Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44249 

DEPARTMENT OF DEFENSE 

GENERAL SERVICES 

ADMINISTRATION 

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION 

48 CFR Parts 19, 42, and 52 

[FAC 2021–07; FAR Case 2019–004; Item 

IV; Docket No. FAR–2019–0030, Sequence 

No. 1] 

RIN 9000–AN87 

Federal Acquisition Regulation: Good 

Faith in Small Business 

Subcontracting 

AGENCY: Department of Defense (DoD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA). 

ACTION: Final rule. 

SUMMARY: DoD, GSA, and NASA are 

issuing a final rule amending the 

Federal Acquisition Regulation to 

implement a section of the National 

Defense Authorization Act for Fiscal 

Year 2017, which requires examples of 

failure to make good faith efforts to 

comply with a small business 

subcontracting plan. 

DATES: Effective September 10, 2021. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Dana Bowman, Procurement Analyst, at 

202–803–3188, or by email at 

dana.bowman@gsa.gov, for clarification 

of content. For information pertaining to 

status or publication schedules, contact 

the Regulatory Secretariat at 202–501– 

4755 or GSARegSec@gsa.gov. Please cite 

FAC 2021–07, FAR Case 2019–004. 

SUPPLEMENTARY INFORMATION: 

I. Background 

DoD, GSA, and NASA published a 

proposed rule on June 3, 2020, at 85 FR 

34155, to implement section 1821 of the 

National Defense Authorization Act 

(NDAA) for Fiscal Year (FY) 2017 

(section 1821(c) of Pub. L. 114–328; 15 

U.S.C. 637 note). Section 1821 requires 

the Small Business Administration 

(SBA) to amend its regulations to 

provide examples of activities that 

would be considered a failure to make 

a good faith effort to comply with a 

small business subcontracting plan. 

SBA issued a final rule at 84 FR 65647, 

dated November 29, 2019, to implement 

section 1821 of the NDAA for FY 2017. 

In its final rule, SBA amended 13 CFR 

125.3(d)(3) to provide guidance on 

evaluating whether the prime contractor 

made a good faith effort to comply with 

its small business subcontracting plan 

and a list of examples of activities 

reflective of a failure to make a good 

faith effort. 

Additionally, SBA revised 13 CFR 

125.3(c)(1)(iv) to require that prime 

contractors with commercial 

subcontracting plans include indirect 

costs in their subcontracting goals. 

Other than small business concerns that 

have a commercial subcontracting plan 

report on performance through a 

summary subcontract report (SSR). Prior 

to the publication of its final rule, SBA’s 

regulations required that contractors 

using a commercial subcontracting plan 

must include all indirect costs in their 

SSRs, but did not require these 

contractors to include indirect costs in 

their subcontracting goals, which led to 

inconsistencies when comparing the 

data reported in the SSR to the goals in 

the commercial subcontracting plan. 

Small business subcontracting plans 

are required from large prime 

contractors when a contract is expected 

to exceed $750,000 ($1.5 million for 

construction) and has subcontracting 

possibilities. FAR 19.704 lists the 

elements of the plan, which include the 

contractor’s goals for subcontracting to 

small business concerns and a 

description of the efforts the contractor 

will make to ensure that small business, 

veteran-owned small business, servicedisabled veteran-owned small business, 

HUBZone small business, small 

disadvantaged business, and womenowned small business concerns have an 

equitable opportunity to compete for 

subcontracts. Failure to make a good 

faith effort to comply with the plan may 

result in the assessment of liquidated 

damages per FAR 52.219–16, Liquidated 

Damages—Subcontracting Plan. 

This final FAR rule requires that all 

indirect costs, with certain exceptions, 

are included in commercial plans and 

SSRs. 

FAR 19.705–7 contains examples of a 

good faith effort, and examples of a 

failure to make a good faith effort. 

Four respondents submitted public 

comments in response to the proposed 

rule. 

II. Discussion and Analysis 

The Civilian Agency Acquisition 

Council and the Defense Acquisition 

Regulations Council (the Councils) 

reviewed the public comments in the 

development of the final rule. A 

discussion of the comments received 

and any changes made to the rule as a 

result of the public comments are 

provided as follows: 

A. Summary of Significant Changes 

From the Proposed Rule 

There are no changes made to the 

final rule. 

B. Analysis of Public Comments 

1. Clarify Applicability to Subcontracts 

for Commercial Items and Commercially 

Available Off-the-Shelf (COTS) Items 

Comment: One respondent 

commented that the rule should clarify 

that the ‘‘good faith’’ requirement is not 

applicable to subcontracts for 

commercial and COTS items under 

prime contracts. The respondent 

commented that the proposed rule does 

not address FAR 52.219–9(j), which 

states that subcontracting plans are not 

required from subcontractors when the 

prime contract contains the clause at 

52.212–5, Contract Terms and 

Conditions Required to Implement 

Statutes or Executive Orders— 

Commercial Items, or when the 

subcontractor provides a commercial 

item subject to the clause at 52.244–6, 

Subcontracts for Commercial Items, 

under a prime contract. 

Response: This rule does not revise 

the conditions for when a 

subcontracting plan is required. If a 

subcontracting plan is not required, 

then the examples of activities that 

would be considered a failure to make 

a good faith effort to comply with a 

small business subcontracting plan are 

not applicable. No changes were made 

to the final rule as a result of this 

comment. 

2. Material Breach 

a. FAR Language Broader Than SBA 

Language 

Comment: One respondent stated that 

the proposed FAR language at 19.705– 

7(d) is much broader than the SBA final 

rule and is unclear on whether 

‘‘material breach’’ refers to the 

subcontracting plan or a breach of the 

contract itself. 

Response: FAR 19.705–5(a)(5) 

requires that the subcontracting plan 

become a ‘‘material part of the contract 

upon award.’’ The final rule text at FAR 

19.705–7(d), similar to the SBA final 

rule, cites FAR 52.219–16, Liquidated 

Damages—Subcontracting Plan, which 

provides the corrective actions available 

to all Federal Government contracting 

officers when a contractor fails to make 

a good faith effort to comply with the 

subcontracting plan, while also giving 

consideration to other Federal 

contracting regulations. In this context, 

a failure to make a good faith effort to 

comply with a subcontracting plan is a 

material breach, sufficient for the 

assessment of liquidated damages, and 

also for other remedies the Government 

may have. No changes were made to the 

final rule as a result of this comment. 


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44250 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

b. Recommended Language To Be 

Added to Final Rule 

Comment: One respondent requested 

the proposed FAR language at 19.705– 

7(d) include language to indicate that 

the contractor has an opportunity to 

rebut and appeal before a determination 

of noncompliance is rendered and 

provided recommended text. 

Response: The clause at FAR 52.219– 

16, Liquidated Damages— 

Subcontracting Plan, which is cited in 

proposed FAR text 19.705–7(d), 

specifically 52.219–16(c), allows the 

contractor an opportunity to 

demonstrate what good faith efforts 

have been made and to discuss the 

matter, before the contracting officer’s 

final decision. No changes were made to 

the final rule as a result of this 

comment. 

3. Clarifications 

a. Ensure Consistency Between FAR 

52.219–16 and Proposed FAR 19.705– 

7(b)(2) 

Comment: One respondent 

recommended that to remain consistent, 

the proposed language at FAR 19.705– 

7(b)(2) should either include the 

language contained in 52.219–16 or 

include references to the intent of 

52.219–16, as the examples provided at 

FAR 19.705–7(b)(2) may occur without 

willful or intentional behavior. The 

respondent also recommended that 

intent and examples should be read 

together providing that an occurrence of 

the examples without intent would not 

constitute a violation. Specifically, 

failure to make a good faith effort must 

meet the ‘‘willful or intentional’’ 

standard. The respondent also provided 

various reasons why the FAR should 

make it clear that an occurrence of the 

examples without intent would not 

constitute a violation. 

Response: This final rule is 

implementing current SBA regulation. 

SBA’s language at 13 CFR 125.3(d)(3) 

provides guidance on evaluating 

whether the prime contractor made a 

good faith effort to comply with its 

small business subcontracting plan. 

This language parallels the language in 

SBA’s rule providing contracting 

officers with examples to consider, in 

the context of the contractor’s total 

effort, as possible indicators of a failure 

to make a good faith effort. SBA’s rule 

does not reference the ‘‘willful and 

intentional’’ language. The FAR text 

will not be revised to incorporate the 

requested language as the ‘‘willful and 

intentional’’ language already appears in 

the definition of ‘‘failure to make a good 

faith effort to comply with the 

subcontracting plan’’ at both FAR 

19.701 and in the clause at FAR 52.219– 

16. No changes were made to the final 

rule as a result of this comment. 

b. Clarify the Intent of the Proposed 

Language at FAR 19.705–7(b)(2)(vi) 

Comment: One respondent stated FAR 

19.705–7(b)(2)(vi), as written, could be 

misinterpreted to hold a lower-tier 

contractor to the terms of a prime 

contractor’s contract with the 

Government and recommended a 

revision to provide the intent of the text 

is to ensure a contractor pays its small 

business subcontractors in accordance 

with the terms of their contract with the 

small business. 

Response: The current text states, 

‘‘Failure to pay small business 

subcontractors in accordance with the 

terms of the contract with the prime 

contractor;’’ and provides that the intent 

pertains to the subcontractor’s contract 

with the prime contractor. The final rule 

FAR text will not be revised to include 

the recommended text. 

c. Clarify Intent of FAR 19.705– 

7(b)(2)(vii) 

Comment: One respondent stated that 

the language at FAR 19.705–7(b)(2)(vii) 

should be revised to expressly require 

prime contractors to attend training as a 

remedy to any performance review 

findings. The respondent further stated 

that this is necessary given that a failure 

to attend the training offered by the 

Government could be perceived as a 

failure to make a good faith effort. The 

respondent provided recommended 

revisions to 19.705–7(b)(2)(vii). 

Response: The respondent’s 

interpretation of the language at FAR 

19.705–7(b)(2)(vii) is correct. If a 

contractor does not either correct 

substantiated findings or participate in 

subcontracting plan management 

training offered by the Government, it 

could be perceived by the contracting 

officer as a failure to make a good faith 

effort. This is not all inclusive of failure 

to make a good faith effort, but is one 

of many instances and examples used to 

show a lack of good faith effort on 

behalf of the prime contractor. 

Additionally, the contracting officer has 

the choice of requiring or 

recommending other corrective 

remedies as deemed necessary. The 

respondent’s recommended language is 

more restrictive by suggesting ‘‘and’’ 

instead of ‘‘or’’ as written in the SBA 

rule. The final rule FAR text will not be 

revised to include the recommended 

text. 

d. Clarify Applicability to Contracts at 

or Below the Simplified Acquisition 

Threshold 

Comment: One respondent stated that 

the preamble to the proposed rule 

indicates that the FAR Council is 

considering expanding the scope of the 

rule to include contracts at or below the 

simplified acquisition threshold (SAT) 

and recommended that the final FAR 

rule under this case should specify that 

it does not apply to contracts at or 

below the SAT. The respondent further 

stated that contracts at or below the SAT 

must be exempt from any policy or 

regulatory requirements pertaining to 

Small Business Plans. 

Response: Section 8(d) of the Small 

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

subcontracting plans only for 

acquisitions valued above $750,000 

($1.5 million for construction contracts). 

As stated in section III of this preamble, 

the requirements of section 1821 of the 

NDAA for FY 2017 (Pub. L. 114–328; 15 

U.S.C 637 note) do not apply to 

contracts at or below the SAT. 

e. Clarify Intent of FAR 19.705– 

7(b)(1)(v) 

Comment: One respondent stated that 

the language at FAR 19.705–7(b)(1)(v) 

does not make clear how a contracting 

officer would make a determination that 

a contractor has ‘‘negotiated in good 

faith with interested small business.’’ 

The respondent also states that it is not 

clear how a contractor would negotiate 

with a small business that is merely 

interested in participating as a 

subcontractor. 

Response: The language at FAR 

19.705–7(b)(1)(v) is broadly written, as 

the intent is not to restrict or limit the 

contracting officer’s authority or ability 

to determine the prime contractor’s 

effort to negotiate in good faith. No 

changes were made to the FAR final rule 

as a result of this comment. 

4. Outside the Scope of This Rule 

Comment: One respondent had no 

issue with the proposed changes and 

clarifications in the language (FAR text) 

and agreed that the requirements should 

be consistent. However, the respondent 

disagreed with commercial 

subcontracting plans allowing large 

businesses to ‘‘capture and be credited 

for small dollars spent’’ that have 

nothing to do with the specific awarded 

Federal contract. The respondent 

recommended a maximum cap 

proposed at 0.5 percent to the large 

business and that any remaining credit 

or subcontracting expenditure allowed 

be with the small business directly 

involved and subcontracted to the 


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specific awarded Federal contract. The 

respondent further reiterated the 

original intent of the subcontracting law 

was to encourage large business primes 

to work and subcontract with small 

businesses in support of the Federal 

contract awarded and not to receive 

credit for unrelated work. Another 

respondent acknowledged the 

importance of prime contractors making 

a good faith effort to comply with SBA’s 

small business subcontracting plan. The 

respondent further stated that the 

country is in the midst of a deadly 

pandemic and offered additional 

political commentary irrelevant to the 

subject FAR case. 

Response: The comments are outside 

the scope of this rule. The intent of this 

rule is to provide guidance on 

evaluating whether a prime contractor 

made a good faith effort to comply with 

its small business subcontracting plan 

and to provide a list of examples of 

activities reflective of a failure to make 

a good faith effort. Additionally, this 

rule is amending the FAR to require that 

all indirect costs, minus certain 

exceptions, are included in both 

commercial plans and summary 

subcontract reports. 

III. Applicability to Contracts at or 

Below the Simplified Acquisition 

Threshold (SAT) and for Commercial 

Items, Including Commercially 

Available Off-the-Shelf (COTS) Items 

This rule implements a statutory 

requirement to provide examples of 

activities that would be considered a 

failure to make a good faith effort to 

comply with a small business 

subcontracting plan. The Federal 

Acquisition Regulatory Council (FAR 

Council) does not intend to apply the 

requirements of section 1821 of the 

NDAA for FY 2017 (Pub. L. 114–328; 15 

U.S.C 637 note) to contracts at or below 

the SAT, but intends to apply those 

requirements to contracts for the 

acquisition of commercial items, 

including COTS items. The clauses at 

FAR 52.219–9 and 52.219–16 are 

revised by this rule. 

A. Applicability to Contracts at or Below 

the SAT 

Pursuant to 41 U.S.C. 1905, a 

provision of law is not applicable to 

acquisitions at or below the SAT unless 

the law (i) contains criminal or civil 

penalties; (ii) specifically refers to 41 

U.S.C. 1905 and states that the law 

applies to acquisitions at or below the 

SAT; or (iii) the FAR Council makes a 

written determination that it is not in 

the best interest of the Federal 

Government to exempt contracts or 

subcontracts at or below the SAT. If 

none of these conditions are met, the 

FAR is required to include the statutory 

requirement(s) on a list of provisions of 

law that are inapplicable to acquisitions 

at or below the SAT. 

The purpose of this rule is to 

implement section 1821 of the NDAA 

for FY 2017. Section 1821 requires SBA 

to provide examples of activities that 

would be considered a failure to make 

a good faith effort to comply with a 

small business subcontracting plan. 

The FAR Council does not intend to 

apply this rule to acquisitions at or 

below the SAT. 

B. Applicability to Contracts for the 

Acquisition of Commercial Items 

Pursuant to 41 U.S.C. 1906, 

acquisitions of commercial items (other 

than acquisitions of COTS items, which 

are addressed in 41 U.S.C. 1907) are 

exempt from a provision of law unless 

the law (i) contains criminal or civil 

penalties; (ii) specifically refers to 41 

U.S.C. 1906 and states that the law 

applies to acquisitions of commercial 

items; or (iii) the FAR Council makes a 

written determination and finding that 

it would not be in the best interest of the 

Federal Government to exempt contracts 

for the procurement of commercial 

items from the provision of law. If none 

of these conditions are met, the FAR is 

required to include the statutory 

requirement(s) on a list of provisions of 

law that are inapplicable to the 

acquisition of commercial items. 

The purpose of this rule is to 

implement section 1821 of the NDAA 

for FY 2017 and SBA’s implementing 

regulations. Section 1821 requires SBA 

to provide examples of activities that 

would be considered a failure to make 

a good faith effort to comply with a 

small business subcontracting plan. 

Both the FAR and SBA’s regulations 

require contractors with small business 

subcontracting plans—including 

commercial plans—to make a good faith 

effort to comply with the plans. SBA’s 

final rule did not exempt the acquisition 

of commercial items. 

Section 1821 furthers the 

Administration’s goal of supporting 

small business. It advances the interests 

of small business subcontractors by 

promoting good faith efforts by large 

prime contractors to find and use small 

business concerns as subcontractors, 

thereby providing valuable 

opportunities for small business 

concerns. 

For these reasons, it is in the best 

interest of the Federal Government to 

apply the requirements of this rule to 

the acquisition of commercial items. 

C. Applicability to Contracts for the 

Acquisition of COTS Items 

Pursuant to 41 U.S.C. 1907, 

acquisitions of COTS items will be 

exempt from a provision of law unless 

the law (i) contains criminal or civil 

penalties; (ii) specifically refers to 41 

U.S.C. 1907 and states that the law 

applies to acquisitions of COTS items; 

(iii) concerns authorities or 

responsibilities under the Small 

Business Act (15 U.S.C. 644) or bid 

protest procedures developed under the 

authority of 31 U.S.C. 3551 et seq., 10 

U.S.C. 2305(e) and (f), or 41 U.S.C. 3706 

and 3707; or (iv) the Administrator for 

Federal Procurement Policy makes a 

written determination and finding that 

it would not be in the best interest of the 

Federal Government to exempt contracts 

for the procurement of COTS items from 

the provision of law. If none of these 

conditions are met, the FAR is required 

to include the statutory requirement(s) 

on a list of provisions of law that are 

inapplicable to the acquisition of COTS 

items. 

The purpose of this rule is to 

implement section 1821 of the NDAA 

for FY 2017 and SBA’s implementing 

regulations. Section 1821 requires SBA 

to provide examples of activities that 

would be considered a failure to make 

a good faith effort to comply with a 

small business subcontracting plan. 

Both the FAR and SBA’s regulations 

require contractors with small business 

subcontracting plans—including 

commercial plans—to make a good faith 

effort to comply with the plans. SBA’s 

final rule did not exempt the acquisition 

of COTS items. 

Section 1821 furthers the 

Administration’s goal of supporting 

small business. It advances the interests 

of small business subcontractors by 

promoting good faith efforts by large 

prime contractors to find and use small 

business concerns as subcontractors, 

thereby providing valuable 

opportunities for small business 

concerns. 

For these reasons, it is in the best 

interest of the Federal Government to 

apply the requirements of this rule to 

the acquisition of COTS items. 

IV. Expected Impact of the Rule 

This rule provides examples of 

activities that contracting officers may 

consider when evaluating whether the 

prime contractor made a good faith 

effort to comply with its small business 

subcontracting plan. The contracting 

officers also have consistent and 

uniform examples to identify and hold 

large prime contractors accountable for 

failing to make a good faith effort to 


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44252 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

comply with their subcontracting plans. 

Encouraging large prime contractors to 

meet their subcontracting goals may 

have a positive economic impact on any 

small business entity that wishes to 

participate in Federal procurement as a 

subcontractor. 

The final rule also requires prime 

contractors with commercial 

subcontracting plans to include indirect 

costs, with certain exceptions, in their 

subcontracting goals. This will ensure 

that the data reported in the summary 

subcontract report is consistent with the 

goals in the commercial subcontracting 

plan. 

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, dated September 30, 1993. 

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, 

GSA, and NASA will send the rule and 

the ‘‘Submission of Federal Rules Under 

the Congressional Review Act’’ form to 

each House of the Congress and to the 

Comptroller General of the United 

States. A major rule cannot take effect 

until 60 days after it is published in the 

Federal Register. The Office of 

Information and Regulatory Affairs 

(OIRA) in the Office of Management and 

Budget has determined that this is not 

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

VII. Regulatory Flexibility Act 

DoD, GSA, and NASA have prepared 

a Final Regulatory Flexibility Analysis 

(FRFA) consistent with the Regulatory 

Flexibility Act, 5 U.S.C. 601–612. The 

FRFA is summarized as follows: 

The objective of this final rule is to 

implement section 1821 of the NDAA for FY 

2017 and SBA’s implementing regulations, 

which provide examples of activities that 

would be considered a failure to make a good 

faith effort to comply with a small business 

subcontracting plan. SBA amended 13 CFR 

125.3(d)(3) to provide guidance on evaluating 

whether the prime contractor made a good 

faith effort to comply with its small business 

subcontracting plan and a list of examples of 

activities reflective of a failure to make a 

good faith effort. 

Additionally, SBA amended 13 CFR 

125.3(c)(1)(iv) to require that large prime 

contractors with commercial subcontracting 

plans include indirect costs in the 

commercial subcontracting plan goals. Large 

prime contractors that have a commercial 

subcontracting plan report on performance 

through a Summary Subcontract Report 

(SSR) in the Electronic Subcontracting 

Reporting System (eSRS). The FAR currently 

requires—as SBA’s regulations required prior 

to publication of SBA’s final rule—that a 

contractor using a commercial subcontracting 

plan include all indirect costs in its SSR. 

However, these regulations did not require 

contractors to include indirect costs in their 

commercial subcontracting plan goals, which 

leads to inconsistencies when comparing the 

data reported in the SSR to the goals in the 

commercial subcontracting plan. 

There were no significant issues raised by 

the public comments in response to the 

initial regulatory flexibility analysis. 

This rule may have a positive economic 

impact on any small entity that wishes to 

participate in Federal procurement as a 

subcontractor. 

DoD, GSA, and NASA do not expect this 

rule to have a significant economic impact on 

a substantial number of small entities. This 

rule provides guidance to the contracting 

officer on evaluating whether the prime 

contractor made a good faith effort to comply 

with its small business subcontracting plan 

and a list of examples of activities reflective 

of a failure to make a good faith effort. 

By providing examples of a failure to make 

a good faith effort to comply with small 

business subcontracting plans, the FAR will 

enable contracting officers to determine more 

easily whether large prime contractors have 

made a good faith effort to comply with their 

subcontracting plans and to hold large prime 

contractors accountable for failing to make a 

good faith effort to comply with their 

subcontracting plans. More diligence in 

developing and meeting subcontracting goals 

on the part of large prime contractors could 

have a positive impact of giving small 

business concerns more opportunities to 

subcontract on Federal contracts. 

Data from the Federal Procurement Data 

System for fiscal years 2018 through 2020 

indicate that there were 7,656 entities with 

30,414 new awards that required 

subcontracting plans. Of the 30,414 new 

awards, 18 percent or 5,399 required 

commercial subcontracting plans. 

Additionally, 31 percent or 2,318 of the 7,656 

unique awardees required commercial 

subcontracting plans. According to the 

Federal Funding Accountability and 

Transparency Act Subaward Reporting 

System (FSRS), there are 19,596 unique 

entities who are subcontractors. 

Approximately 80 percent of the entities 

registered in the System for Award 

Management are small entities. Therefore, we 

estimate that 80 percent (15,677) of the 

subcontractors in FSRS are small entities. 

These small entities may benefit from this 

rule. 

This final rule requires a large prime 

contractor with a commercial subcontracting 

plan to include indirect costs in its 

subcontracting goals. The benefit of requiring 

that indirect costs be included in 

subcontracting goals in commercial 

subcontracting plans is that it will increase 

the small business subcontracting goal and 

thus, increase the amount of funds the prime 

contractor will subcontract to small business 

concerns, providing more opportunities for 

subcontract awards to small business 

concerns. 

This final rule does not include any new 

reporting, recordkeeping, or other 

compliance requirements for small entities. 

There are no known significant alternative 

approaches that would accomplish the stated 

objectives of the applicable statute. 

Interested parties may obtain a copy 

of the FRFA from the Regulatory 

Secretariat Division. The Regulatory 

Secretariat Division has submitted a 

copy of the FRFA to the Chief Counsel 

for Advocacy of the Small Business 

Administration. 

VIII. Paperwork Reduction Act 

The Paperwork Reduction Act (44 

U.S.C. 3501–3521) applies to this rule; 

however, these changes to the FAR do 

not impose additional information 

collection requirements to the 

paperwork burden previously approved 

under OMB Control Number 9000–0007, 

Subcontracting Plans. 

List of Subjects in 48 CFR Parts 19, 42, 

and 52 

Government procurement. 

William F. Clark, 

Director, Office of Government-wide 

Acquisition Policy, Office of Acquisition 

Policy, Office of Government-wide Policy. 

Therefore, DoD, GSA, and NASA 

amend 48 CFR parts 19, 42, and 52 as 

set forth below: 

■ 1. The authority citation for 48 CFR 

parts 19, 42, and 52 continues to read 

as follows: 

Authority: 40 U.S.C. 121(c); 10 U.S.C. 

chapter 137; and 51 U.S.C. 20113. 

PART 19—SMALL BUSINESS 

PROGRAMS 

■ 2. Amend section 19.704 by— 

■ a. In paragraph (a)(6) removing the 

phrase ‘‘subcontracting goals’’ and 

adding the phrase ‘‘subcontracting goals 

(for commercial plans, see paragraph (d) 

of this section)’’ in its place; 

■ b. Revising paragraph (d) introductory 

text; and 

■ c. In paragraph (d)(4) removing the 

phrase ‘‘one SSR’’ and adding the 

phrase ‘‘one SSR that includes all 

indirect costs, except as described in 

paragraph (d) of this section,’’ in its 

place. 


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The revision reads as follows: 

19.704 Subcontracting plan requirements. 

* * * * * 

(d) A commercial plan (as defined in 

19.701) is the preferred type of 

subcontracting plan for contractors 

furnishing commercial items. The 

subcontracting goals established for a 

commercial plan shall include all 

indirect costs with the exception of 

those such as the following: Employee 

salaries and benefits; payments for petty 

cash; depreciation; interest; income 

taxes; property taxes; lease payments; 

bank fees; fines, claims, and dues; 

original equipment manufacturer 

relationships during warranty periods 

(negotiated up front with the product); 

utilities and other services purchased 

from a municipality or an entity solely 

authorized by the municipality to 

provide those services in a particular 

geographical region; and philanthropic 

contributions. Once a contractor’s 

commercial plan has been approved, the 

Government shall not require another 

subcontracting plan from the same 

contractor while the plan remains in 

effect, as long as the product or service 

being provided by the contractor 

continues to meet the definition of a 

commercial item. The contractor shall— 

* * * * * 

19.705–4 [Amended] 

■ 3. In section 19.705–4 amend 

paragraph (c), in the fourth sentence, by 

removing the phrase ‘‘faith effort’’ and 

adding the phrase ‘‘faith effort (see 

19.705–7)’’ in its place. 

■ 4. Amend section 19.705–6 by 

revising paragraphs (g)(1), (h), and (i) to 

read as follows: 

19.705–6 Postaward responsibilities of the 

contracting officer. 

* * * * * 

(g) * * * 

(1) Assess whether the prime 

contractor made a good faith effort to 

comply with its small business 

subcontracting plan. See 19.705–7(b) for 

more information on the determination 

of good faith effort. 

* * * * * 

(h) Initiate action to assess liquidated 

damages in accordance with 19.705–7 

upon a recommendation by the 

administrative contracting officer, if one 

is assigned, or receipt of other reliable 

evidence to indicate that assessing 

liquidated damages is warranted. 

(i) Take action to enforce the terms of 

the contract upon receipt of a notice 

from the contract administration office 

under 19.706(f). 

* * * * * 

■ 5. Amend section 19.705–7 by— 

■ a. Revising the section heading; 

■ b. In paragraph (a)— 

■ i. Adding a paragraph heading; 

■ ii. Removing the phrase ‘‘small 

disadvantaged business’’ and adding the 

phrase ‘‘small disadvantaged business,’’ 

in its place; 

■ c. Revising paragraphs (b), (c), (d), and 

(e); 

■ d. Adding a paragraph heading to the 

introductory text of paragraph (f); 

■ e. Removing paragraph (g); and 

■ f. Redesignating paragraph (h) as 

paragraph (f)(5). 

The revisions and additions read as 

follows: 

19.705–7 Compliance with the 

subcontracting plan. 

(a) General. * * * 

(b) Determination of good faith effort. 

(1) In determining whether a contractor 

failed to make a good faith effort to 

comply with its subcontracting plan, a 

contracting officer must look to the 

totality of the contractor’s actions, 

consistent with the information and 

assurances provided in its plan. The fact 

that the contractor failed to meet its 

subcontracting goals does not, in and of 

itself, constitute a failure to make a good 

faith effort (see 19.701). For example, 

notwithstanding a contractor’s diligent 

effort to identify and solicit offers from 

any of the small business, veteranowned small business, service-disabled 

veteran-owned small business, 

HUBZone small business, small 

disadvantaged business, and womenowned small business concerns, factors 

such as unavailability of anticipated 

sources or unreasonable prices may 

frustrate achievement of the contractor’s 

subcontracting goals. The contracting 

officer may consider any of the 

following, though not all inclusive, to be 

indicators of a good faith effort: 

(i) Breaking out work to be 

subcontracted into economically 

feasible units, as appropriate, to 

facilitate small business participation. 

(ii) Conducting market research to 

identify potential small business 

subcontractors through all reasonable 

means, such as searching SAM, posting 

notices or solicitations on SBA’s 

SUBNet, participating in business 

matchmaking events, and attending 

preproposal 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 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. 

(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. 

(x) Although failing to meet the 

subcontracting goal in one 

socioeconomic category, exceeding the 

goal by an equal or greater amount in 

one or more of the other categories. 

(xi) Fulfilling all of the requirements 

of the subcontracting plan. 

(2) When considered in the context of 

the contractor’s total effort in 

accordance with its plan, the 

contracting officer may consider any of 

the following, though not all inclusive, 

to be indicators of a failure to make a 

good faith effort: 

(i) Failure to attempt through market 

research to identify, contact, solicit, or 

consider for contract award small 

business, veteran-owned small business, 

service-disabled veteran-owned small 

business, HUBZone small business, 

small disadvantaged business, or 

women-owned small business concerns, 

through all reasonable means including 

outreach, industry days, or the use of 

Federal systems such as SBA’s Dynamic 

Small Business Search or SUBNet 

systems. 

(ii) Failure to designate and maintain 

a company official to administer the 

subcontracting program and monitor 

and enforce compliance with the plan. 

(iii) Failure to submit an acceptable 

ISR, or the SSR, using the eSRS, or as 

provided in agency regulations, by the 

report due dates specified in 52.219–9, 

Small Business Subcontracting Plan. 

(iv) Failure to maintain records or 

otherwise demonstrate procedures 

adopted to comply with the plan 

including subcontracting flowdown 

requirements. 

(v) Adoption of company policies or 

documented procedures that have as 

their objectives the frustration of the 

objectives of the plan. 

(vi) Failure to pay small business 

subcontractors in accordance with the 


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44254 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

terms of the contract with the prime 

contractor. 

(vii) Failure to correct substantiated 

findings from Federal subcontracting 

compliance reviews or participate in 

subcontracting plan management 

training offered by the Government. 

(viii) Failure to provide the 

contracting officer with a written 

explanation if the contractor fails to 

acquire articles, equipment, supplies, 

services, or materials or obtain the 

performance of construction work as 

described in 19.704(a)(12). 

(ix) Falsifying records of subcontract 

awards to small business concerns. 

(c) Documentation of good faith effort. 

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 

comply with the requirements of its 

subcontracting plan, which includes 

meeting 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. 

(d) Notice of failure to make a good 

faith effort. If the contracting officer 

decides in accordance with paragraph 

(b) of this section 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 in accordance 

with 52.219–16, Liquidated Damages— 

Subcontracting Plan, specifying the 

material breach, which may be included 

in the contractor’s past performance 

information, 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. 

(e) Payment of liquidated damages. 

(1) If, after consideration of all the 

pertinent data, the contracting officer 

finds that the contractor failed to make 

a good faith effort to comply with its 

subcontracting plan, the contracting 

officer shall issue a final decision to the 

contractor to that effect and require the 

payment of liquidated damages in an 

amount stated. The contracting officer’s 

final decision shall state that the 

contractor has the right to appeal under 

the clause in the contract entitled 

Disputes. Calculations and procedures 

shall be in accordance with 52.219–16, 

Liquidated Damages—Subcontracting 

Plan. 

(2) 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. For calculations for 

commercial plans see paragraph (f) of 

this section. 

(3) Liquidated damages shall be in 

addition to any other remedies that the 

Government may have. 

(f) Commercial plans. * * * 

19.706 [Amended] 

■ 6. In section 19.706 amend paragraph 

(f) by removing the phrase 

‘‘subcontracting plan’’ and adding the 

phrase ‘‘subcontracting plan (see 

19.705–7(b) for more information on the 

determination of good faith effort)’’ in 

its place. 

PART 42—CONTRACT 

ADMINISTRATION AND AUDIT 

SERVICES 

■ 7. Amend section 42.1501 by 

redesignating paragraphs (a)(5) thru 

(a)(7) as paragraphs (a)(6) thru (a)(8) and 

adding a new paragraph (a)(5) to read as 

follows: 

42.1501 General. 

(a) * * * 

(5) Complying with the requirements 

of the small business subcontracting 

plan (see 19.705–7(b)); 

* * * * * 

PART 52—SOLICITATION PROVISIONS 

AND CONTRACT CLAUSES 

■ 8. Amend section 52.212–5 by 

revising the date of the clause and 

paragraphs (b)(17)(i), (b)(17)(v), and 

(b)(20) to read as follows: 

52.212–5 Contract Terms and Conditions 

Required to Implement Statutes or 

Executive Orders—Commercial Items. 

* * * * * 

Contract Terms and Conditions 

Required to Implement Statutes or 

Executive Orders—Commercial Items 

(SEP 2021) 

* * * * * 

(b) * * * 

ll(17)(i) 52.219–9, Small Business 

Subcontracting Plan (SEP 2021) (15 

U.S.C. 637(d)(4)). 

* * * * * 

ll(v) Alternate IV (SEP 2021) of 

52.219–9. 

* * * * * 

ll(20) 52.219–16, Liquidated 

Damages—Subcontracting Plan (SEP 

2021) (15 U.S.C. 637(d)(4)(F)(i)). 

* * * * * 

■ 9. Amend section 52.219–9 by— 

■ a. Revising the date of the clause; 

■ b. In paragraph (d)(2)(i) removing the 

word ‘‘subcontracts’’ and adding the 

phrase ‘‘subcontracts, including all 

indirect costs except as described in 

paragraph (g) of this clause,’’ in its 

place; 

■ c. Adding a new fifth sentence to 

paragraph (g); 

■ d. Revising the date of Alternate IV, 

and paragraph (d)(2)(i) of Alternate IV. 

The revised and added text reads as 

follows: 

52.219–9 Small Business Subcontracting 

Plan. 

* * * * * 

Small Business Subcontracting Plan 

(SEP 2021) 

* * * * * 

(g) * * * A Contractor authorized to 

use a commercial subcontracting plan 

shall include in its subcontracting goals 

and in its SSR all indirect costs, with 

the exception of those such as the 

following: Employee salaries and 

benefits; payments for petty cash; 

depreciation; interest; income taxes; 

property taxes; lease payments; bank 

fees; fines, claims, and dues; original 

equipment manufacturer relationships 

during warranty periods (negotiated up 

front with the product); utilities and 

other services purchased from a 

municipality or an entity solely 

authorized by the municipality to 

provide those services in a particular 

geographical region; and philanthropic 

contributions. * * * 

* * * * * 

Alternate IV (SEP 2021). * * * 

(d) * * * 

(2) * * * 

(i) Total dollars planned to be 

subcontracted for an individual 

subcontracting plan; or the Contractor’s 

total projected sales, expressed in 

dollars, and the total value of projected 

subcontracts to support the sales for a 

commercial plan, including all indirect 

costs, with the exception of those such 

as the following: Employee salaries and 

benefits; payments for petty cash; 

depreciation; interest; income taxes; 

property taxes; lease payments; bank 

fees; fines, claims, and dues; original 

equipment manufacturer relationships 

during warranty periods (negotiated up 

front with the product); utilities and 


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Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44255 

other services purchased from a 

municipality or an entity solely 

authorized by the municipality to 

provide those services in a particular 

geographical region; and philanthropic 

contributions; 

* * * * * 

■ 10. Amend 52.219–16 by— 

■ a. Revising the date of the clause; and 

■ b. In paragraph (b) in the second 

sentence removing the phrase ‘‘plan, 

established’’ and adding ‘‘plan (see 

19.705–7), established’’ in its place. 

The revision reads as follows: 

52.219–16 Liquidated Damages— 

Subcontracting Plan. 

* * * * * 

Liquidated Damages—Subcontracting 

Plan (SEP 2021) 

* * * * * 

[FR Doc. 2021–16366 Filed 8–10–21; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF DEFENSE 

GENERAL SERVICES 

ADMINISTRATION 

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION 

48 CFR Parts 42 and 52 

[FAC 2021–07; Item V; Docket No. FAR– 

2021–0052; Sequence No. 3] 

Federal Acquisition Regulation; 

Technical Amendments 

AGENCY: Department of Defense (DoD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA). 

ACTION: Final rule. 

SUMMARY: This document makes 

amendments to the Federal Acquisition 

Regulation (FAR) in order to make 

needed editorial changes. 

DATES: Effective September 10, 2021. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Lois Mandell, Regulatory Secretariat 

Division (MVCB), at 202–501–4755 or 

GSARegSec@gsa.gov. Please cite FAC 

2021–07, Technical Amendments. 

SUPPLEMENTARY INFORMATION: This 

document makes editorial changes to 48 

CFR parts 42 and 52. 

List of Subjects in 48 CFR Parts 42 and 

52 

Government procurement. 

William F. Clark, 

Director, Office of Government-wide 

Acquisition Policy, Office of Acquisition 

Policy, Office of Government-wide Policy. 

Therefore, DoD, GSA, and NASA 

amend 48 CFR parts 42 and 52 as set 

forth below: 

■ 1. The authority citation for 48 CFR 

parts 42 and 52 continues to read as 

follows: 

Authority: 40 U.S.C. 121(c); 10 U.S.C. 

chapter 137; and 51 U.S.C. 20113. 

PART 42—CONTRACT 

ADMINISTRATION AND AUDIT 

SERVICES 

42.709–0 through 42.709–6 [Redesignated 

as 42.709–1 through 42.709–7] 

■ 2. Redesignate sections 42.709–0 

through 42.709–6 as sections 42.709–1 

through 42.709–7. 

42.709–3 [Amended] 

■ 3. Amend newly redesignated section 

42.709–3 by— 

■ a. In paragraph (a)(1) removing 

‘‘42.709–1(a)’’ and adding ‘‘42.709–2(a)’’ 

in its place; 

■ b. In paragraph (a)(2) removing 

‘‘42.709–5’’ and adding ‘‘42.709–6’’ in 

its place; and 

■ c. In paragraph (b)(1) removing 

‘‘42.709–1(a)’’ and adding ‘‘42.709–2(a)’’ 

in its place. 

42.709–4 [Amended] 

■ 4. Amend newly designated section 

42.709–4 by— 

■ a. In the introductory text removing 

‘‘42.709–5’’ and adding ‘‘42.709–6’’ in 

its place; 

■ b. In paragraph (a) removing ‘‘42.709– 

1(a)(1)’’ and adding ‘‘42.709–2(a)(1)’’ in 

its place; and 

■ c. In paragraph (b) introductory text 

removing ‘‘42.709–1(a)(2)’’ and adding 

‘‘42.709–2(a)(2)’’ in its place. 

42.709–5 [Amended] 

■ 5. Amend newly designated section 

42.709–5 by removing from the 

introductory text ‘‘42.709–1(a)(1)(ii)’’ 

and adding ‘‘42.709–2(a)(1)(ii)’’ in its 

place. 

42.709–6 [Amended] 

■ 6. Amend newly designated section 

42.709–6 by— 

■ a. In the introductory text removing 

‘‘42.709–1(a)’’ and adding ‘‘42.709–2(a)’’ 

in its place; and 

■ b. In paragraph (b) removing 

‘‘42.709(b)’’ and adding ‘‘42.709–1(b)’’ 

in its place. 

PART 52—SOLICITATION PROVISIONS 

AND CONTRACT CLAUSES 

■ 7. Amend section 52.242–3 by— 

■ a. Removing from the prescription text 

‘‘42.709–6’’ and adding ‘‘42.709–7’’ in 

its place; 

■ b. Revising the date of the clause; 

■ c. Removing from paragraph (c) 

‘‘Subpart’’ and adding ‘‘subpart’’ in its 

place; and 

■ d. Removing from paragraph (g) 

‘‘42.709–5’’ and adding ‘‘42.709–6’’ in 

its place. 

The revision reads as follows: 

52.242–3 Penalties for Unallowable Costs. 

* * * * * 

Penalties for Unallowable Costs (SEP 

2021) 

* * * * * 

■ 8. Amend section 52.245–1 by— 

■ a. Revising the date of clause; and 

■ b. Removing paragraphs (j)(2)(iii)(A) 

through (G). 

The revision reads as follows: 

52.245–1 Government Property. 

* * * * * 

Government Property (SEP 2021) 

* * * * * 

[FR Doc. 2021–16367 Filed 8–10–21; 8:45 am] 

BILLING CODE 6820–EP–P 

DEPARTMENT OF DEFENSE 

GENERAL SERVICES 

ADMINISTRATION 

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION 

48 CFR Chapter 1 

[Docket No. FAR–2021–0051, Sequence 

No. 4] 

Federal Acquisition Regulation; 

Federal Acquisition Circular 2021–07; 

Small Entity Compliance Guide 

AGENCY: Department of Defense (DoD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA). 

ACTION: Small Entity Compliance Guide. 

SUMMARY: This document is issued 

under the joint authority of DoD, GSA, 

and NASA. This Small Entity 

Compliance Guide has been prepared in 

accordance with section 212 of the 

Small Business Regulatory Enforcement 

Fairness Act of 1996. It consists of a 

summary of the rules appearing in 

Federal Acquisition Circular (FAC) 

2021–07, which amends the Federal 

Acquisition Regulation (FAR). 


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