[Federal Register Volume 89, Number 197 (Thursday, October 10, 2024)]
[Rules and Regulations]
[Pages 82183-82188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-23226]


-----------------------------------------------------------------------

DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 206, 212, 252, and 270

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


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

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

ACTION: Final rule.

-----------------------------------------------------------------------

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

DATES: Effective November 25, 2024.

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

SUPPLEMENTARY INFORMATION:

I. Background

    DoD published a proposed rule in the Federal Register at 89 FR 
46831 on May 30, 2024, to implement section 874 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L. 117-81; 10 
U.S.C. 3204 note) as amended by section 872 of the NDAA for FY 2024 
(Pub. L. 118-31; 10 U.S.C. 3204 note). Sections 874 and 872 authorize 
DoD to establish a pilot program that allows for the noncompetitive 
award of certain follow-on contracts to employee-owned businesses that 
meet the definition of a qualified business. Five respondents submitted 
public comments in response to the proposed rule.

II. Discussion and Analysis

    DoD reviewed the public comments in the development of the final 
rule. A discussion of the comments and the changes made to the rule as 
a result of those comments is provided, as follows:

A. Summary of Significant Changes From the Proposed Rule

    There are no significant changes from the proposed rule.

B. Analysis of Public Comments

1. Support for the Rule
    Comment: The respondents expressed support for the rule.
    Response: DoD acknowledges the respondents' support for the rule.
2. Clarifications
    Comment: One respondent recommended revising the proposed rule text 
at DFARS 270.X02 to clarify that a reference to Federal Acquisition 
Regulation (FAR) 6.302-5 is sufficient to justify a sole-source award 
under the pilot program. The respondent also recommended adding the 
following sentence to the text: ``A justification that cites FAR 6.302-
5, makes reference to 48 CFR 206.302-5(b)(iii), and meets the 
requirements of subparts 207.X03 and 207.X04 shall be considered 
complete and sufficient for an exception to full an open competition.'' 
One respondent indicated that a justification and approval (J&A) that 
only references FAR 6.302-5 is likely to be found insufficient by audit 
agencies.
    Response: The proposed rule text at DFARS 270.102(b) requires the 
contracting officer to justify the use of a sole-source contract in 
accordance with FAR 6.303 and 6.304 prior to conducting negotiations 
and to cite FAR 6.302-5, Authorized or required by statute, as the 
exception to full and open competitive procedures. FAR 6.303 specifies 
the requirements for and the content of a justification. The statute 
did not modify the requirements for or content of a justification; 
therefore, DoD cannot make the recommended change. However, the final 
rule text at DFARS 270-X02(b) has been amended to remove duplicative 
text addressed at FAR 6.303-1(a).

[[Page 82184]]

3. Exceptions to Implementation
    Comment: Two respondents took exception to the fact that the 
proposed rule does not provide a process for a contractor to apply to 
participate in the pilot program to ensure a transparent and accessible 
process. One respondent indicated the inability for a contractor to 
apply to participate in the pilot program is overly restrictive and 
inconsistent with the statute.
    Response: Section 874 required the Secretary of Defense to submit 
to the congressional defense committees an implementation plan for the 
pilot program. This implementation plan indicated that applications for 
participation in the pilot program will be submitted by contracting 
officers. The proposed rule text at DFARS 270.103 is consistent with 
the implementation plan. As such, a contractor is not able to submit an 
application for participation in the pilot program.
    Comment: One respondent took exception to the requirement for a 
J&A, indicating that it is inconsistent with the statute. The 
respondent further indicated that such a requirement may limit the 
number of businesses that may participate in the pilot program, citing 
the fact that there are only eight businesses currently participating 
in the pilot program.
    Response: While sections 872 and 874 authorize the use of other 
than competitive procedures for the award of certain contracts under 
this pilot program, neither waived the requirement for a J&A; 
therefore, a J&A is required. The Office of the Under Secretary of 
Defense (Acquisition and Sustainment), Defense Pricing, Contracting, 
and Acquisition Policy implemented section 874 via a contract policy 
memorandum dated November 8, 2022, and limited participation in the 
pilot program to nine contractors. Therefore, the requirement for a J&A 
has not limited participation in the pilot program.
    Comment: Three respondents took exception to the proposed rule 
reporting requirements, while one respondent expressed support for the 
reporting requirements. One respondent indicated that some of the 
proposed reporting requirements are open-ended and subjective, which 
will lead to confusion as to whether the data provided by the 
contractor is sufficient. One respondent indicated that the proposed 
reporting requirements focus on challenges of employee ownership rather 
than performance and value and indicated that the contractor's past 
performance rating in the Contractor Performance Assessment Reporting 
System (CPARS) would be more useful in assessing the success of the 
pilot program. One respondent recommended DoD develop a comprehensive 
plan to monitor the implementation and impact of the Employee Stock 
Ownership Plan (ESOP) pilot program, allowing for adjustments and 
improvements over time to optimize its effectiveness. One respondent 
stated that its member companies who participated in the original, 
limited pilot program found the data collection to be straightforward 
and to require minimal time. Another respondent indicated that DoD's 
estimate of 16 hours to collect and submit the data required by the 
clause at DFARS 252.270-70YY should be 80 to 120 hours.
    Response: Section 874 required the Secretary of Defense to 
establish mechanisms to collect and analyze data on the pilot program 
for the purposes of developing and sharing best practices with 
leadership and the congressional defense committees. Section 874 also 
required the Secretary of Defense to submit to the congressional 
defense committees a data collection and reporting strategy for the 
pilot program. The information to be reported in accordance with the 
contract clause at DFARS 252.270-7002, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses, is consistent with this 
strategy. This information will be submitted to DoD leadership and the 
congressional defense committees and may be used to determine if 
additional measures should be taken to assist ESOP businesses in 
overcoming challenges associated with their corporate structure.
    Additionally, the proposed rule text at DFARS Procedures, Guidance, 
and Information (PGI) 270.104, paragraph(d), specifies the reporting 
requirements for contracting officers, which include, but are not 
limited to, a summary of the contractor's performance and the benefits 
experienced from using the pilot program. This information will be used 
to assess the success of the pilot program and the need for adjustments 
and improvements over time. In reporting the contractor's performance 
pursuant to DFARS PGI 270.104, the contracting officer may use 
information from CPARS. To minimize the time required to collect and 
submit the data, the reporting requirements in the clause at DFARS 
252.270-7002 are amended to clarify that data regarding challenges 
faced due to the contractor's corporate ownership structure is only 
required when applicable. In addition, contractors are only required to 
report data collected during the period of performance of the contract; 
therefore, the data should be readily available.
4. Outside the Scope of the Rule
    Comment: One respondent recommended DoD establish evaluation 
criteria to give preference to qualified businesses during the source-
selection process in lieu of limiting the pilot program to sole-source, 
follow-on contracts. The respondent also recommended that DoD 
prioritize efforts to on-ramp qualified businesses onto multiple-award 
contracts to create a larger pool of qualified businesses eligible for 
follow-on contracts under this pilot program.
    Response: These comments are outside the scope of this rule. 
Sections 872 and 874 do not authorize DoD to establish source selection 
evaluation criteria to give preference to qualified businesses or to 
use on-ramps under the pilot program.

C. Other Changes

    DFARS 270.102(b) is revised in the final rule to simplify the 
direction to contracting officers. The final rule revises the 
prescriptions for the solicitation provisions at DFARS 252.270-7000 and 
252.270-7001 and the clause at DFARS 252.270-7002 to specify that they 
are not to be included in solicitations and contracts solely for the 
acquisition of commercially available off-the-shelf items. These 
provisions and this clause are added to the list of provisions and 
clauses that are not applicable to COTS items, located at DFARS 
212.371. The reporting requirements are clarified in the clause at 
DFARS 252.270-7002.

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

    The two provisions and the clause at DFARS 252.270-7000, Pilot 
Program to Incentivize Contracting with Employee-Owned Businesses-
Representation; DFARS 252.270-7001, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses--Certification; and DFARS 
252.270-7002, Pilot Program to Incentivize Contracting with Employee-
Owned Businesses, are prescribed at DFARS 270.105 for use in 
solicitations and contracts for approved acquisitions under the Pilot 
Program to Incentivize Contracting with Employee-Owned Businesses. 
Consistent with the analysis that DoD provided in the proposed rule 
with regard to the application of the requirements of section 874 of 
the NDAA for FY 2022, as amended by

[[Page 82185]]

section 872 of the NDAA for FY 2024, DoD has decided to not apply the 
statutes to contracts at or below the SAT, and DoD has made the 
determination to apply the statutes, as implemented in the provisions 
and clause at 252.270-7000, 252.270-7001, and 252.270-7002, to 
contracts for the acquisition of commercial products excluding COTS 
items and for the acquisition of commercial services, as defined at 
Federal Acquisition Regulation 2.101.

IV. Expected Impact of the Rule

    This final rule is expected to impact the Government and 
contractors that participate in the Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses. This final rule is expected 
to incentivize and expedite the award of follow-on contracts to 
qualified businesses for the continued development, production, or 
provision of products or services previously procured by or for DoD. As 
a result, employee-owned businesses may benefit from additional 
opportunities to contract with DoD, which may benefit DoD by expanding 
the defense industrial base.

V. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under section 6(b) of E.O. 12866, Regulatory Planning 
and Review, as amended.

VI. Congressional Review Act

    As required by the Congressional Review Act (5 U.S.C. 801-808) 
before an interim or final rule takes effect, DoD will submit a copy of 
the interim or final rule with the form, Submission of Federal Rules 
Under the Congressional Review Act, to the U.S. Senate, the U.S. House 
of Representatives, and the Comptroller General of the United States. A 
major rule under the Congressional Review Act cannot take effect until 
60 days after it is published in the Federal Register. The Office of 
Information and Regulatory Affairs has determined that this rule is not 
a major rule as defined by 5 U.S.C. 804.

VII. Regulatory Flexibility Act

    A final regulatory flexibility analysis has been prepared 
consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. 
and is summarized as follows:
    This final rule is necessary to implement section 874 of the 
National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022 
(Pub. L. 117-81; 10 U.S.C. 3204 note) and section 872 of the NDAA for 
FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 note). The objective of the 
rule is to implement sections 874 and 872, which authorize DoD to 
establish a pilot program to incentivize contracting with employee-
owned businesses. The pilot program provides for the use of 
noncompetitive procedures for certain follow-on contracts to qualified 
businesses. A ``qualified business'' is defined as an S corporation (as 
defined in 26 U.S.C. 1361(a)(1)) for which 100 percent of the 
outstanding stock is held through an employee stock ownership plan as 
defined in 26 U.S.C. 4975(e)(7).
    There were no significant issues raised by the public comments in 
response to the initial regulatory flexibility analysis. One respondent 
took exception to the number of hours DoD estimated it would take a 
contractor to comply with the reporting requirement. DoD reviewed the 
data to be collected and modified the reporting requirement to clarify 
that the contractor is required to only report challenges it faced, if 
any. Although not specified in the DFARS text, because this is a 
contract clause, contractors are only required to report data collected 
during the period of performance of the contract.
    Data from the System for Award Management (SAM) revealed there were 
384,145 small entities registered in SAM as of August 2024. Data on the 
number of small entities that are a qualified business, as defined in 
the final rule, is not available.
    The pilot program was implemented on November 8, 2022. To date, 
eight businesses are participating in the pilot, six of which are small 
entities. DoD cannot estimate the number of contracting officers that 
will submit applications for participation in the pilot program, how 
many applications will be approved for participation, or how many of 
the subsequent awards will be made to small entities. However, based on 
current participation, DoD expects that the pilot program will grow to 
approximately 16 contractors per year, of which approximately 12 may be 
small entities.
    This final rule imposes a new reporting requirement. Not later than 
30 days after the end of the period of performance of the contract, 
contractors participating in the pilot program will be required to 
submit to the contracting officer the following information: (1) the 
number of years the contractor has been wholly-owned by its employee 
stock ownership plan; (2) the contractor's challenges, if any, in 
attracting and retaining a talented workforce due to its corporate 
ownership structure; (3) challenges, if any, the contractor experienced 
that hinder its ability to contract with DoD in order to scale its 
technologies and capabilities due to its corporate ownership structure; 
and (4) challenges, if any, the contractor experienced, due to its 
corporate ownership structure, in obtaining capital necessary to bridge 
funding gaps, for example, between prototype demonstration and full-
scale development. The annual reporting burden is estimated as follows: 
16 respondents, with 16 total annual responses (1 response per 
respondent), and a total annual burden of 16 hours.
    There are no known significant alternative approaches that would 
accomplish the stated objectives.

VIII. Paperwork Reduction Act

    This final rule contains information collection requirements that 
have been approved by the Office of Management and Budget under the 
Paperwork Reduction Act (44 U.S.C. chapter 35). This information 
collection requirement has been assigned OMB Control Number 0750-0012, 
Defense Federal Acquisition Regulation Supplement Part 270, Defense 
Contracting Programs--Pilot Program to Incentivize Contracting with 
Employee-Owned Businesses, and Related Clause.

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

    Government procurement.

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

    Therefore, the Defense Acquisition Regulations System amends 48 CFR 
chapter 2 as follows as follows:

PART 206--COMPETITION REQUIREMENTS

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

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


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

[[Page 82186]]

206.302-5   Authorized or required by statute.

    (b) Application. Agencies may use this authority to--
    (i) Acquire supplies and services from military exchange stores 
outside the United States for use by the armed forces outside the 
United States in accordance with 10 U.S.C. 2424(a) and subject to the 
limitations of 10 U.S.C. 2424(b). The limitations of 10 U.S.C. 
2424(b)(1) and (2) do not apply to the purchase of soft drinks that are 
manufactured in the United States. For the purposes of 10 U.S.C. 2424, 
soft drinks manufactured in the United States are brand name carbonated 
sodas, manufactured in the United States, as evidenced by product 
markings.
    (ii) Acquire police, fire protection, airfield operation, or other 
community services from local governments at military installations to 
be closed under the circumstances in 237.7401 (section 2907 of Fiscal 
Year 1994 Defense Authorization Act (Pub. L. 103-160)).
    (iii) Acquire products and services under the Pilot Program to 
Incentivize Contracting with Employee-Owned Businesses (see subpart 
270.1).
    (c) Limitations. (i) 10 U.S.C. 4141 precludes use of this exception 
for awards to colleges or universities for the performance of research 
and development, or for the construction of any research or other 
facility, unless--
    (A) The statute authorizing or requiring award specifically--
    (1) States that the statute modifies or supersedes the provisions 
of 10 U.S.C. 4141;
    (2) Identifies the particular college or university involved; and
    (3) States that award is being made in contravention of 10 U.S.C. 
4141(a); and
    (B) The Secretary of Defense provides Congress written notice of 
intent to award. The contract cannot be awarded until 180 days have 
elapsed since the date Congress received the notice of intent to award. 
Contracting activities must submit a draft notice of intent with 
supporting documentation through channels to the Principal Director, 
Defense Pricing, Contracting, and Acquisition Policy, Office of the 
Under Secretary of Defense (Acquisition and Sustainment).
    (ii) The limitation in paragraph (c)(i) of this section applies 
only if the statute authorizing or requiring award was enacted after 
September 30, 1989.
    (iii) Subsequent statutes may provide different or additional 
constraints on the award of contracts to specified colleges and 
universities. Contracting officers should consult legal counsel on a 
case-by-case basis.

PART 212--ACQUISITION OF COMMERCIAL PRODUCTS AND COMMERCIAL 
SERVICES

0
3. The authority citation for part 212 continues to read as follows:

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


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


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

* * * * *
    (f) * * *
    (xxii) Part 270--Defense Contracting Programs. (A) Use the 
provision at 252.270-7000, Pilot Program to Incentivize Contracting 
with Employee-Owned Businesses--Representation, as prescribed at 
270.105(a) to comply with section 874 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L. 117-81; 10 
U.S.C. 3204 note) and section 872 of the NDAA for FY 2024 (Pub. L. 118-
31; 10 U.S.C. 3204 note).
    (B) Use the provision at 252.270-7001, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses--Subcontracting 
Certification, as prescribed at 270.105(b), to comply with section 874 
of the NDAA for FY 2022 (Pub. L. 117-81; 10 U.S.C. 3204 note) and 
section 872 of the NDAA for FY 2024 (Pub. L. 118-31; 10 U.S.C. 3204 
note).
    (C) Use the clause at 252.270-7002, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses, as prescribed at 
270.105(c), to comply with section 874 of the NDAA for FY 2022 (Pub. L. 
117-81; 10 U.S.C. 3204 note) and section 872 of the NDAA for FY 2024 
(Pub. L. 118-31; 10 U.S.C. 3204 note).

0
5. Amend section 212.371 by adding paragraphs (b), (c), and (d) to read 
as follows:


212.371   Inapplicability of certain provisions and clauses to 
contracts for the acquisition of commercially available off-the-shelf 
items.

* * * * *
    (b) 252.270-7000, Pilot Program to Incentivize Contracting with 
Employee-Owned Businesses--Representation.
    (c) 252.270-7001, Pilot Program to Incentivize Contracting with 
Employee-Owned Businesses--Subcontracting Certification.
    (d) 252.270-7002, Pilot Program to Incentivize Contracting with 
Employee-Owned Businesses.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

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

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


0
7. Add sections 252.270-7000, 252.270-7001, and 252.270-7002 to read as 
follows:
* * * * *
Sec.
252.270-7000 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Representation.
252.270-7001 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Subcontracting Certification.
252.270-7002 Pilot Program to Incentivize Contracting with Employee-
Owned Businesses.
* * * * *


252.270-7000   Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Representation.

    As prescribed in 270.105(a), use the following provision:

Pilot Program To Incentivize Contracting With Employee-Owned 
Businesses--Representation (NOV 2024)

    (a) Definition. As used in this provision, qualified business has 
the meaning given in the Defense Federal Acquisition Regulation 
Supplement 252.270-7002, Pilot Program to Incentivize Contracting with 
Employee-Owned Businesses, clause of this solicitation.
    (b) Representation. The Offeror represents that it is a qualified 
business.


(End of provision)


252.270-7001   Pilot Program to Incentivize Contracting with Employee-
Owned Businesses--Subcontracting Certification.

    As prescribed in 270.105(b), use the following provision:
    Pilot Program To Incentivize Contracting With Employee-Owned 
Businesses--Subcontracting Certification (NOV 2024)
    (a) Definition. As used in this provision, qualified business has 
the meaning given in the Defense Federal Acquisition Regulation 
Supplement 252.270-7002, Pilot Program to Incentivize Contracting with 
Employee-Owned Businesses, clause of this solicitation.
    (b) Limitations on subcontracting. The Offeror certifies that in 
performance of the contract it will not expend more than 50 percent of 
the amount paid under the contract on subcontracts unless--

[[Page 82187]]

    (1) The subcontract is awarded to a qualified business;
    (2) The contract is for products and the subcontract is for 
materials not available from another qualified business; or
    (3) A waiver is granted.


(End of provision)


252.270-7002   Pilot Program to Incentivize Contracting with Employee-
Owned Businesses.

    As prescribed in 270.105(c), use the following clause:

Pilot Program To Incentivize Contracting With Employee-Owned Businesses 
(NOV 2024)

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


(End of clause)

0
8. Add part 270 to read as follows:

PART 270--DEFENSE CONTRACTING PROGRAMS

Sec.
270.000 Scope of part.
Subpart 270.1--Pilot Program to Incentivize Contracting with Employee-
Owned Businesses
270.100 Scope of subpart.
270.101 Definition.
270.102 Policy.
270.103 Limitations.
270.104 Procedures.
270.105 Solicitation provisions and contract clause.

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


270.000   Scope of part.

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

Subpart 270.1--Pilot Program to Incentivize Contracting with 
Employee-Owned Businesses


270.100   Scope of subpart.

    (a) This subpart implements section 874 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2022 (Pub. L. 117-81; 10 
U.S.C. 3204 note) and section 872 of the NDAA for FY 2024 (Pub. L. 118-
31; 10 U.S.C. 3204 note). Sections 874 and 872 authorize the 
establishment of a pilot program that allows for the noncompetitive 
award of certain follow-on contracts to contractors that meet the 
definition of a qualified business (see 270.101).
    (b) The authority to award contracts under this subpart expires on 
December 27, 2029.


270.101   Definition.

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


270.102   Policy.

    (a) The contracting officer may only award one sole-source, follow-
on contract to the incumbent contractor if--
    (1) The contractor has represented that it is a qualified business; 
and
    (2) The contract is for the continued development, production, or 
provision of products or services that are the same as or substantially 
similar to those procured under the prior contract awarded to the 
contractor by or for DoD.
    (b) The contracting officer shall justify the use of a sole-source 
contract in accordance with FAR 6.303 and 6.304 and cite FAR 6.302-5 as 
the exception to full and open competition.


270.103   Limitations.

    (a) Participation in the pilot program is subject to approval by 
the Under Secretary of Defense (Acquisition and Sustainment), Office of 
the Principal Director, Defense Pricing, Contracting, and Acquisition 
Policy (Contract Policy). Only a contracting officer may submit an 
application to participate in the pilot program. See PGI 270.104(a).
    (b) Contracting officers shall only award--
    (1) One sole-source, follow-on contract per predecessor contract to 
the incumbent contractor unless waived by the head of the contracting 
activity, delegable to a level no lower than one level above the 
contracting officer;
    (2) Contracts to qualified businesses that have a minimum 
performance rating of satisfactory for the predecessor contract in the 
Contractor Performance Assessment Reporting System (see FAR subpart 
42.15); and
    (3) Contracts to qualified businesses that have certified they will 
not pay more than 50 percent of the amount paid by the Government for 
contract performance to subcontractors that are not qualified 
businesses, except for subcontracts for materials not available from 
another qualified business when the contract is for products, unless 
waived by the head of the contracting activity, delegable to a level no 
lower than one level above the contracting officer.


270.104   Procedures.

    See PGI 270.104 for procedures and information concerning the pilot 
program.


270.105   Solicitation provisions and contract clause.

    (a) Use the provision at 252.270-7000, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses--Representation, in 
solicitations, including solicitations using FAR part 12 procedures for 
the acquisition of commercial products and commercial services, except 
for solicitations solely for the acquisition of commercially available 
off-the-shelf (COTS) items, that include the clause at 252.270-7002, 
Pilot Program to Incentivize Contracting with Employee-Owned 
Businesses.
    (b) Unless waived in accordance with 270.103(b)(3), use the 
provision at 252.270-7001, Pilot Program to

[[Page 82188]]

Incentivize Contracting with Employee-Owned Businesses--Subcontracting 
Certification, in solicitations, including solicitations using FAR part 
12 procedures for the acquisition of commercial products and commercial 
services, except for solicitations solely for the acquisition of COTS 
items, that include the clause at 252.270-7002, Pilot Program to 
Incentivize Contracting with Employee-Owned Businesses.
    (c) Use the clause at 252.270-7002, Pilot Program to Incentivize 
Contracting with Employee-Owned Businesses, in solicitations and 
contracts, including solicitations and contracts using FAR part 12 
procedures for the acquisition of commercial products and commercial 
services, except for solicitations and contracts solely for the 
acquisition of COTS items, for approved pilot program acquisitions.

[FR Doc. 2024-23226 Filed 10-9-24; 8:45 am]
BILLING CODE 6001-FR-P