required at FAR 6.303-2 
for J&As for less than full-and-open competition, but instead limit the 
elements to be addressed to the five elements listed in

[[Page 14560]]

section 811(b), which are set forth as follows:
    (1) A description of the needs of the agency concerned for the 
matters covered by the contract;
    (2) A specification of the statutory provision providing the 
exception from the requirement to use competitive procedures in 
entering into the contract;
    (3) A determination that the use of a sole-source contract is in 
the best interest of the agency concerned;
    (4) A determination that the anticipated cost of the contract will 
be fair and reasonable; and
    (5) Such other matters as the head of the agency concerned shall 
specify.
    DoD, GSA, and NASA have drafted the interim FAR rule to adopt only 
these five elements. DoD, GSA, and NASA did not adopt the suggestions 
raised in the October meetings (1) not to include the fair and 
reasonable price determination and (2) not to allow agency heads to 
address any matter, without specific limits (the fifth element set out 
in section 811). A determination that the anticipated cost of a 
contract will be fair and reasonable is a universal requirement in 
Federal contracting; including the requirement in the J&A would be 
sensible, even if it were not specifically required by section 811.
    A common issue raised in the meetings was that the fifth element, 
``Such other matters as the head of the agency concerned shall 
specify,'' was too broad. DoD, GSA, and NASA determined that it made 
sense to allow agency heads to identify other factors supporting the 
decision to make a sole-source 8(a) award. By retaining the wording 
from the statute, agency heads retain the discretion to consider such 
factors as Indian economic development or meeting agency small business 
contracting goals--both factors that participants in the October 
meetings offered as legitimate reasons to make a sole-source award.
    Commenters at the meetings and in the written comments also 
requested that the ``over $20 million'' threshold for requiring a J&A 
be applied only to the base year of a contract. For example, if a 
requirement was for $75 million, with a base year estimate of $15 
million and four one-year $15 million options, commenters stated their 
belief that the requirement should not need a J&A because the base-year 
amount was not over $20 million. DoD, GSA, and NASA have declined to 
use the base year amount as the basis for determining the applicability 
of the J&A requirement. The FAR (1.108(c)) establishes the following 
rule:

    <bullet> Dollar thresholds. Unless otherwise specified, a 
specific dollar threshold for the purpose of applicability is the 
final anticipated dollar value of the action, including the dollar 
value of all options. If the action establishes a maximum quantity 
of supplies or services to be acquired or establishes a ceiling 
price or establishes the final price to be based on future events, 
the final anticipated dollar value must be the highest final priced 
alternative to the Government, including the dollar value of all 
options.

    Unless there is a specific reason, such as a statutory requirement 
to establish the dollar value of a procurement using a different 
method, agencies will not deviate from this FAR convention.
    Commenters also requested that the requirement for the agency head 
to approve the J&A be delegated down to a much lower level, such as the 
contracting officer. FAR 1.108(b) states the following:

    <bullet> Delegation of authority. Each authority is delegable 
unless specifically stated otherwise. * * *

    J&As are delegable, but there are limits on the redelegation 
authority based on the dollar value of the procurement; these are 
stated at FAR 6.304. The competition advocate for the procuring 
activity and the head of the procuring activity are included in the 
approval authorities to ensure the J&A is prepared and coordinated 
properly within the agency. Unless there is a specific reason, agencies 
will not deviate from the FAR convention at FAR 6.304.
    A commenter was concerned about whether ``fair and reasonable 
price'' equates to ``fair market price.'' The FAR provides various 
provisions to address the commenter's concern. The various techniques 
that contracting officers may use to determine that a price is fair and 
reasonable are described at FAR 15.404-1, Proposal analysis techniques. 
With regard to 8(a) contracts, FAR 19.202-6(b) states that contracting 
officers shall follow the procedures at FAR 19.807, which reads in 
pertinent part as follows:

    Estimating fair market price.
    <bullet> The contracting officer shall estimate the fair market 
price of the work to be performed by the 8(a) contractor.
    <bullet> In estimating the fair market price for an acquisition 
other than those covered in paragraph (c) of this section, the 
contracting officer shall use cost or price analysis and consider 
commercial prices for similar products and services, available in-
house cost estimates, data (including certified cost or pricing 
data) submitted by the SBA or the 8(a) contractor, and data obtained 
from any other Government agency.

    As required by the FAR, agencies will continue to use the existing 
regulations to evaluate prices offered for 8(a) contracts over $20 
million.
    The changes made by the interim rule are summarized as follows:
    (1) Cross references to the requirement for a J&A when the 
procurement is a sole-source 8(a) over $20 million are added at FAR 
6.204, entitled ``Section 8(a) competition,'' FAR 6.302-5, entitled 
``Authorized or required by statute,'' and in 19.808-1, entitled ``Sole 
source''.
    (2) FAR 6.302-5, which sets forth the situations in which other 
than full-and-open competition is authorized or required by statute, 
has been modified to clarify that, while 8(a) sole-source awards are 
still authorized, they now must be supported by a J&A prior to award 
when the total estimated contract amount is over $20 million.
    (3) Circumstances requiring a J&A for other than full-and-open 
competition have been expanded to include a new FAR 6.303-1(b) that 
includes the section 811(a) prohibition against awarding a sole-source 
8(a) contract over $20 million unless a written J&A is approved by the 
appropriate official and made public after award.
    (4) FAR 6.303-2, Content, (of the J&A) has a new paragraph that 
lists the five required elements for the sole-source 8(a) J&A from 
section 811.
    (5) FAR 19.808-1(a), Sole source, was revised to inform the 
contracting officer that the SBA may not accept for negotiation a sole-
source 8(a) contract over $20 million unless the requesting agency has 
completed a J&A in accordance with the requirements at FAR 6.303.
    Other requirements of section 811 were reviewed by DoD, GSA, and 
NASA and determined to be fully covered by the existing FAR. The 
specific areas reviewed included--
    (1) The definition of a ``covered procurement'' at section 
811(c)(1). Review determined that covered procurements, for the 
purposes of section 811, are those made under the SBA's Section 8(a) 
program. Therefore, it was not necessary to define and use the term 
``covered procurement'' in this rule.
    (2) The definition of ``head of an agency'' at section 811(c)(2). 
Review of the statutory references in this section determined that the 
FAR-wide definition of this term at FAR 2.101 could be used.
    (3) The definition of ``appropriate official'' at section 
811(c)(3). The statutory references provided in this section equate to 
those currently in FAR 6.304, Approval of the Justification.
    (4) Requirement for synopses of proposed procurement actions. The 
existing FAR synopsis requirements at subpart 5.2, Synopses of Proposed

[[Page 14561]]

Contract Actions, were reviewed. No change is proposed to FAR 5.202, 
Exceptions, or FAR 5.205, Special situations, because the statute did 
not modify the existing 8(a) synopsis requirements.
    (5) Requirement at section 811(a)(3)to make the J&A and related 
information available to the public. This statutory requirement matches 
the J&A publication requirements added by the National Defense 
Authorization Act for Fiscal Year 2008, section 844, entitled ``Public 
Disclosure of Justification and Approval Documents for Noncompetitive 
Contracts'' (FAR Case 2008-003). The latter FAR case added the 
requirement to FAR 6.305, Availability of the Justification. Any J&A 
issued for an 8(a) sole-source contract award over $20 million will 
require posting in accordance with FAR 6.305, but no further change to 
that section is necessary.
    Various commenters at the public meetings questioned whether 
contracting officers will be trained on the content of this rule 
implementing section 811. DoD, GSA, and NASA have prepared and 
submitted documentation to the Defense Acquisition University and the 
Federal Acquisition Institute to coordinate the appropriate changes in 
training curricula.

III. Executive Order 12866

    This is a significant regulatory action and, therefore, was subject 
to review under Section 6(b) of Executive Order 12866, Regulatory 
Planning and Review, dated September 30, 1993. This rule is not a major 
rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA do not expect this interim rule to have a 
significant negative economic impact on a substantial number of small 
entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 
601, et seq., because the rule does not impose any requirements on the 
majority of small businesses. Therefore, an Initial Regulatory 
Flexibility Analysis has not been performed. It is recognized that a 
very small number of businesses that have been awarded 8(a) contracts 
over the $20 million threshold may be impacted. However, the rule does 
not limit the number of contracts or dollars awarded to these 
businesses. The rule may also indirectly benefit the 9,165, currently 
certified section 8(a) firms by improving their likelihood of a 
contract award through increased competition, but this impact is 
similarly considered not significant.
    Also, the FAR Council has limited flexibility in this case as the 
rule implements in the FAR statutory requirements mandated by section 
811, Justification and Approval of Sole-Source Contracts, of the 
National Defense Authorization Act for Fiscal Year 2010.
    DoD, GSA, and NASA invite comments from small business concerns and 
other interested parties on the expected impact of this rule on small 
entities.
    DoD, GSA, and NASA will also consider comments from small entities 
concerning the existing regulations in subparts affected by the rule in 
accordance with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 610, (FAC 2005-50, FAR 
Case 2009-038) in correspondence.

V. Paperwork Reduction Act

    The interim rule implements section 811, which prohibits the award 
of a sole-source contract in an amount over $20 million under the 8(a) 
program authority (15 U.S.C. 637(a)) without the contracting officer 
first obtaining a written J&A approved by an appropriate official and 
making public the J&A and related information. This additional 
paperwork requirement is internal to the Government and does not 
contain any information collection requirements that require the 
approval of the Office of Management and Budget under the Paperwork 
Reduction Act (44 U.S.C. chapter 35).

VI. Determination To Issue an Interim Rule

    A determination has been made under the authority of the Secretary 
of Defense (DoD), the Administrator of General Services (GSA), and the 
Administrator of the National Aeronautics and Space Administration 
(NASA) that urgent and compelling reasons exist to promulgate this 
interim rule without prior opportunity for public comment. This action 
is necessary because the National Defense Authorization Act for Fiscal 
Year 2010 (Pub. L. 111-84) was enacted on October 28, 2009. Section 811 
required the FAR to be revised no later than 180 days after enactment, 
or April 26, 2010. Absent implementation of this interim rule, section 
811 will not be implemented in the FAR and agencies will not be 
compliant with this provision. However, pursuant to 41 U.S.C. 1707 and 
FAR 1.501-3(b), DoD, GSA, and NASA will consider public comments 
received in response to this interim rule in the formation of the final 
rule.

List of Subjects in 48 CFR Parts 6, 15, and 19

    Government procurement.

    Dated: March 4, 2011.
Millisa Gary,
Acting Director, Office of Governmentwide Acquisition Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 6, 15, and 19 as 
set forth below:

0
1. The authority citation for 48 CFR parts 6, 15, and 19 continues to 
read as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 6--COMPETITION REQUIREMENTS

0
2. Amend section 6.204 by adding a sentence to the end of paragraph (b) 
to read as follows:


6.204  Section 8(a) competition.

* * * * *
    (b) * * * (But see 6.302-5 and 6.303-1 for sole source 8(a) awards 
over $20 million.)

0
3. Amend section 6.302-5 by revising paragraphs (b)(4) and (c)(2) to 
read as follows:


6.302-5  Authorized or required by statute.

* * * * *
    (b) * * *
    (4) Sole source awards under the 8(a) Program (15 U.S.C. 637), but 
see 6.303 for requirements for justification and approval of sole-
source 8(a) awards over $20 million. (See subpart 19.8.)
* * * * *
    (c) * * *
    (2) Contracts awarded using this authority shall be supported by 
the written justifications and approvals described in 6.303 and 6.304, 
except for--
    (i) Contracts awarded under (a)(2)(ii) or (b)(2) of this 
subsection;
    (ii) Contracts awarded under (a)(2)(i) of this subsection when the 
statute expressly requires that the procurement be made from a 
specified source. (Justification and approval requirements apply when 
the statute authorizes, but does not require, that the procurement be 
made from a specified source); or
    (iii) Contracts less than or equal to $20 million awarded under 
(b)(4) of this subsection.
* * * * *

0
4. Amend section 6.303-1 by redesignating paragraphs (b), (c), and (d) 
as paragraphs (c), (d), and (e), respectively; and adding a new 
paragraph (b) to read as follows:

[[Page 14562]]

6.303-1   Requirements.

* * * * *
    (b) The contracting officer shall not award a sole-source contract 
under the 8(a) authority (15 U.S.C. 637(a)) for an amount exceeding $20 
million unless--
    (1) The contracting officer justifies the use of a sole-source 
contract in writing in accordance with 6.303-2;
    (2) The justification is approved by the appropriate official 
designated at 6.304; and
    (3) The justification and related information are made public after 
award in accordance with 6.305.
* * * * *

0
5. Amend section 6.303-2 by--
0
a. Redesignating paragraphs (a) and (b) as paragraphs (b) and (c), 
respectively;
0
b. Adding a new paragraph (a);
0
c. Revising newly redesignated paragraph (b) introductory text; and
0
d. Adding a new paragraph (d).
    The added and revised text reads as follows:


6.303-2   Content.

    (a) Each justification shall contain sufficient facts and rationale 
to justify the use of the specific authority cited.
    (b) As a minimum, each justification, except those for sole-source 
8(a) contracts over $20 million (see paragraph (d) of this section), 
shall include the following information:
* * * * *
    (d) As a minimum, each justification for a sole-source 8(a) 
contract over $20 million shall include the following information:
    (1) A description of the needs of the agency concerned for the 
matters covered by the contract.
    (2) A specification of the statutory provision providing the 
exception from the requirement to use competitive procedures in 
entering into the contract (see 19.805-1).
    (3) A determination that the use of a sole-source contract is in 
the best interest of the agency concerned.
    (4) A determination that the anticipated cost of the contract will 
be fair and reasonable.
    (5) Such other matters as the head of the agency concerned shall 
specify for purposes of this section.


6.304   [Amended]

0
6. Amend section 6.304 by removing from paragraph (a)(1) ``6.303-
2(a)(12)'' and adding ``6.303-2(b)(12)'' in its place.

PART 15--CONTRACTING BY NEGOTIATION


15.607  [Amended]

0
7. Amend section 15.607 by removing from paragraph (b)(2) ``6.303-
2(b)'' and adding ``6.303-2(c)'' in its place.

PART 19--SMALL BUSINESS PROGRAMS

0
8. Amend section 19.808-1 by redesignating paragraphs (a) and (b) as 
paragraphs (b) and (c), respectively; and adding a new paragraph (a) to 
read as follows:


19.808-1   Sole source.

    (a) The SBA may not accept for negotiation a sole-source 8(a) 
contract that exceeds $20 million unless the requesting agency has 
completed a justification in accordance with the requirements of 6.303.
* * * * *
[FR Doc. 2011-5554 Filed 3-15-11; 8:45 am]
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