75820 Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 

Federal reserve bank Rate Effective 

Philadelphia ............................................................................................................................................................. 3.25 December 14, 2004. 

Cleveland ................................................................................................................................................................. 3.25 December 14, 2004. 

Richmond ................................................................................................................................................................. 3.25 December 14, 2004. 

Atlanta ...................................................................................................................................................................... 3.25 December 14, 2004. 

Chicago .................................................................................................................................................................... 3.25 December 14, 2004. 

St. Louis ................................................................................................................................................................... 3.25 December 15, 2004. 

Minneapolis .............................................................................................................................................................. 3.25 December 14, 2004. 

Kansas City .............................................................................................................................................................. 3.25 December 14, 2004. 

Dallas ....................................................................................................................................................................... 3.25 December 14, 2004. 

San Francisco .......................................................................................................................................................... 3.25 December 14, 2004. 

(b) Secondary credit. The interest 

rates for secondary credit provided to 

depository institutions under § 201.4(b) 

are:

Federal reserve bank Rate Effective 

Boston ...................................................................................................................................................................... 3.75 December 14, 2004 

New York ................................................................................................................................................................. 3.75 December 14, 2004 

Philadelphia ............................................................................................................................................................. 3.75 December 14, 2004 

Cleveland ................................................................................................................................................................. 3.75 December 14, 2004 

Richmond ................................................................................................................................................................. 3.75 December 14, 2004 

Atlanta ...................................................................................................................................................................... 3.75 December 14, 2004 

Chicago .................................................................................................................................................................... 3.75 December 14, 2004 

St. Louis ................................................................................................................................................................... 3.75 December 15, 2004 

Minneapolis .............................................................................................................................................................. 3.75 December 14, 2004 

Kansas City .............................................................................................................................................................. 3.75 December 14, 2004 

Dallas ....................................................................................................................................................................... 3.75 December 14, 2004 

San Francisco .......................................................................................................................................................... 3.75 December 14, 2004 

* * * * *

By order of the Board of Governors of the 

Federal Reserve System, December 15, 2004. 

Jennifer J. Johnson, 

Secretary of the Board.

[FR Doc. 04–27788 Filed 12–17–04; 8:45 am] 

BILLING CODE 6210–02–P

SMALL BUSINESS ADMINISTRATION

13 CFR Part 125

RIN 3245–AF12

Small Business Government 

Contracting Programs; Subcontracting

AGENCY: U.S. Small Business 

Administration.

ACTION: Final rule.

SUMMARY: This final rule amends the 

U.S. Small Business Administration 

(SBA) regulations government small 

business subcontracting to address 

comments received in response to SBA’s 

proposed rule on subcontracting, which 

was published in the Federal Register

on October 20, 2003. The final rule also 

addresses comments in response to 

SBA’s earlier proposed rule on contract 

bundling, which was published in the 

Federal Register on January 31, 2003. 

Specifically, this final rule provides a 

list of factors to consider in evaluating 

a prime contractor’s performance and 

good-faith efforts to achieve the 

requirements in its subcontracting plan. 

The final rule also authorizes the use of 

goals in subcontracting plans, and/or 

past performance in meeting such goals, 

as a factor in source selection when 

placing orders against Federal Supply 

Schedules, government-wide 

acquisition contracts, and multi-agency 

contracts. In addition, this final rule 

implements statutory provisions and 

other administrative procedures relating 

to subcontracting goals and assistance. 

In particular, the final rule lists the 

various categories of small businesses 

that must be afforded maximum 

practicable subcontracting 

opportunities, and clarifies the 

responsibilities of prime contractors and 

SBA’s Commercial Market 

Representatives (CMRs) under the 

subcontracting assistance program. The 

final rule also supplies guidance on 

Subcontracting Orientation and 

Assistance Reviews (SOARs), which 

CMRs perform to assist prime 

contractors in their efforts to understand 

and comply with the requirements 

governing the small business 

subcontracting assistance program.

DATES: This rule is effective on 

December 20, 2004.

FOR FURTHER INFORMATION CONTACT:

Dean Koppel, Assistant Administrator, 

Office of Policy and Research, (202) 

401–8150 or dean.koppel@sba.gov.

SUPPLEMENTARY INFORMATION: 

A. Background 

On January 31, 2003, SBA published 

a proposed rule in the Federal Register,

67 FR 47244, to solicit comments on its 

proposal to implement several 

recommendations included in the Office 

of Management and Budget’s October 

2002 report, entitled ‘‘Contract 

Bundling: A Strategy for Increasing 

Federal Contracting Opportunities for 

Small Business.’’ Several of the 

responding commenters identified the 

need for more guidance on evaluating 

large prime contractor performance in 

awarding subcontracts to small 

businesses and their efforts to achieve 

subcontracting plans, including 

examples of what types of conduct 

constitute ‘‘good-faith’’ efforts to comply 

with subcontracting plans. SBA thought 

that this suggestion was valid; 

accordingly, on October 20, 2003, the 

agency published a proposed rule 

addressing these as well as other major 

issues in subcontracting. 

In response to the proposed rule 

published on October 20, 2003, which 

had a 60-day public-comment period, 

SBA received 19 written comments. The 

commenters included three members of 

Congress (two letters, one signed by two 

members), three Federal agencies 

(including SBA’s own Office of 

Advocacy), two prime contractors, 

seven trade associations or smallbusiness advocacy groups, four small 

businesses, and one private citizen 

Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 75821

formerly employed by the Congress who 

is now working in academia. The 

specific comments are addressed in the 

section-by-section analysis of comments 

below. However, two of the 

commenters’ responses may require 

additional review through a different 

venue. One of these responses was from 

a participant in the Department of 

Defense (DoD) Test Program for 

Comprehensive Subcontracting Plans 

(DoD Test Program), and the other was 

from a major U.S. corporation that 

currently operates under a commercial 

subcontracting plan. In both cases, their 

concerns are unique to their own 

situations and do not justify substantial 

changes to this rule. 

The comments received from the 

corporation with a commercial 

subcontracting plan were far-reaching, 

and some of the suggestions would 

result in radical changes to the 

subcontracting program. For example, 

the commenter suggests a new formula 

for computing subcontracting goals for 

companies with commercial 

subcontracting plans. SBA did not adopt 

this suggestion because it is outside the 

scope of this rule. 

The two references to SBAS’s PRONet in the proposed rule have been 

changed to the Central Contractor 

Registration (CCR) in this final rule, to 

reflect the fact that SBA’s PRO-Net was 

folded into the CCR effective January 1, 

2004. In addition, the fourth exception 

to the requirement for a subcontracting 

plan cited in the proposed rule at 

§ 1225.3(c)(3)(iv) has been deleted in 

this final rule because this exception 

applies primarily to contracts awarded 

prior to October 24, 1978, the date that 

Public law 95–507 was enacted by the 

Congress. That exception involved 

modifications to contracts that did not 

originally contain the clause at 48 CFR 

52.219–8. It is SBA’s conclusion that 

this exception is no longer needed.

B. Section-by-Section Analysis of 

Comments 

1. Comments on the General 

Requirement 

SBA received two comments on 

§ 125.3(a), General. One commenter 

suggested adding the phrase ‘‘unless 

otherwise exempt’’ before the phrase 

‘‘other-than-small’’ in the second 

sentence to clarify the fact that there are 

some exceptions to the requirement that 

prime contractors submit subcontracting 

plans for certain Federal contracts. (The 

exceptions are listed in the regulation at 

the beginning of the following 

paragraph, § 125.3(b).) The same 

commenter also suggested changing the 

word ‘‘firms’’ to ‘‘business concerns’’

and adding the word ‘‘appropriate’’

before ‘‘contracting agency’’ in the same 

sentence. SBA considers all of these 

suggestions to be constructive and has 

revised the language accordingly. The 

other commenter expressed concern that 

SBA was changing the phrase 

‘‘maximum utilization’’ in the current 

version of the regulation to ‘‘maximum 

practicable subcontracting 

opportunities’’ and said that this change 

would convey a dangerous message to 

those who are required to participate in 

the Subcontracting Assistance Program. 

SBA reviewed the statute and found that 

the Congress itself had used the phrase 

‘‘maximum practicable opportunity’’ in 

the legislation; therefore, SBA decided 

against making this change. 

2. Comments on the Responsibilities of 

Prime Contractors 

SBA received ten comments on 

§ 125.3(b), Responsibilities of prime 

contractors. All of these commenters 

misunderstood the proposed rule to 

mean that SBA was either intending to 

require small businesses to submit 

subcontracting plans and/or planning to 

impose new reporting requirements on 

them. In fact, the Small Business Act 

specifically excludes small business 

concerns from the requirement to 

submit a subcontracting plan. Several 

commenters criticized SBA for its 

failure to perform an Initial Regulatory 

Flexibility Analysis (IRFA). One 

commenter suggested that SBA require 

subcontracting plans from small 

businesses only when the small 

business intends to subcontract some of 

the contract. In other words, if a smallbusiness prime contractor performs 100 

percent of the contract with its own 

labor, a subcontracting plan would not 

be required. This suggestion cannot be 

implemented without an amendment to 

the legislation (15 U.S.C. 637(d)(4)), 

which currently prohibits the 

Government from requiring small 

businesses to submit subcontracting 

plans under any circumstances. 

Therefore, SBA cannot adopt this 

suggestion. Since SBA does not intend 

to require subcontracting plans or 

reports from small business, no IRFA is 

required. 

It was never SBA’s intent to require 

small businesses to submit 

subcontracting plans or to impose new 

reporting requirements on them. 

However, since the language in the 

proposed rule has apparently caused 

some confusion, SBA has added 

language to § 125.3(b) clarifying that a 

small business cannot be required to 

submit a formal subcontracting plan or 

a subcontracting report (see

§ 125.3(b)(2)). Since the clarifying 

language has been added as 

§ 125.3(b)(2), § 125.3(b)(2) in the 

proposed rule has been redesignated 

§ 125.3(b)(3) in the final rule. 

It should be noted that, under 

§ 19.1202 of the Federal Acquisition 

Regulation (FAR), 48 CFR 19.1202, all 

offerors, including small business 

offerors, submit targets for small 

disadvantaged business (SDB) 

participation, and the successful offeror 

must submit a final report on SDB 

participation at contract completion. 

The requirement to submit targets for 

SDB participation does not constitute a 

subcontracting plan; in any case, that 

provision and related reporting 

requirement are separate and apart from 

the subcontracting plan requirements 

discussed in this regulation.

One commenter suggested revising 

§ 125.3(b)(1) in its entirety to state: 

‘‘While a small businesses prime 

contractor is exempt from the 

requirement to establish a 

subcontracting plan, it is encouraged to 

provide maximum practicable 

opportunity for small businesses to 

participate in the performance of the 

contract, consistent with the efficient 

performance of the contract.’’ SBA 

thinks that this suggestion is excellent; 

however, we believe that the suggested 

wording serves its purpose better under 

§ 125.3(b)(2), rather than under 

§ 125.3(b)(1), and we have therefore 

added it as a second sentence under 

§ 125.3(b)(2). 

The same commenter suggested 

revising the proposed § 125.3(b)(2) 

(§ 125.3(b)(3) in the final rule) to add the 

phrase ‘‘as appropriate for the 

procurement.’’ SBA agrees with this 

suggestion and has made the change. 

SBA has also added the word ‘‘may’’

and ‘‘one or more of the following 

actions’’ to the same sentence to clarify 

the face that each of the items in the list 

(§ 125.3(b)(2)(i) through (viii) of the 

proposed rule, § 125.3(b)(3)(1) through 

(ix) of the final rule) will not necessarily 

be applicable to every procurement. To 

ensure consistency throughout the final 

rule, SBA also added similar language to 

§ 125.3(d)(1). 

One commenter questioned the 

omission of the mentor-prote ́ge ́ program 

from the list at the proposed 

§ 125.3(b)(2). Under 15 U.S.C. 

§ 637(d)(11), prime contractors acting as 

mentors are allowed to receive credit 

towards their subcontracting goals for 

developmental assistance to their 

prote ́ge ́s. It is noted that many Federal 

agencies, such as the DoD, have Federal 

Acquisition Regulation Supplements 

addressing their mentor-prote ́ge ́

programs, and in fact SBA has a 

separate regulation dealing with its own 

75822 Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 

mentor-prote ́ge ́; program (13 CFR 

124.520). However, SBA agrees that 

adding a separate item to the list at the 

proposed § 125.3(b)(2) strengthens this 

regulation, and we have made this 

change by adding a new item as 

§ 125.3(b)(3)(ix). 

Two commenters said that the 

provisions at the proposed 

§ 125.3(b)(2)(vii) (§ 124.3(b)(2)(vii) of the 

final rule), which addresses assistance 

to small business in obtaining bonding, 

lines of credit, required insurance, 

necessary equipment, supplies, 

materials, or services, could lead to 

improper arrangements between large 

and small businesses in terms of 

control, conflicts of interest, and fair 

dealing. SBA has carefully considered 

this argument and concluded that, 

where any impropriety in this regard is 

alleged, it should be referred to the 

contracting officer for review under the 

procedures set forth in Part 121 of this 

regulation or other applicable 

procedures. However, when the 

assistance is properly structured so as to 

comply with applicable legal authority, 

a large business may provide this type 

of assistance without violating any laws 

or regulations. Therefore, SBA has 

retained this provision as written. 

3. Comments on the Additional 

Responsibilities of Large Prime 

Contractors 

One commenter took issue with the 

word ‘‘utilization’’ in the phrase 

‘‘maximum practicable utilization’’ at 

§ 125.3(c)(1)(i). SBA agrees with this 

comment and has changed the phrase to 

read ‘‘maximum practicable 

opportunity,’’ which, as noted above, is 

consistent with the language in the 

statute. 

Two commenters complimented SBA 

on changing the dollar threshold for the 

mandatory pre-award written 

notification to unsuccessful offerors 

from $10,000 to $100,000, which is the 

simplified acquisition threshold. 

(§ 125.3(c)(1)(v)). Another commenter 

disagreed with this proposed change, 

saying it would be harmful to small 

businesses. Two other commenters 

disagreed with the requirement 

altogether, saying that there is no 

rationale for such a rule. One of the 

commenters in favor of the change 

suggested that the final rule could 

encourage prime contractors, as a good 

business practice, to provide the same 

written notification to unsuccessful 

offerors below this threshold. SBA 

agrees with this suggestion and believes 

that it will address the concerns of the 

commenter who said that this change 

would be harmful to small businesses. 

SBA did not adopt the comments of the 

two commenters who said that there is 

no rationale for such a rule. If 

unsuccessful offerors are notified in 

advance of the proposed awardee, they 

may protest or bring eligibility issues to 

the attention of the prime contractor. In 

addition, this requirement is also 

applicable to contracting officers in the 

Federal government (see 48 CFR 

15.503(a)(2) and SBA strives to make its 

prime and subcontracting programs 

consistent where practical. SBA has 

added a provision at § 125.3(c)(1)(vi) to 

encourage prime contractors, as a good 

business practice, to provide written 

notification to unsuccessful offerors 

below $100,000. Two commenters 

questioned SBA’s reference to an 

electronic database in § 125.3(c)(1)(iii). 

In fact, as part of the Integrated 

Acquisition Environment (IAE), the 

Government is working aggressively to 

develop and implement such a database. 

Therefore, SBA has made no change to 

§ 125.3(c)(1)(iii). 

In response to § 125.3(b)(2), which 

addresses commercial subcontracting 

plans, one commenter pointed out that 

the plan template required by the 

Federal government for contractors with 

commercial subcontracting plans is 

based on the contractor’s fiscal year 

(usually the calendar year), but the 

reports are required for the Federal 

government’s fiscal year. SBA is aware 

of this problem and has addressed it 

separately by means of a formal case 

submitted to the Federal Acquisition 

Regulation (FAR Council). The 

electronic database mentioned above is 

also being designed to correct this 

problem.

Another commenter questioned the 

policy set forth in § 125.3(c)(2) that 

permits the contracting officer of the 

agency that originally approved a 

commercial plan to exercise the 

functions of the contracting officer on 

behalf of all agencies that award 

contracts covered by the plan. This is a 

practical approach since a choice must 

be made as to which agency administers 

the plan and the appropriate choice is 

the agency that originally approved it. 

This policy has been in effect for some 

time and no significant problems or 

issues have arisen as a result. Moreover, 

an almost identical provision currently 

exists in the Federal Acquisition 

Regulation (48 CFR) (see 48 CFR 

19.705–7(f). For these reasons, SBA has 

not changed the wording of this 

provision. 

4. Comments on Determination of GoodFaith Efforts 

At least eight commenters, including 

two members of Congress, objected to 

the provision at § 125.3(d)(2) that would 

include, in the determination of goodfaith efforts evidence that other 

contractors awarded contracts of similar 

scope, size or dollar value had not 

achieved or exceeded the goals stated in 

their subcontracting plans. One 

commenter pointed out that the Federal 

government, using this guidance, could 

penalize a company that is in complete 

compliance based on a comparison to 

other companies that are performing 

better; or, alternatively, the federal 

government could compare a company 

that is barely complying to companies 

that are complete failures and conclude 

that it is making a good-faith effort 

when it is not. SBA agrees with these 

comments and has stricken this 

provision from the final rule. 

One commenter pointed out that 

prime contractors are often penalized 

for failing to achieve their goal in one 

socio-economic category, even though 

they may have exceeded their goal in 

another area. SBA believes that this is 

a valid concern, and we have replaced 

the provision stricken from 

§ 125.3(d)(2), as noted above, with a 

statement addressing this point. This 

subparagraph now reads, in part:

Evidence that a large business prime 

contractor has made a good-faith effort to 

comply with its subcontracting plan or other 

subcontracting responsibilities includes 

supporting documentation that: 

(1) The contractor performed one or more 

of the actions described in paragraph (b) of 

this section, as appropriate for the 

procurement; and 

(2) Although the contractor may have 

failed to achieve its goal in one socioeconomic category, it exceeded its goal by an 

equal or greater amount in one or more of the 

other categories.

One commenter from another Federal 

agency pointed out that the Federal 

Acquisition Regulation (48 CFR) defines 

the failure to make a good-faith effort to 

comply with a subcontracting plan as 

the ‘‘willful or intentional failure to 

perform in accordance with the 

requirements of the subcontracting plan, 

or willful or intentional action to 

frustrate the plan.’’ This commenter 

recommends using this language in the 

final rule. SBA has decided not to adopt 

this suggestion because it believes that 

the language is too narrow and could be 

subject to misinterpretation. For 

example, a prime contractor could argue 

that its failure to make any effort to 

comply with its subcontracting plan was 

not willful but merely negligent or 

unintentional. SBA believes that the 

nine-item list of actions a prime 

contractor could take in order to 

demonstrate good faith efforts provides 

sufficient guidance concerning the 

meaning of this term. 

Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 75823

5. Comments on CMR Responsibilities 

SBA received only two comments on 

§ 125.3(e), CMR Responsibilities, and 

the commenters were generally in favor 

of the additional responsibilities. The 

commenters inquired about the 

accountability and chain of command, 

and one commenter suggested that the 

CMRs should report to either the SBA 

District Directors or to other SBA 

managers at the same level. SBA did not 

make this change, as it is outside the 

scope of this rule and an established 

reporting structure is already in place. 

A commenter that is a participant in 

the DoD Test Program asked how 

SOARs would work for contractors 

participating in that program. The 

memorandum of understanding (MOU) 

between the Defense Contract 

Management Agency (DCMA) and SBA 

(see next section) does not prohibit 

SBA’s CMRs from conducting SOARs of 

contractors participating in the DoD 

Test Program. Therefore a participant 

may request a SOAR visit at any time. 

SBA sees no need to change the subject 

regulation in response to this comment. 

6. Comments on Compliance Reviews 

SBA received few comments on 

§ 125.3(f), Compliance Reviews. Most of 

these were favorable. One commenter 

said, ‘‘We support the inclusion of this 

new coverage in the regulations to aid 

in the understanding of the elements of 

the compliance review, the ratings to be 

evaluated, and the standards to be used. 

This coverage will also help standardize 

the reviews across the covered 

contractor base.’’ Another commenter 

pointed out that the regulation does not 

address what corrective or punitive 

steps should be taken when a prime 

contractor receives an unsatisfactory 

rating. SBA believes that this is 

addressed adequately in other 

regulations (e.g., 48 CFR 19.705–7); 

however, we have added two new 

subparagraphs, § 125.3(f)(4) and (5), to 

address this concern and clarify existing 

policy. We have renumbered the 

remaining subparagraphs in this section.

One commenter suggested the need 

for subcontractor input into the 

evaluation process. SBA believes that 

this idea may have some merit, but it 

could not be accomplished without 

imposing a new reporting requirement 

on industry, which SBA prefers not to 

do at this time. 

The commenter that is a participant in 

the DoD Test Program suggested that the 

regulation be clarified to state that the 

compliance review would be for the 

entire company (or for the level of the 

company participating in the DoD Test 

Program), not for a particular site or 

location. This may be true in an 

individual case, but is not always true. 

SBA believes that it is impractical to 

answer this question in a broad 

regulation. Most, if not all, of the 

participants in the DoD Test Program 

also have contracts with civilian 

agencies that do not fall under that 

program. For those companies, SBA 

performance compliance reviews on the 

divisions and sites/locations that have 

contracts containing subcontracting 

plans, regardless of the corporate level 

approved for the DoD Test Program. 

Since the division or level of the 

company subject to the compliance 

review would vary depending on the 

particular plan or plans the concern is 

operating under, it is not possible to 

adopt this comment. 

In response to the provision at 

§ 125.3(f)(5), which authorizes SBA to 

enter into agreements with other 

agencies to conduct compliance 

reviews, two commenters questioned 

why SBA has entered into a 

memorandum of understanding (MOU) 

with the DCMA to assist SBA in 

performing compliance reviews. These 

commenters said that SBA ‘‘should see 

how to reconfigure its work force to add 

more commercial marketing 

representatives’’ rather than delegate 

this function to other agencies. SBA has 

chosen to enter into the MOU with 

DCMA because that agency has more 

than two decades of experience 

conducting compliance reviews and 

employs a strong cadre of experienced 

compliance specialists. Nothing is lost 

by giving DCMA a role in the reviews 

since SBA is actively involved and 

retains ultimate responsibility. 

Therefore, SBA has not adopted this 

suggestion. 

7. Comments on Subcontracting 

Consideration in Source Selection 

SBA received several comments on 

this section reflecting widely differing 

points of view. One commenter who 

supported the approach said that 

§ 125.3(g)(1), (2) and (3) should be 

modified to make clear that the 

contracting officer must disclose to all 

competitors which one (or more) of the 

three elements will be evaluated as an 

important source selection evaluation 

factor in any subsequent procurement 

action. SBA agrees with this suggestion 

and has added it to § 125.3(g). 

Another commenter suggested that 

the word ‘‘may’’ in this paragraph be 

changed to ‘‘should,’’ so that contracting 

officers would be required to establish 

an evaluation factor for subcontracting 

as part of the source selection criteria. 

SBA believes that this suggestion has 

merit, except that such approach cannot 

be made mandatory without providing 

specific guidance for measuring success 

in subcontracting, particularly when 

offerors on the same order or agreement 

operate under different types of 

subcontracting plans (commercial, 

individual or DoD Test Program). Until 

SBA establishes specific guidance for 

evaluating a business concern’s goals 

and performance in this area, it is 

neither practical nor fair to impose this 

requirement on Federal agencies. 

However, SBA is working on 

establishing such guidance and will 

consider imposing mandatory 

evaluation factors in future revisions to 

its subcontracting regulations. We also 

note that in individual cases the 

evaluation factor may be simple to 

utilize without additional guidance, 

particularly in cases where all of the 

offerors operate under the same type of 

subcontracting plan. Therefore, based 

on the above, SBA believes that making 

the use of the evaluation optional until 

specific guidance is provided is the best 

course at this time.

SBA has changed the word 

‘‘important’’ to ‘‘significant’’ and made 

other minor changes in this paragraph. 

The new language appears in § 125.3(g). 

Another commenters said that it 

would be inappropriate for the Federal 

government to use subcontracting plans 

in the source selection for schedule 

purchases, Government-wide 

acquisition contracts, and multi-agency 

contracts because the members that the 

commenter represents ‘‘are not sure how 

this appropriately could be 

accomplished.’’ SBA notes that 

contracting officers are already required 

to establish an evaluation factor for 

subcontracting in negotiated 

acquisitions involving bundling (48 CFR 

15.304). This is simply taking the 

concept one step further. SBA believes 

that the potential advantage of this 

approach to the small business 

community outweigh the concern 

expressed in this comment. 

Another commenter pointed out that 

small businesses will be at a 

disadvantage because they do not have 

a subcontracting plan or evidence of 

subcontracting past performance; 

therefore, a small-business offeror 

should receive ‘‘full/exemplary’’ credit 

in each of the relevant categories. SBA 

agrees with this point and has added a 

similar statement to § 125.3(g). 

Another commenter that is a 

participant in the DoD Test Program 

argued that this would be a problem for 

participant in the DoD Test Program, 

since they do not submit subcontracting 

goals for individual contracts and do not 

have contract-specific past performance. 

The DoD Test Program applies only to 

75824 Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 

contracts with the DoD. The vast 

majority of schedule contracts are with 

the General Services Administration 

(GSA) and the Department of Veterans 

Affairs. A participant in the DoD Test 

Program must provide civilian agencies 

with individual or commercial 

subcontracting plans and must then 

submit semi-annual or annual reports 

against these plans. SBA sees no need 

to revise the regulation to address this 

concern. 

Compliance With Executive Orders 

13132, 12988 and 12866, the Regulatory 

Flexibility Act (5 U.S.C. 601–612), and 

the Paperwork Reduction Act (44 

U.S.C. Ch. 35) 

This regulation 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 

levels of government. Therefore, for the 

purposes of Executive Order 13132, 

SBA determines that this final rule has 

no federalism implications warranting 

preparation of a federalism assessment. 

The Office of Management and Budget 

(OMB) has determined that this rule 

constitutes a significant regulatory 

action under Executive Order 12866. the 

rule revises the SBA regulation 

governing small business contracting 

assistance to define good faith effort. 

This action meets applicable 

standards set forth in section 3(a) and 

3(b)(2) of Executive Order 12988, Civil 

Justice Reform, to minimize litigation, 

eliminate ambiguity, and reduce 

burden. The action does not have 

retroactive or preemptive effect. 

SBA has determined that this final 

rule does not impose additional 

reporting or recordkeeping requirements 

under the Paperwork Reduction Act, 44 

U.S.C. Chapter 35.

The Regulatory Flexibility Act (RFA), 

5 U.S.C. 601, requires administrative 

agencies to consider the effect of their 

actions on small entities, small nonprofit enterprises, and small local 

governments. Pursuant to the RFA, 

when an agency issues a rulemaking, 

the agency must prepare a regulatory 

flexibility analysis which describes 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. Therefore, 

within the meaning of RFA, SBA 

certifies that this rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The rule does not impose any new 

substantive responsibilities, nor does it 

require any new reporting or 

recordkeeping requirements on small 

business. Instead, this rule clarifies the 

existing statutory responsibilities under 

the subcontracting assistance program, 

including the responsibilities of prime 

contractors to maximize small business 

subcontracting opportunities. It also 

provides guidance to government 

officials in monitoring and determining 

the achievements of subcontracting 

goals. 

In fiscal year 2002, the most recent 

year for which the Government has 

reliable subcontracting data, small 

business received nearly $34.4 billion in 

subcontract awards, representing more 

than 35 percent of all subcontracts. As 

a result of this regulation, 

subcontracting opportunities for small 

business should expand, and this figure 

may be expected to increase in the 

year(s) following publication of the 

Final Rule. 

The Government does not maintain a 

database of small business 

subcontractors, but the Central 

Contractor Registration (CCR) 

maintained by the Department of 

Defense contains 175,209 small 

businesses. All of these firms are, or 

wish to become, prime contractors or 

subcontractors on Federal contracts. In 

most cases, a firm in the CCR is willing 

to perform on Federal contracts in either 

capacity—i.e., as a prime contractor or 

subcontractor. Accordingly, this figure 

may be considered representative of the 

universe of small business concerns 

impacted by this regulation. For the 

record, the 175,209 includes 9,752 small 

disadvantaged business concerns; 8,714 

HUBZone small business concerns; 

40,755 women-owned small business 

concerns; 24,292 veteran-owned small 

business concerns (VOPSBs); and 4,416 

service-disabled VOSBs. 

From the foregoing discussion, it 

should be evident that the rule is 

primarily procedural in nature and 

would not have a significant economic 

impact on small entities. As a result, no 

further regulatory flexibility analysis 

(other than that stated above) is required 

under 5 U.S.C. 605(b).

List of Subjects in 13 CFR Part 125

Government contracts, Government 

procurement, Reporting and 

recordkeeping requirements, Small 

businesses, and Technical assistance.

■ For the reasons set forth in the 

preamble, SBA amends 13 CFR part 125 

as follows:

PART 125—GOVERNMENT 

CONTRACTING PROGRAMS

■ 1. The authority citation for 13 CFR 

part 125 continues to read as follows:

Authority 15 U.S.C. 634(b)(6), 637 and 644; 

31 U.S.C. 9701 and 9702.

■ 2. Revise § 125.3 to read as follows:

§ 125.3 Subcontracting assistance. 

(a) General. The purpose of the 

subcontracting assistance program is to 

provide the maximum practicable 

subcontracting opportunities for small 

business concerns, including small 

business concerns owned and 

controlled by veterans, small business 

concerns owned and controlled by 

service-disabled veterans, certified 

HUBZone small business concerns, 

certified small business concerns owned 

and controlled by socially and 

economically disadvantaged 

individuals, and small business 

concerns owned and controlled by 

women. The subcontracting assistance 

program implements section 8(d) of the 

Small Business Act, which includes the 

requirement that, unless otherwise 

exempt, other-than-small business 

concerns awarded contracts that offer 

subcontracting possibilities by the 

Federal Government in excess of 

$500,000, or in excess of $1,000,000 for 

construction of a public facility, must 

submit a subcontracting plan to the 

appropriate contracting agency. The 

Federal Acquisition Regulation sets 

forth the requirements for 

subcontracting plans in 48 CFR 19.7, 

and the clause at 48 CFR 52.219–9. 

(b) Responsibilities of prime 

contractors. (1) Prime contractors 

(including small business prime 

contractors) selected to receive a Federal 

contract that exceeds the traditional 

simplified acquisition threshold of 

$100,000, that will not be performed 

entirely outside of any state, territory, or 

possession of the United States, the 

District of Columbia, or the 

Commonwealth of Puerto Rico, and that 

is not for services which are personal in 

nature, are responsible for ensuring that 

small business concerns have the 

maximum practicable opportunity to 

participate in the performance of the 

contract, including subcontracts for 

subsystems, assemblies, components, 

and related services for major systems, 

consistent with the efficient 

performance of the contract. 

(2) A small business cannot be 

required to submit a formal 

subcontracting plan or be asked to 

submit a formal subcontracting plan, a 

small-business prime contractor is 

encouraged to provide maximum 

Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 75825

practicable opportunity to other small 

businesses to participate in the 

performance of the contract, consistent 

with the efficient performance of the 

contract.

(3) Efforts to provide the maximum 

practicable subcontracting opportunities 

for small business concern may include, 

as appropriate for the procurement, one 

or more of the following actions: 

(i) Breaking out contract work items 

into economically feasible units, as 

appropriate, to facilitate small business 

participation; 

(ii) Conducting market research to 

identify small business subcontractors 

and suppliers through all reasonable 

means, such as performing on-line 

searches on the Central Contractor 

Registration (NCR), posting Notices of 

Sources Sought and/or Requests for 

Proposal on SBA’s SUB-Net, 

participating in Business Matchmaking 

events, and attending pre-bid 

conferences; 

(iii) Soliciting small business 

concerns as early in the acquisition 

process as practicable to allow them 

sufficient time to submit a timely offer 

for the subcontract; 

(iv) Providing interested small 

businesses with adequate and timely 

information about the plans, 

specifications, and requirements for 

performance of the prime contract to 

assist them in submitting a timely offer 

for the subcontract; 

(v) Negotiating in good faith with 

interested small businesses; 

(vi) Directing small businesses that 

need additional assistance to SBA; 

(vii) Assisting interested small 

businesses in obtaining bonding, lines 

of credit, required insurance, necessary 

equipment, supplies, materials, or 

services; 

(viii) Utilizing the available services 

of small business associations; local, 

state, and Federal small business 

assistance offices; and other 

organizations; and 

(ix) Participating in a formal mentorprote ́ge ́ program with one or more 

small-business prote ́ge ́s that results in 

developmental assistance to the 

prote ́ge ́s. 

(c) Additional responsibilities of large 

prime contractors. (1) In addition to the 

responsibilities provided in paragraph 

(b) of this section, a prime contractor 

selected for award of a contract or 

contract modification that exceeds 

$500,000, or $1,000,000 in the case of 

construction of a public facility, is 

responsible for: 

(i) Submitting and negotiating before 

award an acceptable subcontracting 

plan that reflects maximum practicable 

opportunities for small businesses in the 

performance of the contract as 

subcontractors or suppliers. A prime 

contractor may submit a commercial 

plan, described in paragraph (c)(2) of 

this section, instead of an individual 

subcontracting plan, when the product 

or service being furnished to the 

Government meets the definition of a 

commercial item under 48 CFR 2.101; 

(ii) Making a good-faith effort to 

achieve the dollar and percentage goals 

and other elements in its subcontracting 

plan;

(iii) Submitting a timely, accurate, 

and complete SF–294, Subcontracting 

Report for Individual Contract, and SF–

295, Summary Subcontract Report; or 

entering the same information into an 

electronic database approved by SBA; 

(vi) Cooperating in the reviews of 

subcontracting plan compliance, 

including providing requested 

information and supporting 

documentation reflecting actual 

achievements and good-faith efforts to 

meet the goals and other elements in the 

subcontracting plan; 

(v) Providing pre-award written 

notification to unsuccessful small 

business offerors on all subcontracts 

over $100,000 for which a small 

business concern received a preference. 

The written notification must include 

the name and location of the apparent 

successful offeror and if the successful 

offeror is a small business, veteranowned small business, service-disabled 

veteran-owned small business, 

HUBZone small business, small 

disadvantaged business, or womenowned small business; and 

(vi) As a best practice, providing the 

pre-award written notification cited in 

paragraph (c)(1)(v) of this section to 

unsuccessful and small business 

offerors on subcontracts at or below 

$100,000 whenever it is practical to do 

so. 

(2) A commercial plan, also referred 

to as an annual plan or company-wide 

plan, is the preferred type of 

subcontracting plan for contractors 

furnishing commercial items. A 

commercial plan covers the offeror’s 

fiscal year and applies to the entire 

production of commercial items 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 contractor’s fiscal 

year for all Federal government 

contracts in effect during that period. 

The contracting officer of the agency 

that originally approved the commercial 

plan will exercise the functions of the 

contracting officer on behalf of all 

agencies that award contracts covered 

by the plan. 

(3) The additional prime contractor 

responsibilities described in paragraph 

(c)(1) of this section do not apply if: 

(i) The prime contractor is a small 

business concern; 

(ii) The prime contract or contract 

modification is a personal services 

contract; or 

(iii) The prime contract or contract 

modification will be performed entirely 

outside of any state, territory, or 

possession of the United States, the 

District of Columbia, or the 

Commonwealth of Puerto Rico. 

(d) Determination of good-faith 

efforts. Evidence that a large business 

prime contractor has made a good-faith 

effort to comply with its subcontracting 

plan or other subcontracting 

responsibilities includes supporting 

documentation that: 

(1) The contractor performed one or 

more of the actions described in 

paragraph (b) of this section, as 

appropriate for the procurement; 

(2) Although the contractor may have 

failed to achieve its goal in one socioeconomic category, it over-achieved its 

goal by an equal or greater amount in 

one or more of the other categories; or 

(3) The contractor fulfilled all of the 

requirements of its subcontracting plan.

(e) CMR Responsibilities. Commercial 

Market Representatives (CMRs) are 

SBA’s subcontracting specialists. CMRs 

are responsible for: 

(1) Facilitating the matching of large 

prime contractors with small business 

concerns; 

(2) Counseling large prime contractors 

on their responsibilities to maximize 

subcontracting opportunities for small 

business concerns; 

(3) Instructing large prime contractors 

on identifying small business concerns 

by means of the CCR, SUB-Net, Business 

Matchmaking events, and other 

resources and tools; 

(4) Counseling small business 

concerns on how to market themselves 

to large prime contractors; 

(5) Maintaining a portfolio of large 

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 

(6) Conducting periodic reviews, 

including compliance reviews in 

75826 Federal Register / Vol. 69, No. 243 / Monday, December 20, 2004 / Rules and Regulations 

accordance with paragraph (f) of this 

section. 

(f) Compliance reviews. A prime 

contractor’s performance under its 

subcontracting plan is evaluated by 

means of on-site compliance reviews 

and follow-up reviews. 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 twelve months. A 

follow-up review is done after a 

compliance review, generally within six 

to eight months, to determine if the 

contractor has implemented SBA’s 

recommendations. 

(2) All compliance reviews begin with 

a validation of the contractor’s most 

recent SF–295, Summary Subcontract 

Report, and SF–294, Subcontracting 

Report for Individual Contracts, if 

applicable. The validation includes a 

review of the contractor’s methodology 

for completing these reports and a 

sampling of specific documentation to 

substantiate small business status. 

(3) Upon completion of the review 

and evaluation of a contractor’s 

performance and efforts to achieve the 

requirements in its subcontracting 

plans, the contractor’s performance will 

be assigned one of the following ratings: 

Outstanding, Highly Successful, 

Acceptable, Marginal, or Unsatisfactory. 

The factors listed in paragraph (c) of this 

section will be taken into consideration, 

where applicable, in determining the 

contractor’s rating. However, a 

contractor may be found Unsatisfactory, 

regardless of other factors, if it cannot 

substantiate the claimed achievements 

under its subcontracting plan. 

(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 30 days of 

its receipt of the official compliance 

report.

(5) Any contractor that fails to comply 

with paragraph (f)(4) of this section, or 

any contractor that fails to demonstrate 

a good-faith effort, as set forth in 

paragraph (d) of this section, may be 

considered for liquidated damages 

under the procedures in 48 CFR 19.705–

7 and the clause at 52.219–16. This 

action shall be considered by the 

contracting officer upon receipt of a 

written recommendation to that effect 

from the CMR. The CMR’s 

recommendation must include a copy of 

the compliance report and any other 

relevant correspondence or supporting 

documentation. 

(6) Reviews and evaluations of 

contractors with commercial plans are 

identical to reviews and evaluations of 

other contractors, except that 

contractors with commercial 

subcontracting plans do not submit the 

SF–294, Subcontracting Report for 

Individual Contracts. Instead, goal 

achievement is determined by 

comparing the goals in the approved 

commercial subcontracting plan against 

the cumulative achievements on the SF–

295, Summary Subcontract Report, for 

the same period. The same ratings 

criteria set forth in paragraph (f)(3) of 

this section apply to contractors with 

commercial plans. 

(7) SBA is authorized to enter into 

agreements with other Federal agencies 

or entities to conduct compliance 

reviews and otherwise further the 

objectives of the subcontracting 

program. Copies of these agreements 

will be published on http://

www.sba.gov/GC. SBA is the lead 

agency on all joint compliance reviews 

with other agencies. 

(g) Subcontracting consideration in 

source selection. When an ordering 

agency anticipates placing an order 

against a Federal Supply Schedule, 

government-wide acquisition contract 

(GWAC), or multi-agency contract 

(MAC), the ordering agency may 

evaluate subcontracting as a significant 

factor in its source selection process. In 

addition, the ordering agency may also 

evaluate subcontracting as a significant 

factor in source selection when entering 

into a blanket purchase agreement. At 

the time of contract award, the 

contracting officer must disclose to all 

competitors which one (or more) of 

these three elements will be evaluated 

as an important source selection 

evaluation factor in any subsequent 

procurement action. A small-business 

offeror automatically receives the 

maximum possible score or credit on 

this evaluation factor without having to 

submit a subcontracting plan and 

without having to demonstrate 

subcontracting past performance. The 

factors that may be evaluated, 

individually or in combination, are: 

(1) The subcontracting to be 

performed on the specific requirement; 

(2) The goals negotiated in previous 

subcontracting plans; and 

(3) The contractor’s past performance 

in meeting the subcontracting goals 

contained in previous subcontracting 

plans.

Dated: October 6, 2004. 

Hector V. Barreto, 

Administrator.

[FR Doc. 04–27765 Filed 12–17–04; 8:45 am] 

BILLING CODE 8025–01–M

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. 2002–NM–347–AD; Amendment 

39–13908; AD 2004–25–20] 

RIN 2120–AA64 

Airworthiness Directives; Saab Model 

SAAB 2000 Series Airplanes

AGENCY: Federal Aviation 

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment adopts a 

new airworthiness directive (AD), 

applicable to certain Saab Model SAAB 

2000 series airplanes. This action 

requires various repetitive inspections 

for cracking of the drag and shear angles 

that attach the nacelle to the wing, and 

related corrective action. This action 

also requires eventual modification of 

the drag and shear angles, which would 

end the repetitive inspections. This 

action is necessary to prevent fatigue 

cracking of the drag and shear angles, 

which could result in reduced structural 

integrity of the nacelle attachment to the 

wing. This action is intended to address 

the identified unsafe condition.

DATES: Effective January 24, 2005. 

The incorporation by reference of 

certain publications listed in the 

regulations is approved by the Director 

of the Federal Register as of January 24, 

2005.

ADDRESSES: The service information 

referenced in this AD may be obtained 

from Saab Aircraft AB, SAAB Aircraft 

Product Support, S–581.88, Linko ̈ping, 

Sweden. This information may be 

examined at the Federal Aviation 

Administration (FAA), Transport 

Airplane Directorate, Rules Docket, 

1601 Lind Avenue, SW., Renton, 

Washington; or at the National Archives 

and Records Administration (NARA). 

For information on the availability of 

this material at NARA, call (202) 741–

6030, or go to: http://www.archives.gov/

federal_register/

code_of_federal_regulations/

ibr_locations.html.

FOR FURTHER INFORMATION CONTACT: Dan 

Rodina, Aerospace Engineer, 

International Branch, ANM–116, FAA, 

Transport Airplane Directorate, 1601 

Lind Avenue, SW., Renton, Washington 

98055–4057; telephone (425) 227–2125; 

fax (425) 227–1149.

SUPPLEMENTARY INFORMATION: A 

proposal to amend part 39 of the Federal 

Aviation Regulations (14 CFR part 39) to 

include an airworthiness directive (AD)