35714 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Notices

OFFICE OF MANAGEMENT AND

BUDGET

Office of Federal Procurement Policy

Small Disadvantaged Business

Procurement; Reform of Affirmative

Action in Federal Procurement

AGENCY: Office of Federal Procurement

Policy (OFPP), OMB.

ACTION: Notice of determination

concerning price evaluation

adjustments.

SUMMARY: The Federal Acquisition

Regulation (FAR), 48 CFR Part 19,

contains regulations permitting eligible

small disadvantaged businesses (SDB’s)

to receive price evaluation adjustments

in Federal procurement programs. The

FAR provides further that the

Department of Commerce (DOC) will

determine the price evaluation

adjustments available for use in Federal

procurement programs. The DOC, in the

attached memorandum, determines

price evaluation adjustments

(percentages) by Standard Industrial

Classification (SIC) major groups and

regions that are effective for new

solicitations for the upcoming year. The

DOC memorandum describes the

methodology for determining price

evaluation adjustments.

EFFECTIVE DATE: June 30, 1998.

FOR FURTHER INFORMATION CONTACT: Ms.

Linda G. Williams, Deputy Associate

Administrator, Office of Federal

Procurement Policy, Telephone 202–

395–3302. For information on the

Commerce methodology, contact Mr.

Jeffrey Mayer, Director of Policy

Development, Economics and Statistics

Administration, U.S. Department of

Commerce, Telephone 202–482–1728.

SUPPLEMENTARY INFORMATION:

Procurement Mechanisms and Factors

FAR Subpart 19.11 provides for the

use of price evaluation adjustments for

eligible SDBs. OFPP gives notice that

the attached Memorandum from the

DOC determines that certain SIC major

groups are eligible for a price evaluation

adjustment. The Memorandum also

includes factors for use on a regional

basis in certain industries. FAR Subpart

19.11 provides that these factors are

authorized for use in new solicitations

issued on or after October 1, 1998, that

allow for a price evaluation adjustment.

Allan E. Brown,

Acting Administrator.

Attachment

Department of Commerce

Economics and Statistics

Administration

Memorandum for Office of Federal

Procurement Policy

From: Jeffrey L. Mayer, Director of

Policy Development. Subect: Price Evaluation Adjustments

and Benchmarking Methodology.

Pursuant to new Federal Acquisition

Regulation (FAR) 19.201(b), transmitted

herein is the Department of Commerce

determination on the price evaluation

adjustments for use in Federal

procurements and the supporting

benchmarking methodology.

I. Background

FAR 19.201(b) requires the

Department of Commerce to determine

price evaluation adjustments for

applicable standard industrial

classification (SIC) major groups. To

establish price evaluation adjustments,

the Office of the Chief Economist and

the Office of Policy Development in the

Economics and Statistics

Administration of the Department of

Commerce (DOC) conducted an

economic analysis to identify industries

eligible for price evaluation adjustments

to implement the Administration’s

proposal for reforming affirmative

action in Federal procurement

programs.

DOC is responsible for: (i) developing

the methodology for calculating the

benchmark limitations; (ii) developing

the methodology for calculating the size

of the price evaluation adjustments that

should be employed in a given industry;

and (iii) determining applicable

adjustments. In addition, DOC is

charged with providing information to

the Small Business Administration for

its use in administering the 8(a)

program.

II. Price Evaluation Adjustments

Based upon the methodology

described below, DOC determines that a

price evaluation adjustment of ten

percent be employed in the following

industries:

INDUSTRIES ELIGIBLE FOR TEN PERCENT PRICE EVALUATION ADJUSTMENT

SIC major industry group Eligibility (*) Description of industry grouping

Agriculture, Forestry, and Fishing

01 ............................................................. Agricultural production—crops.

02 ............................................................. Agricultural production—livestock.

07 ............................................................. Agricultural services.

08 ............................................................. Forestry.

09 ............................................................. Fishing, hunting, & trapping.

Mining

10 ............................................................. * Metal mining.

12 ............................................................. * Coal mining.

13 ............................................................. * Oil & gas extraction.

14 ............................................................. * Extraction of nonmetallic minerals, ex. Fuels.

Construction

15 ............................................................. Building construction—general contractors.

15 ............................................................. * East North Central.

15 ............................................................. * East South Central.

15 ............................................................. * Middle Atlantic.

15 ............................................................. Mountain.

15 ............................................................. New England.

15 ............................................................. Pacific.

15 ............................................................. South Atlantic.

15 ............................................................. West North Central.

15 ............................................................. * West South Central.
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Notices 35715

INDUSTRIES ELIGIBLE FOR TEN PERCENT PRICE EVALUATION ADJUSTMENT—Continued

SIC major industry group Eligibility (*) Description of industry grouping

16 ............................................................. Heavy construction other than buildings—contractors.

16 ............................................................. East North Central.

16 ............................................................. * East South Central.

16 ............................................................. Middle Atlantic.

16 ............................................................. Mountain.

16 ............................................................. New England.

16 ............................................................. Pacific.

16 ............................................................. South Atlantic.

16 ............................................................. West North Central.

16 ............................................................. * West South Central.

17 ............................................................. Construction—special trade contractors.

17 ............................................................. East North Central.

17 ............................................................. East South Central.

17 ............................................................. Middle Atlantic.

17 ............................................................. Mountain.

17 ............................................................. * New England.

17 ............................................................. Pacific.

17 ............................................................. South Atlantic.

17 ............................................................. * West North Central.

17 ............................................................. West South Central.

Manufacturing

20 ............................................................. Food & kindred products.

21 ............................................................. Tobacco products.

22 ............................................................. * Textile mill products.

23 ............................................................. * Apparel & other finished products made from fabrics.

24 ............................................................. * Lumber & wood products, ex. Furniture.

25 ............................................................. * Furniture & fixtures.

26 ............................................................. * Paper & allied products.

27 ............................................................. * Printing, publishing, & allied industries.

28 ............................................................. * Chemicals & allied products.

29 ............................................................. * Petroleum refining & related industries.

30 ............................................................. * Rubber & miscellaneous plastics products.

31 ............................................................. * Leather & leather products.

32 ............................................................. Stone, clay, glass, & concrete products.

33 ............................................................. Primary metal industries.

34 ............................................................. * Fabricated metal products.

35 ............................................................. Industrial & commercial machinery & computer equipment.

36 ............................................................. * Electronic & other electrical equipment & components, ex. Computers.

37 ............................................................. * Transportation equipment.

38 ............................................................. * Measuring, analyzing, & controlling instruments; photographic, medical & optical

goods; watches & clocks.

39 ............................................................. * Miscellaneous manufacturing industries.

Transportation, Communications, Electric, Gas, Sanitary Services

40 ............................................................. Railroad transportation.

41 ............................................................. * Local & suburban transit & interurban highway passenger transportation.

42 ............................................................. * Motor freight transportation & warehousing.

44 ............................................................. * Water transportation.

45 ............................................................. Transportation by air.

46 ............................................................. * Pipelines, exc. natural gas.

47 ............................................................. * Transportation services.

48 ............................................................. * Communications.

49 ............................................................. * Electric, gas, & sanitary services.

Wholesale Trade

50 ............................................................. * Wholesale trade—durable goods.

51 ............................................................. * Wholesale trade—nondurable goods.

Retail Trade

52 ............................................................. * Building materials, hardware, garden supply, & mobile home dealers.

53 ............................................................. * General Merchandise stores.

54 ............................................................. * Food stores.

55 ............................................................. * Automotive dealers & gasoline service stations.

56 ............................................................. * Apparel & accessory stores.

57 ............................................................. * Home furniture, furnishings, & equipment stores.

58 ............................................................. * Eating & drinking places.

59 ............................................................. * Miscellaneous retail.
35716 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Notices

1A firm’s Contracting Arena is the industry

grouping in which it bid, was awarded a contract,

or had 8(a) certification and (in the case of

construction companies) the Census Division where

it was located. In most cases, the industry grouping

is the two digit Standard Industrial Classification

major industry group. The following related major

industry groups were regrouped together for

purposes of applying the benchmarking

methodology because otherwise the regression

analysis (described below) for at least one of the

constituent major industry groups would have had

what DOC deemed to be an insufficient number of

firms (that is, less than 30 degrees of freedom):

agriculture (SIC Major Industry Groups 01, 02, 07);

forestry and fishing (08, 09); mining (10, 12, 13, 14);

rubber, misc. plastic products, and leather products

(30, 31); local transit, interurban highway passenger

transportation, and misc. transportation services

(41, 47); pipelines and utilities (46, 49); retail trade

other than eating and drinking places (53, 54, 55,

56, 57,59); and finance, insurance, and real estate

(60, 61, 62, 63, 64, 65, 67). We could make no

satisfactory aggregation for several major industry

groups (21, 40, 72, 78, 79, 81, 84, 86, 88) that would

allow analysis with a sufficient number of firms.

2Unique ‘‘firms’’ were identified by their

Taxpayer Identification Numbers (TIN) and the

Contracting Arenas in which they participated in

federal contracting. Firms with missing or defective

TINs or Contracting Arena information were not

included in the unified data set. A firm can be any

for-profit company, non-profit organization, or a

state or local government establishment that bid for

a federal contract, or a company certified in the 8(a)

program. Finally, some firms were included more

than once if they participated in federal contracting

in more than one Contracting Arena.

3The agencies were all 14 cabinet agencies, plus

EPA, GSA, NASA, and TVA, which together

accounted for 98.8 percent of the value of all

procurement contracts over $25,000 in FY 1996.

4Awards under contracts valued at $25,000 or

less (and individual contract actions worth $25,000

or less and awarded by DOD) accounted for only 7.2

percent of all federal contract awards in FY 1996.

The FPDS does not include detailed data on

individual contracts worth $25,000 or less, making

it impossible to include these contracts in DOC’s

analysis. Since the SDB share of the sub-$25,000

awards was only 3.3 percent, while the SDB share

of awards over $25,000 was 5.8 percent, omitting

the sub-$25,000 awards (where usage of 8(a)

contracting is negligible) does not under-estimate

SDB utilization.

INDUSTRIES ELIGIBLE FOR TEN PERCENT PRICE EVALUATION ADJUSTMENT—Continued

SIC major industry group Eligibility (*) Description of industry grouping

Finance, Insurance, and Real Estate

60 ............................................................. * Depository institutions.

61 ............................................................. * Nondepository adjustment institutions.

62 ............................................................. * Security & commodity brokers, dealers, exchanges, & services.

63 ............................................................. * Insurance carriers.

64 ............................................................. * Insurance agents, brokers, & services.

65 ............................................................. * Real estate.

67 ............................................................. * Holding & other investment offices.

Services

70 ............................................................. * Hotels, rooming houses, camps, & other lodging places.

72 ............................................................. Personal services.

73 ............................................................. * Business services.

75 ............................................................. * Automotive repair, services, & parking.

76 ............................................................. * Miscellaneous repair services.

78 ............................................................. Motion pictures.

79 ............................................................. Amusement & recreation services.

80 ............................................................. * Health services.

81 ............................................................. Legal services.

82 ............................................................. * Educational services.

83 ............................................................. Social services.

84 ............................................................. Museums, art galleries, & botanical & zoological gardens

86 ............................................................. Membership organizations.

87 ............................................................. * Engineering, accounting, research, management, & related services.

88 ............................................................. Private households.

89 ............................................................. * Miscellaneous services.

III. Benchmarking Methodology

DOC’s methodology is designed to

ensure that the price adjustments

authorized by the reforms are narrowly

tailored to remedy discrimination. The

methodology includes four steps. First,

DOC identified firms that are ‘‘ready

and willing’’ to supply the federal

government. Second, DOC calculated

the federal government’s utilization of

each ready and willing firm as the FY

1996 net contract obligations awarded

by federal agencies to each ready and

willing firm. Third, DOC estimated the

capacity of each ready and willing firm

to supply the federal government.

Finally, DOC compared SDB shares of

utilization and capacity held by ready

and willing firms in each Contracting

Arena 1 and recommended that the price

evaluation adjustments be implemented

where SDB share of industry utilization

falls short of SDB share of industry

capacity.

A. Data

DOC set four major criteria for

choosing the data needed to estimate the

benchmark limitations:

• The data should be as current as

possible;

• The data should include

information on a large number of firms,

including SDBs;

• The data should identify firms that

are ready and willing to supply the

federal government;

• The data should permit the direct

comparison of capacity and utilization

for the same year.

No existing data sets, such as the

Survey of Minority-Owned Business

Enterprises (conducted by the U.S.

Bureau of the Census), were designed to

meet these criteria. Consequently, DOC

identified three sets of firms as ready

and willing to supply the federal

government in FY 1996.2 These sets are:

1. Bidders from a sample of

competitive procurements (over

$25,000) in FY 1996. DOC implemented

a survey of federal contracting officers,

who were asked to identify the firms

that bid in a random sample of 16,616

procurements (the survey had a

response rate of 76 percent). The sample

of procurements was drawn from a

sampling frame consisting of all new,

competitive, multi-bid contracts

awarded by major federal agencies.3 The

sampling frame was extracted from the

Federal Procurement Data System

(FPDS) for prime contract actions worth

more than $25,000.4 The sampling frame
Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Notices 35717

5Firms listed under GSA and VA schedules in FY

1996 and that did not appear elsewhere in the FY

1996 data were not included in DOC’s analysis;

total orders under these schedules accounted for

only 1.6 percent of contract awards greater than

$25,000 in FY 1996. DOC found that omitting these

firms had no effect on its findings.

6Competitive contracts were sampled without

replacement for purposes of collecting data on

bidders, so the probability of selecting one contract

is independent of the probability of selecting

another. However, since many firms bid for more

than one contract, bidders were sampled with

replacement.

7Some firms in the Ready and Willing Data Set

did not consistently identify their SDB status. DOC

based its decision on which SDB designation to

accept as follows:

• All 8(a) certified firms were assumed to be

SDBs;

• If a firm was not 8(a) certified, then it was

considered SDB if it self-certified as SDB on any

offer in the bidders’ sample;

• If a firm was in neither the 8(a) certified data

set nor in the bidders’ data set, then its SDB status

was assumed to be the most frequently appearing

status that appeared for the firm in the FPDS.

8More precisely, each firm’s age was derived

from a variable in the SSEL that indicated the year

that the TIN first appeared in the SSEL, the earliest

effective year being 1975, when Census first began

keeping track of when firms appeared in the data

set.

9Any estimates that used SSEL data were subject

to the Census Bureau’s Title 13 disclosure rules and

must be accompanied by this standard notice:

‘‘The research described in this memorandum

was conducted while the authors were research

associates at the Center for Economic Studies, U.S.

Bureau of the Census. Research results and

conclusions expressed are those of the authors and

do not necessarily indicate concurrence by the

Bureau of the Census or the Center for Economic

Studies.’’

was stratified by the two, three, or fourdigit Standard Industrial Classification

(SIC) codes corresponding to the major

activity covered by each contract. For

SIC 15, SIC 16 and SIC 17 (i.e.,

construction industries), the sampling

frame was further stratified by the nine

multi-state Census Divisions in which

the contractor was located. Each

sampled contract had a sample weight

equal to the reciprocal of its probability

of being sampled. All firms responding

to the solicitation resulting in the

contract in the sample were included in

the resulting bidders’ data set.

2. All firms that won all other types

of new contracts (over $25,000) in FY

1996, i.e., firms identified in the FY

1996 FPDS that were the sole bidder on

new, competitive contracts, and firms

awarded new contracts in FY 1996

through noncompetitive contracting.5

3. All firms certified as active and

eligible for 8(a) contracts by the Small

Business Administration in FY 1996,

whether or not the firms won new

contracts in FY 1996.

To prevent duplication, DOC matched

the three data sets by the firms’

Taxpayer Identification Numbers and

the Contracting Arenas in which they

participated in federal contracting. Each

firm that appeared in data sets (2) or (3)

was given a sample weight of 1.0, as

these firms were sampled with

certainty. DOC recomputed the sample

weights for each firm that appeared

more than once in data set (1), but not

in data sets (2) and (3), as the inverse

of the joint probability of being selected,

where the probability of each

solicitation that resulted in a contract

being selected was independent.6 The

resulting ‘‘Ready and Willing Data Set’’

had no firms with duplicate Taxpayer

Identification Numbers in the same

Contracting Arena.7

DOC then matched the firms in the

Ready and Willing Data Set by their

Taxpayer Identification Numbers to data

on firm age,8 annual payroll, and forprofit status for all payroll taxpaying

legal entities included in the Census

Bureau’s 1995 Standard Statistical

Establishment List (SSEL), which

consists of all establishments in the

United States. The SSEL was also used

to fill in the state where construction

firms were located, if the Ready and

Willing Data Set was missing that

information.9

B. Computing SDB Share of Utilization

DOC matched firms in the Ready and

Willing Data Set to the FPDS, by their

Taxpayer Identification Numbers and

Contracting Arenas to obtain the total

net contract obligations actually

awarded (‘‘utilization’’) to these firms in

FY 1996. The resulting data set is called

the ‘‘Utilization Data Set.’’ DOC then

computed the SDB share of utilization

in a Contracting Arena by dividing the

weighted sum of utilization of SDB

firms in the Contracting Arena by the

weighted sum of utilization of all firms

the Contracting Arena (regardless of

SDB status), where the weights were the

sample weights in the Ready and

Willing Data Set.

C. Estimating SDB Share of Capacity

DOC defined a firm’s capacity to

fulfill federal contracts as the geometric

mean value of federal contracting work

a contractor of a given size and age

handles, in a given Contracting Arena.

The method for estimating capacity is as

follows:

1. Using the Utilization Data Set, the

natural logarithm of utilization was

regressed on the following variables for

for-profit firms in each Contracting

Arena with positive utilization:

• A constant term;

• Firm age in 1996 (measured as the

natural logarithm of number of years

since the firm first appeared in the

SSEL);

• A dummy variable if the firm first

appeared in the SSEL before 1975;

• The natural logarithm of 1995

payroll (measured in thousands of

dollars);

• Interaction terms between the

natural logarithm of payroll and the two

age variables;

• A dummy variable if the firm

certified that it met the Small Business

Administration’s definition of a small

business in that Contracting Arena.

2. Using the Utilization Data Set, the

mean natural logarithm of utilization

was computed separately for two groups

of firms in each Contracting Arena:

• Firms missing one or more of the

regressors listed in step 1 above;

• Non-profit and government

establishments.

This was done so that we would not

have to drop these firms from our

analysis and possibly bias our estimates.

Not-for-profit and government entities

do not fit well into our basic regression

model, since payroll data are probably

not a true measure of resource limits for

a government establishment and

because non-profit organizations may

behave differently from for-profit firms

participating in federal contracting.

3. The mean natural logarithm of

utilization for firms of a given size and

age was estimated for each of the forprofit firms with complete data in the

Ready and Willing Data Set by

computing their predicted utilization

using the regression coefficients

estimated in step 1 above and the

corresponding characteristics of ready

and willing firms (i.e., their payroll, age,

and small business status).

4. The mean natural logarithm of

utilization for profit-making firms with

missing data and for non-profit/

government entities in the Ready and

Willing Data Set was set equal to the

corresponding means computed in step

2 above.

5. The estimates of mean natural

logarithm of utilization were

exponentiated to convert them to dollar

amounts; these were each firm’s

‘‘capacity’’ to fulfill federal contracts.

6. Weighted sums of the capacity

estimates were then computed for SDBs

and for all firms in each Contracting

Arena, where the weights were the

sample weights described in section

III.A. above.

7. The benchmark limitations (i.e.,

SDB share of industry capacity held by

firms ready and willing to fulfill federal

contracts) in each Contracting Arena is

equal to the ratio of the weighted sum

of SDB capacities to the weighted sum

of capacities of all firms in the

Contracting Arena.
35718 Federal Register / Vol. 63, No. 125 /Tuesday, June 30, 1998 / Notices

10 In effect, the benchmarking methodology

measures gaps in contracting awards to SDBs that

are unrelated to size and age differences with nonSDBs. The methodology does not attempt to

estimate SDB share of industry capacity to fulfill

federal contracts in the absence of all current and

past discrimination. In other words, to the extent

that differences in size, age, or number of firms

reflect discrimination against small, disadvantaged

businesses, this analysis does not take direct

account of such discrimination, which may be

substantial.

In this way, DOC’s method for

estimating capacity converts the number

of ready and willing firms that contract

with the federal government to aggregate

expected value of the amount (in

dollars) of federal contracting that ready

and willing firms potentially could

fulfill. The method adjusts raw firm

counts to reflect observable

characteristics widely believed to be

associated with the quantity of federal

contracting work that a firm is able to

manage.

IV. Estimating the Size of the Price

Evaluation Adjustment

Based on the Defense Department’s

experience with its price evaluation

adjustment, DOC determined that a

price evaluation adjustment of ten

percent would not raise the SDB share

of utilization above the SDB share of

capacity held by firms ready and willing

to fulfill federal contracts in any

industry (and regions, in the case of the

construction sector). Accordingly, DOC

determined that there were no

industries (and regions, in the case of

the construction sector) where a price

evaluation adjustment greater than 0

percent and less than ten percent would

be appropriate.

V. Basis for DOC’s Determinations

DOC compared the benchmark

limitations for each Contracting Arena

to the SDB shares of actual utilization in

each Contracting Arena. DOC

determined that a price adjustment be

used in those Contracting Arenas where

it can be shown that SDBs have a greater

share of capacity than the federal

government is using, i.e., where the

benchmark limitations exceed SDB

shares of actual utilization.10

[FR Doc. 98–17157 Filed 6–26–98; 8:45 am]

BILLING CODE 3110–01–P