17960 Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Proposed Rules

DEPARTMENT OF DEFENSE

GENERAL SERVICES

ADMINISTRATION

NATIONAL AERONAUTICS AND

SPACE ADMINISTRATION

48 CFR Parts 11, 19, 52, and 53

[FAR Case 97–300]

RIN 9000–AH53

Federal Acquisition Regulation;

Liquidated Damages

AGENCIES: Department of Defense (DOD),

General Services Administration (GSA),

and National Aeronautics and Space

Administration (NASA).

ACTION: Proposed rule with request for

comments.

SUMMARY: The Civilian Agency

Acquisition Council (CAAC) and the

Defense Acquisition Regulations (DAR)

Council are proposing to amend the

Federal Acquisition Regulation (FAR) to

clarify policy on liquidated damages

and commercial subcontracting plans

and to implement OFPP Policy Letter

95–1, Subcontracting Plans for

Companies Supplying Commercial

Items. Comments received under the

existing interim rule FAR case 89–042,

Liquidated Damages, will be addressed

under this new FAR case 97–300. This

regulatory action was not subject to

Office of Management and Budget

review under Executive Order 12866,

dated September 30, 1993. This is not a

major rule under 5 U.S.C. 804.

DATES: Comments should be submitted

on or before June 10, 1997 to be

considered in the formulation of a final

rule.

ADDRESSES: Interested parties should

submit written comments to: General

Services Administration, FAR

Secretariat (MVRS), 1800 F Street, NW.,

Room 4035, Washington, DC 20405. Email comments submitted over Internet

should be addressed to: 97–

300@www.arnet.gov. Please cite FAR

case 97–300 in all correspondence

related to this case.

FOR FURTHER INFORMATION CONTACT: Ms.

Linda Klein at (202) 501–3775 in

reference to this FAR case. For general

information, contact the FAR

Secretariat, Room 4035, GS Building,

Washington, DC 20405, (202) 501–4755.

Please cite FAR case 97–300.

SUPPLEMENTARY INFORMATION:

A. Background

An interim rule, under FAR case 89–

042, was published on July 21, 1989 (54

FR 30708), to require a prime contractor

to pay liquidated damages upon a

finding of lack of good faith efforts to

meet its small business subcontracting

goals. This rule implements Section 304

of the Business Opportunity

Development Reform Act of 1988,

Public Law 100–656.

Significant revisions to the interim

rule were proposed based on analysis of

public comments. Extensive discussions

took place regarding long-standing

problems of trying to extend and adapt

the requirement of Section 8(d) of the

Small Business Act to contracts for

commercial products, now compounded

by the introduction of liquidated

damages. To resolve those problems, the

case has been held pending release and

conformance to Federal Acquisition

Circular (FAC) 90–32, published on

September 18, 1995 (60 FR 48231), FAR

case 94–790, ‘‘Acquisition of

Commercial Items’’, and OFPP Policy

Letter 95–1, ‘‘Subcontracting Plans for

Companies Supplying Commercial

Items’’.

On January 17, 1997, the CAAC and

the DAR Council agreed to close FAR

case 89–042, Liquidated Damages, into

new FAR case 97–300. All of the issues

raised, and public comments submitted,

in response to the interim rule

published under FAR case 89–042, will

be addressed under the new FAR case

97–300.

B. Regulatory Flexibility Act

This proposed rule is not expected to

have a significant 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 proposed changes clarify

policy on liquidated damages and

commercial subcontracting plans and

the changes are not expected to increase

or decrease small business awards, and

because small businesses are exempt

from subcontracting plan requirements

per FAR 19.702(b). An Initial Regulatory

Flexibility Analysis has, therefore, not

been performed. Comments from small

entities concerning the affected FAR

subparts will be considered in

accordance with 5 U.S.C. 610 of the Act.

Such comments must be submitted

separately and should cite 5 U.S.C. 601,

et seq. (FAR case 97–300), in

correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act (Public

Law 96–511) is deemed to apply

because FAR case 97–300, in part, adds

additional requirements that the

subcontracting plan shall include.

Therefore, a request for approval of a

revised burden estimate for OMB

clearance 9000–0006 has been

submitted to the Office of Management

and Budget under 44 U.S.C. 3501, et

seq. Public comments concerning this

request will be invited through a

Federal Register notice.

List of Subjects in 48 CFR Parts 11, 19,

52, and 53

Government procurement.

Dated: April 2, 1997.

Jeremy F. Olson,

Acting Director, Federal Acquisition Policy

Division.

Therefore, it is proposed that 48 CFR

Parts 11, 19, 52, and 53 be amended as

set forth below:

1. The authority citation for 48 CFR

Parts 11, 19, 52, and 53 continues to

read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C.

chapter 137; and 42 U.S.C. 2473(c).

PART 11—DESCRIBING AGENCY

NEEDS

2. Section 11.501 is revised to read as

follows:

11.501 General.

This subpart provides policies and

procedures for the use of liquidated

damages clauses in solicitations and

contracts for supplies, services, and

construction, except for the Liquidated

Damages—Subcontracting Plan Clause

at 52.219–16, which may be applied

pursuant to 19.705–7.

PART 19—SMALL BUSINESS

PROGRAMS

3. Section 19.701 is amended by

adding, in alphabetical order,

definitions for ‘‘Commercial plan’’,

‘‘Individual contract plan’’ and ‘‘Master

plan’’ to read as follows:

19.701 Definitions.

Commercial plan, as used in this

subpart, means a subcontracting plan

that covers the offeror’s fiscal year and

that 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).

* * * * *

Individual contract plan, as used in

this subpart, means a subcontracting

plan that covers the entire contract

period (including option periods),

applies to a specific contract, and has

goals that are based on the offeror’s

planned subcontracting in support of

the specific contract, except that

indirect costs incurred for common or

joint purposes may be allocated on a

prorated basis to the contract.

Master plan, as used in this subpart,

means a subcontracting plan that
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contains all of the required elements of

the individual plans, except goals, and

may be incorporated into individual

contract plans, provided the master plan

has been approved.

* * * * *

4. Section 19.702 is amended by

revising paragraph (a) introductory text

and (b)(4) to read as follows:

19.702 Statutory requirements.

* * * * *

(a) Except as stated in paragraph (b)

of this section, Section 8(d) of the Small

Business Act (15 U.S.C. 637(d)) imposes

the following requirements regarding

subcontracting with small businesses

and small business subcontracting

plans.

* * * * *

(b) * * *

(4) For in scope modifications to

contracts that do not contain the clause

at 52.219–8, Utilization of Small, Small

Disadvantaged and Women-Owned

Small Business Concerns (or equivalent

prior Defense Acquisition Regulation,

Federal Procurement Regulations, or

National Aeronautics and Space

Administration clauses); e.g., contracts

awarded before Public Law 95–507.

* * * * *

5. Section 19.703(b) is amended by

revising the first sentence to read as

follows:

19.703 Eligibility requirements for

participating in the program.

* * * * *

(b) A contractor acting in good faith

may rely on the written representation

of its subcontractor regarding the

subcontractor’s status as either a small

business concern, a small disadvantaged

business concern or a women-owned

small business concern. * * *

6. Section 19.704 is amended—(a) By

redesignating paragraphs (a)(2) through

(a)(6) as (a)(7) through (a)(11),

respectively;

(b) By adding new paragraphs (a)(2)

through (a)(6) and (d);

(c) In newly-designated (a)(8) by

removing the word ‘‘will’’ the second

time it appears, and

(d) By revising newly-designated

paragraphs (a) (10) and (11) and

paragraphs (b) in the first sentence and

(c). The revised and added text reads as

follows:

19.704 Subcontracting plan requirements.

* * * * *

(a) * * *

(2) A statement of total dollars

planned to be subcontracted and a

statement of the total dollars planned to

be subcontracted to small, small

disadvantaged and women-owned small

business concerns;

(3) A description of the principal

types of supplies and services to be

subcontracted and an identification of

the types planned for subcontracting to

small, small disadvantaged and womenowned small business concerns;

(4) A description of the methods used

to develop the subcontracting goals;

(5) A description of the methods used

to identify potential sources for

solicitation purposes;

(6) A statement as to whether or not

the offeror included indirect costs in

establishing subcontracting goals, and a

description of the method used to

determine the proportionate share of

indirect costs to be incurred with small,

small disadvantaged and women-owned

small business concerns;

* * * * *

(10) Assurances that the offeror will

(i) Cooperate in any studies or surveys

as may be required,

(ii) Submit periodic reports so that the

Government can determine the extent of

compliance by the offeror with the

subcontracting plan, and

(iii) Submit Standard Form (SF) 294,

Subcontracting Report for Individual

Contracts, and SF 295, Summary

Subcontract Report, following the

instructions on the forms or as provided

in agency regulations; and

(iv) Ensure that its subcontractors

agree to submit SF’s 294 and 295;

(11) A description of the types of

records that will be maintained

concerning procedures adopted to

comply with the requirements and goals

in the plan, including establishing

source lists; and a description of the

offeror’s efforts to locate small, small

disadvantaged and women-owned small

business concerns and to award

subcontracts to them.

(b) Contractors may establish, on a

plant- or division-wide basis, a master

plan (see 19.701) which contains all the

elements required by the clause at

52.219–9, Small, Small Disadvantaged

and Women-Owned Small Business

Subcontracting Plan, except goals.

* * *

(c) For multiyear contracts or

contracts containing options, the

cumulative value of the basic contract

and all options is considered in

determining whether a subcontracting

plan is necessary (see 19.705–2(a)). If a

plan is necessary and the offeror is

submitting an individual contract plan,

the plan shall contain all the elements

required by 19.704(a) and shall contain

separate statements and goals for the

basic contract and for each option.

(d) A commercial plan (as defined in

19.701) is the preferred type of

subcontracting plan for contractors

furnishing commercial items. The

contractor shall:

(1) Submit the commercial plan to

either

(i) The first contracting officer

awarding a contract subject to the plan

during the offeror’s fiscal year, or

(ii) If the offeror has ongoing contracts

with commercial plans, to the

contracting officer responsible for the

contract with the latest completion date.

The contracting officer shall negotiate

the commercial plan for the

Government. The approved commercial

plan shall remain in effect during the

offeror’s fiscal year for all Government

contracts in effect during the period.

(2) Submit a new commercial plan, 30

days before the end of the fiscal year, to

the contracting officer responsible for

the uncompleted Government contract

with the latest completion date. The

contractor must provide to each

contracting officer responsible for an

ongoing contract subject to the plan, the

identity of the contracting officer that

will be negotiating the new plan. Once

the new commercial plan is approved,

the contractor shall provide a copy of

the approved plan to each contracting

officer responsible for an ongoing

contract that is subject to the plan.

7. Section 19.705–4 is amended—

(a) In the first sentence of paragraphs

(b) and (c) by removing ‘‘six’’ and

inserting ‘‘eleven’’ in its place,

(b) Paragraph (b) is further amended

in the second sentence by removing

‘‘six’’;

(c) Paragraph (c) is further amended

by revising the third sentence and by

adding a sentence between the second

and third sentences;

(d) By revising paragraph (d)(1); and

(e) By redesignating paragraphs (d)(3)

through (d)(6) as (d)(4) through (d)(7),

respectively, adding a new paragraph

(d)(3); and revising newly-designated

(d)(5). The new and revised text reads

as follows:

19.705–4 Reviewing the subcontracting

plan.

* * * * *

(c) * * * The contracting officer shall

take particular care to ensure that the

offeror has not submitted unreasonably

low goals in order to minimize exposure

to liquidated damages and to avoid the

administrative burden of substantiating

good faith efforts. Additionally,

particular attention should be paid to

the identification of steps that, if taken,

would be considered a good faith effort.

* * *

(d) * * *

(1) Obtain information available from

the cognizant administrative contracting
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office, as provided for in 19.706(a), and

evaluate the offeror’s past performance

in awarding subcontracts for the same or

similar products or services to small,

small disadvantaged and women-owned

small business concerns. If information

is not available on a specific type of

product or service, evaluate the offeror’s

overall past performance and consider

the performance of other contractors on

similar efforts.

* * * * *

(3) Ensure that the subcontracting

goals are consistent with the offeror’s

cost and pricing data.

* * * * *

(5) Evaluate subcontracting potential,

considering the offeror’s make-or-buy

policies or programs, the nature of the

supplies or services to be subcontracted,

the known availability of small, small

disadvantaged and women-owned small

business concerns in the geographical

area where the work will be performed.

* * * * *

8. Section 19.705–6 is amended by

revising the introductory text and

paragraphs (b) and (g) to read as follows:

19.705–6 Postaward responsibilities of the

contracting officer.

After a contract or contract

modification containing a

subcontracting plan is awarded, the

contracting officer who approved the

plan is responsible for the following:

* * * * *

(b) Forwarding a copy of each

commercial plan and any associated

approvals to the Assistant Regional

Administrator for Procurement

Assistance in the SBA region where the

contractor’s headquarters is located.

* * * * *

(g) Taking action to enforce the terms

of the contract upon receipt of a notice

under 19.706(f).

9. Section 19.705–7 is amended by

revising paragraphs (b), (c), and (f) and

the last sentence of paragraph (d); and

by adding (h) to read as follows:

19.705–7 Liquidated damages.

* * * * *

(b) The amount of damages

attributable to the contractor’s failure to

comply shall be an amount equal to the

actual dollar amount by which the

contractor failed to achieve each

subcontracting goal.

(c) If, at completion of the basic

contract or any option, or in the case of

a commercial plan, at the close of the

fiscal year for which the plan is

applicable, a contractor has failed to

meet its subcontracting goals, the

contracting officer shall review all

available information for an indication

that the contractor has not made a good

faith effort to comply with the plan. If

no such indication is found, the

contracting officer shall document the

file accordingly. If the contracting

officer decides in accordance with

paragraph (d) of this subsection that the

contractor failed to make a good faith

effort to comply with its subcontracting

plan, the contracting officer shall give

the contractor written notice specifying

the failure, advising the contractor of

the possibility that the contractor may

have to pay to the Government

liquidated damages, and providing a

period of 15 working days (or longer

period as necessary) within which to

respond. The notice shall give the

contractor an opportunity to

demonstrate what good faith efforts

have been made before the contracting

officer issues the final decision, and

shall further state that failure of the

contractor to respond may be taken as

an admission that no valid explanation

exists.

(d) * * * However, when considered

in the context of the contractor’s total

effort in accordance with its plan, the

following, though not all inclusive, may

be considered as indicators of a failure

to make a good faith effort: a failure to

attempt to identify, contact, solicit, or

consider for contract award small, small

disadvantaged or women-owned small

business concerns; a failure to designate

and maintain a company official to

administer the subcontracting program

and monitor and enforce compliance

with the plan; a failure to submit

Standard Form (SF) 294, Subcontracting

Report for Individual Contracts, and

Standard Form (SF) 295, Summary

Subcontract Report, in accordance with

instructions on the forms or as provided

in agency regulations; a failure to

maintain records or otherwise

demonstrate procedures adopted to

comply with the plan; and the adoption

of company policies or procedures

which have as their objectives the

frustration of the objectives of the plan.

* * * * *

(f) With respect to commercial plans

approved under the clause at 52.219–9,

Small, Small Disadvantaged and

Women-Owned Small Business

Subcontracting Plan, the contracting

officer that approved the plan shall—

(1) Perform the functions of the

contracting officer under this subsection

on behalf of all agencies with contracts

covered by the commercial plan;

(2) Determine whether or not the goals

in the commercial plan were achieved

and, if they were not achieved, review

all available information for an

indication that the contractor has not

made a good faith effort to comply with

the plan, document the results of the

review, and provide a copy to the other

contracting officers with contracts

subject to the commercial plan as listed

in the Remarks block of the SF 295; and

(3) If a determination is made to

assess liquidated damages, request other

contracting officers with contracts

incorporating the plan to provide the

amount of payments made under their

Government contracts subject to the

plan that contributed to the contractor’s

total sales during the contractor’s fiscal

year in order to calculate and assess

liquidated damages on the

Government’s behalf. For example: The

contractor’s total sales are $50 million

and the subcontracting dollars to

support the sales are $20 million, or 40

percent. The Government’s payments

under contracts subject to the plan

contributing to the contractor’s total

sales are $5 million. Therefore, the pro

rata share of subcontracting attributable

to the Government contracts covered by

the plan is 10 percent of $20 million, or

$2 million. If the contractor failed to

achieve its small business goal by 1

percent, the liquidated damages would

be calculated as 1 percent of $2 million.

A copy of the contracting officer’s final

decision assessing liquidated damages

shall be provided to other contracting

officers with contracts subject to the

commercial plan as listed in the

Remarks block of the SF 295.

* * * * *

(h) Every contracting officer with a

contract that is subject to a commercial

plan shall include in the contract file—

(1) A copy of the approved plan,

(2) A copy of the determination

regarding goal achievement and (if

applicable) whether the contractor made

a good faith effort to comply with the

plan, and

(3) A copy of the final decision

assessing liquidating damages, if

applicable.

10. Section 19.706 is amended in

paragraph (a) by removing the paragraph

designation ‘‘(a)’’; by removing

paragraph (b); by redesignating (a)(1)

through (a)(6) as (a) through (f),

respectively; in newly-designated (e) by

removing ‘‘and’’ at the end; in newlydesignated (f) by removing the period at

the end and inserting ‘‘; and’’ in its

place; and by adding (g) to read as

follows:

19.706 Responsibilities of the cognizant

administrative contracting officer.

* * * * *

(g) Immediate notice that performance

under a contract is complete, that the

goals were or were not met, and if not

met, whether there is any indication of
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a lack of a good faith effort to comply

with the subcontracting plan.

19.708 [Amended]

11. Section 19.708 is amended in

paragraph (b)(2) by adding ‘‘the clause

with’’ after the words ‘‘Plan, or’’; in the

parenthetical citation in (c)(1) by

removing ‘‘(a)(1)’’; and in the second

sentence of (c)(2) by removing ‘‘award

fee’’ and inserting ‘‘award-fee’’ in its

place.

PART 52—SOLICITATION PROVISIONS

AND CONTRACT CLAUSES

12. Section 52.219–9 is amended by

revising the clause date and paragraphs

(b), (d)(2)(i), (d)(10), (d)(11) first

sentence of introductory text, (d)(11)(vi)

second sentence, (f) introductory text,

and (g) to read as follows:

52.219–9 Small, Small Disadvantaged and

Women-Owned Small Business

Subcontracting Plan.

* * * * *

SMALL, SMALL DISADVANTAGED AND

WOMEN-OWNED SMALL BUSINESS

SUBCONTRACTING PLAN (XXX 1997)

* * * * *

(b) Definitions. As used in this clause—

Commercial item means a product or

service that satisfies the definition of

commercial item in section 2.101 of the

Federal Acquisition Regulation.

Commercial plan means a subcontracting

plan that covers the offeror’s fiscal year and

that 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).

Individual contract plan means a

subcontracting plan that covers the entire

contract period (including option periods),

applies to a specific contract, and has goals

that are based on the offeror’s planned

subcontracting in support of the specific

contract, except that indirect costs incurred

for common or joint purposes may be

allocated on a prorated basis to the contract.

Master plan means a subcontracting plan

that contains all of the required elements of

the individual plans, except goals, and may

be incorporated into individual plans,

provided the master plan has been approved.

Subcontract means any agreement (other

than one involving an employer-employee

relationship) entered into by a Federal

Government prime contractor or

subcontractor calling for supplies or services

required for performance of the contract or

subcontract.

* * * * *

(d) * * *

(2) * * *

(i) Total dollars planned to be

subcontracted for individual plans; or the

offeror’s total projected sales, expressed in

dollars, and the total value of projected

subcontracts to support the sales for

commercial plans;

* * * * *

(10) Assurances that the offeror will (i)

cooperate in any studies or surveys as may

be required, (ii) submit periodic reports so

that the Government can determine the

extent of compliance by the offeror with the

subcontracting plan, and (iii) submit

Standard Form (SF) 294, Subcontracting

Report for Individual Contracts, and SF 295,

Summary Subcontract Report, following the

instructions on the forms or as provided in

agency regulations; and (iv) ensure that its

subcontractors agree to submit SF’s 294 and

295.

(11) A description of the types of records

that will be maintained concerning

procedures that have been adopted to comply

with the requirements and goals in the plan,

including establishing source lists; and a

description of the offeror’s efforts to locate

small, small disadvantaged and womenowned small business concerns and to award

subcontracts to them. * * *

* * * * *

(vi) * * * Contractors having commercial

plans need not comply with this

requirement.

* * * * *

(f) A master plan on a plant or divisionwide basis which contains all the elements

required by paragraph (d) of this clause,

except goals, may be incorporated by

reference as a part of the subcontracting plan

required of the offeror by this clause;

provided, * * *

(g) A commercial plan is the preferred type

of subcontracting plan for contractors

furnishing commercial items (see paragraph

(b) of this clause). The commercial plan shall

relate to the offeror’s planned subcontracting

generally, for both commercial and

Government business, rather than solely to

the Government contract.

* * * * *

(End of clause)

* * * * *

13. Section 52.219–16 is amended—

(a) By revising the clause date;

(b) In the first sentence of paragraph

(b) by removing the word ‘‘product’’; by

adding a sentence at the beginning of

(b); and by revising the last sentence;

(c) In (c) at the end of the first

sentence, before the period, by adding

‘‘and to discuss the matter’’; and

(d) By revising (d) to read as follows:

52.219–16 Liquidated Damages—

Subcontracting Plan.

* * * * *

LIQUIDATED DAMAGES—

SUBCONTRACTING PLAN (XXX 1997)

* * * * *

(b) Performance shall be measured by

applying the percentage goals to the total

actual subcontracting dollars or, if a

commercial plan is involved, to the pro rata

share of actual subcontracting dollars

attributable to Government contracts covered

by the commercial plan. * * * The amount

of probable damages attributable to the

Contractor’s failure to comply, shall be an

amount equal to the actual dollar amount by

which the Contractor failed to achieve each

subcontract goal.

* * * * *

(d) With respect to commercial plans, the

Contracting Officer who approved the plan

will perform the functions of the Contracting

Officer under this clause on behalf of all

agencies with contracts covered by the

commercial plan.

* * * * *

(End of clause)

PART 53—FORMS

14. Section 53.301–294 is revised to

read as follows:

BILLING CODE 6820–EP–P
17964 Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Proposed Rules

53.301–294 Standard Form 294, Subcontracting Report for Individual Contracts
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17966 Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Proposed Rules

15. Section 53.301–295 is revised to read as follows:

53.301–295 Standard Form 295, Subcontract Report
Federal Register / Vol. 62, No. 70 / Friday, April 11, 1997 / Proposed Rules 17967

[FR Doc. 97–9175 Filed 4–10–97; 8:45 am]

BILLING CODE 6820–EP–C