Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44233 

available to the program or component 

for which the ICT supply or service is 

being procured. 

(2) Fundamental alteration. When an 

agency determines that acquisition of 

ICT that conforms with all applicable 

ICT accessibility standards would result 

in a fundamental alteration in the nature 

of the ICT, such acquisition is required 

to conform only to the extent that 

conformance will not result in a 

fundamental alteration in the nature of 

the ICT. 

(3) Nonavailability of conforming 

commercial items. Where there are no 

commercial items that fully conform to 

the ICT accessibility standards, the 

agency shall procure the supplies or 

service available in the commercial 

marketplace that best meets the ICT 

accessibility standards consistent with 

the agency’s needs. 

(b) Alternative means of access. An 

agency shall provide individuals with 

disabilities access to and use of 

information and data by an alternative 

means to meet the identified needs 

when an exemption in paragraphs (a)(1), 

(2), or (3) of this section applies. 

(c) Documentation. When an 

exemption applies, the contracting 

officer shall obtain, as part of the 

requirements documentation, a written 

determination from the requiring 

activity explaining the basis for the 

exemption in paragraphs (a)(1), (2) or (3) 

of this section. This documentation 

shall be maintained in the contract file. 

(1) Undue burden. A determination of 

undue burden shall address why and to 

what extent compliance with applicable 

ICT accessibility standards constitutes 

an undue burden. 

(2) Fundamental alteration. A 

determination of fundamental alteration 

shall address the extent to which 

compliance with the applicable ICT 

accessibility standards would result in a 

fundamental alteration in the nature of 

the ICT. 

(3) Nonavailability of conforming 

commercial items. A determination of 

commercial items nonavailability shall 

include— 

(i) A description of the market 

research performed; 

(ii) A listing of the requirements that 

cannot be met; and 

(iii) The rationale for determining that 

the ICT to be procured best meets the 

ICT accessibility standards in 36 CFR 

1194.1, consistent with the agency’s 

needs. 

[FR Doc. 2021–16363 Filed 8–10–21; 8:45 am] 

BILLING CODE 6820–14–P 

DEPARTMENT OF DEFENSE 

GENERAL SERVICES 

ADMINISTRATION 

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION 

48 CFR Parts 19 and 52 

[FAC 2021–07; FAR Case 2016–011; Item 

II; Docket No. 2016–0011; Sequence No. 1] 

RIN 9000–AN35 

Federal Acquisition Regulation: 

Revision of Limitations on 

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 (FAR) to 

implement revised and standardized 

limitations on subcontracting, including 

the nonmanufacturer rule, that apply to 

small business concerns. 

DATES: Effective September 10, 2021. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Mahruba Uddowla, Procurement 

Analyst, at 703–605–2868 or by email at 

mahruba.uddowla@gsa.gov, for 

clarification of content. For information 

pertaining to status or publication 

schedules, contact the Regulatory 

Secretariat Division at 202–501–4755 or 

GSARegSec@gsa.gov. Please cite FAC 

2021–07, FAR Case 2016–011. 

SUPPLEMENTARY INFORMATION: 

I. Background 

DoD, GSA, and NASA published a 

proposed rule at 83 FR 62540 on 

December 4, 2018, to implement 

regulatory changes made by the Small 

Business Administration (SBA) in its 

final rule published in the Federal 

Register at 81 FR 34243 on May 31, 

2016, which became effective on June 

30, 2016. SBA’s final rule implements 

the statutory requirements of section 

1651 of the National Defense 

Authorization Act (NDAA) for Fiscal 

Year (FY) 2013 (15 U.S.C. 657s). Section 

1651 revised and standardized the 

limitations on subcontracting, including 

the nonmanufacturer rule, that apply to 

small business concerns under FAR part 

19. Twenty-nine respondents submitted 

comments on 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 and the 

changes made to the rule as a result of 

those comments are provided as 

follows: 

A. Summary of Significant Changes 

This final rule makes the following 

significant changes from the proposed 

rule: 

• The definition of ‘‘similarly situated 

entity’’. The definition of ‘‘similarly 

situated entity’’ is revised at FAR 19.001 

and in FAR clause 52.219–14, 

Limitations on Subcontracting. It now 

provides an example of entities having 

the same small business program status 

and to specify that the entity must be 

small under the size standard associated 

with the North American Industry 

Classification System (NAICS) code the 

prime contractor assigned to the 

subcontract. 

• Applicable dollar threshold. The 

final rule reflects the clarification that 

the nonmanufacturer rule and the 

limitations on subcontracting apply to 

set-asides and sole source awards made 

pursuant to subparts 19.8, 19.13, 19.14, 

and 19.15, as well as awards using the 

HUBZone price evaluation preference 

pursuant to subpart 19.13, regardless of 

dollar value. 

• HUBZone price evaluation 

preference. 

Æ Paragraph (e)(2) is added to FAR 

19.507, Solicitation provisions and 

contract clauses, to clarify that, in 

solicitations and contracts using the 

HUBZone price evaluation preference, 

the contracting officer shall insert the 

clause at FAR 52.219–14, Limitations on 

Subcontracting. Paragraph (h)(1)(ii)(B) is 

added to specify that the contracting 

officer shall insert the clause at FAR 

52.219–33, Nonmanufacturer Rule, in 

solicitations and contracts when the 

HUBZone price evaluation preference is 

used. For the FAR clauses at 52.219–14 

and 52.219–33, the prescription also 

states that the contracting officer shall 

not insert the clause in the resultant 

contract if the prospective contractor 

waived the use of the price evaluation 

preference or is an other than small 

business. 

Æ The clause at FAR 52.219–4, Notice 

of Price Evaluation Preference for 

HUBZone Small Business Concerns, is 

revised to remove the proposed rule 

definition of ‘‘similarly situated entity’’, 

and to delete (instead of revising) the 

new redundant paragraphs (d) and (e), 

which pertained to the limitation on 

subcontracting. 

• Limitations on Subcontracting. FAR 

clause 52.219–14, Limitations on 

Subcontracting, is revised to clarify that 


jbell on DSKJLSW7X2PROD with RULES2
44234 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

this clause applies to contracts using the 

HUBZone price evaluation preference to 

award to a HUBZone small business 

concern unless the concern waived the 

evaluation preference. Additionally, to 

provide clarification on calculating the 

50 percent limitation for contracts that 

include both services and supplies (i.e., 

‘‘mixed contracts’’), paragraph (e)(1) of 

the clause at FAR 52.219–14 is revised 

to specify that when a contract is 

assigned a NAICS code for services, the 

50 percent limitation shall only apply to 

the services portion of the contract. 

Paragraph (e)(2) is revised to specify 

that when a contract is assigned a 

NAICS code for supplies, the 50 percent 

limitation shall only apply to the supply 

portion of the contract. 

• Nonmanufacturer Rule. FAR clause 

52.219–33, Nonmanufacturer Rule, is 

revised to clarify the clause applies to 

contracts using the HUBZone price 

evaluation preference to award to a 

HUBZone small business concern 

unless the concern waived the 

evaluation preference. Paragraph (c)(2) 

is revised to remove text concerning an 

item for a kit that is not produced by 

small business concerns in the United 

States or its outlying areas. 

• Revisions to include recent FAR 

changes. Prior to publication of this 

final rule, FAR part 19 and its 

associated provisions and clauses were 

substantially revised as a result of FAC 

2020–05 (published February 27, 2020, 

and effective March 30, 2020). As a 

result, some revisions in the proposed 

rule are no longer included in this final 

rule, because the revisions have already 

been made to the FAR in FAC 2020–05. 

Other revisions appear in a different 

location due to the changed landscape 

of FAR part 19. The final rule also 

contains revisions that were not in the 

proposed rule due to changes made in 

FAC 2020–05. For example, prior to 

March 30, 2020, the FAR did not 

include coverage of the limitations on 

subcontracting and nonmanufacturer 

rule in subparts 19.8, 19.13, 19.14, and 

19.15; FAC 2020–05 added coverage 

tailored for each of those subparts. Due 

to the standardization of the limitations 

on subcontracting and nonmanufacturer 

rule, this final rule removes the 

coverage from those subparts and 

consolidates the coverage in subpart 

19.5. In addition, as of March 30, 2020, 

FAR part 19 includes coverage for 

orders issued directly to one small 

business under a reserve. This final rule 

provides guidance on the applicability 

of the limitations on subcontracting and 

nonmanufacturer rule for this new 

topic. 

B. Analysis of Public Comments 

1. Support for the Rule 

Comment: Several respondents 

expressed support for the rule. 

Response: The Councils acknowledge 

the expressions of support. 

2. Faster Implementation 

Comment: Several respondents 

expressed disappointment at the time it 

took to publish the proposed rule. More 

specifically, two respondents noted that 

it had taken over 2 years to publish the 

proposed rule. One respondent 

requested immediate implementation of 

the rule by means of a class deviation 

for the civilian agencies or an ‘‘interim 

final rule,’’ noting that it is burdensome 

for small businesses if one agency has 

a class deviation in place while others 

do not. Another respondent also 

requested issuance of an ‘‘interim final 

rule’’ and recommended that the FAR 

Council coordinate with SBA on SBA’s 

pending rulemaking and issue its own 

final rule that matches SBA’s final rule. 

Response: The Councils acknowledge 

the length of time between the opening 

of FAR case 2016–011 and publication 

of the proposed rule. More time was 

required to publish the proposed rule 

due to changes in the rulemaking 

process that occurred in 2017 to more 

fully consider the regulatory or 

deregulatory impact of the rulemaking. 

The Councils have taken steps to try to 

shorten the time required to implement 

SBA’s rules in the FAR. Beginning in 

2019, the Councils started working on 

proposed FAR rules after SBA publishes 

a proposed rule, instead of waiting for 

a final rule from SBA. This approach 

should allow more timely publication of 

FAR rules implementing SBA rules. 

3. Simplified Acquisition Threshold vs. 

Dollar Value 

Comment: Several respondents 

recommended changing all references to 

‘‘$150,000’’ to ‘‘the simplified 

acquisition threshold (SAT).’’ 

Furthermore, two respondents 

highlighted the fact that SBA updated 

its regulation at 13 CFR 121.406(d) to 

reference the term ‘‘the simplified 

acquisition threshold’’ and that the FAR 

at 48 CFR 2.101 contains the definition 

of the SAT. 

Response: This final rule has been 

revised to include recent amendments 

to the FAR, including the removal of 

many of the references to the dollar 

value ‘‘$150,000’’ (reference FAC 2020– 

05). 

4. Other Pending FAR Rules 

Comment: Two respondents pointed 

out that the proposed text for FAR 

52.219–4(e) does not account for the 

joint venture options afforded to 

HUBZone small business concerns 

under SBA’s regulations and requires 

further revisions to bring the clause into 

alignment with SBA’s limitations on 

subcontracting rules for HUBZone joint 

ventures. Specifically, the respondents 

are concerned the SBA’s requirement 

that a HUBZone joint venture partner 

perform 40 percent of the joint venture’s 

work, is not being addressed. 

Response: A separate FAR case, 2017– 

019, Policy on Joint Ventures, will 

address the respondents’ concern. The 

final rule will address the policy that a 

HUBZone joint venture partner must 

perform 40 percent of the joint venture’s 

work. 

5. HUBZone Price Evaluation Preference 

Comment: One respondent stated that 

the clause at FAR 52.219–4 places 

HUBZone distributors at a significant 

disadvantage by effectively preventing 

them from taking advantage of the 

HUBZone price evaluation preference, 

because it is not possible for a HUBZone 

nonmanufacturer to obtain a waiver of 

the nonmanufacturer rule from SBA for 

a full-and-open contract. The 

respondent also stated that the 

HUBZone nonmanufacturer should be 

permitted to supply a product of any 

business when utilizing the HUBZone 

price evaluation preference. The 

respondent further stated that if the 

clause at FAR 52.219–4 continues to 

require full compliance with the 

nonmanufacturer rule for HUBZone 

distributors, then the waiver rules must 

be modified to permit SBA to issue a 

waiver of the nonmanufacturer rule, 

upon request of a HUBZone firm, for a 

full and open contract when the price 

evaluation preference is utilized. The 

respondent further stated that if 

HUBZone distributors are not permitted 

to supply products of any size business, 

the clause at FAR 52.219–4 should be 

modified to permit HUBZone 

distributors to provide products of any 

type of small business rather than the 

current requirement to supply products 

made by other HUBZone small 

businesses. 

Response: This final rule is 

implementing SBA’s final rule 

published in the Federal Register at 81 

FR 34243 on May 31, 2016, and the 

changes requested by the respondent 

would not be consistent with that SBA 

rule. An award made using the 

HUBZone price evaluation preference is 

considered a HUBZone contract (see 13 

CFR 126.600(c) and FAR 2.101). SBA’s 

regulations regarding the limitations on 

subcontracting and the 

nonmanufacturer rule apply to 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44235 

HUBZone contracts (see 13 CFR 125.6). 

The Councils have updated the final 

rule at FAR 19.507(e) and (h) to clarify 

that solicitations and contracts using the 

HUBZone price evaluation preference to 

award to a HUBZone small business 

concern must include the FAR clauses 

at 52.219–14, Limitations on 

Subcontracting, and 52.219–33, 

Nonmanufacturer Rule. The Councils 

have also updated the paragraphs 

entitled ‘‘Applicability’’ in these clauses 

to clarify their applicability to contracts 

awarded to a HUBZone small business 

concern using the HUBZone price 

evaluation preference and that the 

limitations on subcontracting and 

nonmanufacturer rule do not apply if 

the price evaluation preference is 

waived by the offeror. 

6a. Similarly Situated Entities— 

Definition 

Comment: One respondent requested 

clarification on which subcontractors 

count as similarly situated entities. The 

respondent specifically requested 

additional examples regarding 

‘‘standard small business set-asides.’’ 

Response: SBA’s regulation at 13 CFR 

125.1 states that ‘‘for small business setaside, partial set-aside, or reserve’’ a 

similarly situated entity is ‘‘a 

subcontractor that is a small business 

concern.’’ Therefore, the definition of 

‘‘similarly situated entity’’ in this final 

FAR rule has been revised to clarify 

that, for a small business set-aside, a 

similarly situated entity is a small 

business, without regard to 

socioeconomic status. 

6b. Similarly Situated Entities— 

Loophole for 8(a) Participants 

Comment: One respondent stated the 

proposed rule circumvents FAR 19.808– 

1(e) by allowing a new ANC or Indian 

Tribe to win a sole-source follow-on 

contract and then to subcontract it to the 

incumbent without competing it, which 

would increase costs to the Government. 

The respondent requested language be 

added to FAR 52.219–14(e)(1) through 

(4) to prohibit treatment of such a 

subcontractor as a similarly situated 

entity. 

Response: The FAR does not direct 

subcontracting decisions of prime 

contractors. Additionally, SBA’s 

regulation does not provide that a prime 

contractor must compete a subcontract 

before it can award a subcontract, 

whether or not the award is to a 

similarly situated entity. This final rule 

will not be revised to incorporate the 

requested language as the rule is 

consistent with SBA’s regulations. 

6c. Treatment of Similarly Situated 

Entity Subcontractors 

Comment: One respondent 

acknowledged the proposed rule 

properly provides that first-tier 

subcontracts awarded to a ‘‘similarly 

situated entity’’ are excluded from the 

calculation of the 50 percent 

subcontract amount that cannot be 

exceeded. However, the respondent 

points out, the clauses then provide that 

all work further subcontracted by such 

similarly situated entity does count 

toward the 50 percent subcontract 

amount that cannot be exceeded. The 

respondent believes this formulation 

creates an inconsistency among small 

business programs and an 

administrative burden for prime 

contractors and urges that this further 

limitation be deleted. 

Response: SBA’s regulation at 13 CFR 

125.6(c) limits similarly situated entities 

to the first-tier subcontractors. 

Therefore, this final rule also contains 

this limitation. Determining compliance 

with the limitations on subcontracting 

by including in the calculation 

subcontracts beyond the prime 

contractor and first-tier subcontractor 

creates the possibility that the first-tier 

subcontractor may subcontract 100% of 

the work it received from the prime to 

an entity that is not similarly situated. 

This would create a loophole for entities 

that are not small business concerns and 

would not have qualified to receive the 

prime contract, to benefit as 

subcontractors from Government 

contracts that are set aside for 

performance by small business 

concerns. To address these concerns, 

SBA’s regulations apply the limitations 

on subcontracting collectively to the 

prime and any similarly situated firsttier subcontractor. Any work performed 

by a similarly situated first-tier 

subcontractor will count toward 

compliance with the applicable 

limitation on subcontracting. For 

purposes of determining whether the 

prime and its subcontractor complied 

with the applicable limitation on 

subcontracting, work that is not 

performed by the employees of the 

prime contractor or employees of firsttier similarly situated subcontractors 

will count as subcontracts performed by 

non-similarly situated entities. Using 

similarly situated subcontractors gives 

the prime contractor greater flexibility 

but does require monitoring and 

oversight by the prime contractor to 

ensure the benefits flow to the intended 

recipients. The final rule has been 

revised at FAR 52.219–14 to provide 

additional clarity on this issue. 

6d. Similarly Situated Entities— 

Interpretation of the Rule 

Comment: One respondent requested 

clarification of its understanding of the 

proposed rule regarding the prime 

contractor not completing 50 percent of 

the work because it subcontracted to a 

similarly situated entity. 

Response: A prime contractor may 

subcontract more than 50 percent of the 

work to a similarly situated entity and 

still comply with the limitations on 

subcontracting. SBA’s regulation at 13 

CFR 125.6(c) provides three examples to 

illustrate when the prime contractor 

meets, or fails to meet, the limitations 

on subcontracting. One example 

describes an award for supplies to a 

service-disabled veteran-owned small 

business (SDVOSB) that subcontracts to 

a similarly situated entity for 51 percent 

of the work, which does not violate the 

limitations on subcontracting. However, 

any work that the similarly situated 

entity further subcontracts will be 

counted toward the 50 percent 

subcontract limit. 

7a. Application of the Limitations on 

Subcontracting and Nonmanufacturer 

Rule at or Below the SAT 

Comment: Two respondents 

submitted substantially similar 

comments suggesting that set-asides 

below the SAT in all small business and 

small business socioeconomic categories 

should be exempt from any limitations 

on subcontracting, including the 

nonmanufacturer rule. Another 

respondent stated the original intent of 

the nonmanufacturer rule was to 

promote U.S. innovation in 

manufacturing and technology by 

allowing small U.S. manufacturers to 

compete with large business for Federal 

Government contracts. This respondent 

also stated the recent SBA change to 

raise the value of application of the 

nonmanufacturer rule to the SAT 

contradicts this intent and threatens the 

U.S. Defense Industrial Base. 

Response: This rule implements 

SBA’s policy on the limitations on 

subcontracting and the 

nonmanufacturer rule. The rule reflects 

distinct statutory authorities for setting 

aside small business procurements and 

small business socioeconomic category 

procurements below and above the 

threshold at 15 U.S.C. 644(j). 

For small business socioeconomic 

category procurements (i.e., a set-aside 

or sole source contract for 8(a) 

participants, women-owned small 

businesses, HUBZone small businesses, 

or SDVOSBs), the limitations on 

subcontracting, and the 

nonmanufacturer rule, apply to 


jbell on DSKJLSW7X2PROD with RULES2
44236 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

procurements regardless of contract 

value. The Small Business Act at 15 

U.S.C. 657s established the applicability 

of the limitations on subcontracting and 

the nonmanufacturer rule for contracts 

awarded to ‘‘covered’’ small business (or 

socioeconomic category) concerns 

‘‘under section 637(a), 637(m), 644(a), 

657a, or 657f’’ of Title 15. Contracts 

with ‘‘covered’’ concerns under 15 

U.S.C. 637(a), 637(m), 657a, and 657f 

include set-aside or sole source 

contracts, and any evaluation-preference 

contracts, regardless of dollar value, for 

specific small business socioeconomic 

categories, i.e., small disadvantaged 

businesses participating in the section 

8(a) business development program, 

women-owned small businesses, 

HUBZone small businesses, and 

SDVOSBs. 

Set-aside contracts with small 

business concerns below the threshold 

(i.e., the simplified acquisition 

threshold) at 15 U.S.C. 644(j) are not 

designated as ‘‘covered’’ in section 657s 

(see SBA’s implementing regulations 13 

CFR 125.6(a)). For this reason, contracts 

resulting from small business set-asides 

below this threshold would be exempt 

from the limitations on subcontracting 

and the nonmanufacturer rule. 

7b. Application of the Limitations on 

Subcontracting and Nonmanufacturer 

Rule to Commercial Items 

Comment: Two respondents 

commented that the limitations on 

subcontracting, including those related 

to the nonmanufacturer rule, should not 

apply to acquisitions for commercial 

items and commercially available offthe-shelf (COTS) items because the 

complex and confusing limits conflict 

with the straightforward nature of 

commercial and COTS acquisitions. 

Response: The Councils do not concur 

with this comment. Section 1651 of the 

NDAA for FY 2013 is silent on its 

applicability to commercial and COTS 

items. The corresponding final rule 

implemented by the SBA in its 

regulation did not exempt acquisitions 

of commercial or COTS items from the 

limitations on subcontracting. Further, 

the revisions to the limitations on 

subcontracting reflected in this final 

FAR rule actually facilitate access to the 

Federal marketplace for small 

businesses, simplify the process of 

tracking costs spent by prime 

contractors on subcontractors, and make 

the application of limitations on 

subcontracting consistent across the 

small business programs. Exclusion of 

acquisitions for commercial and COTS 

items will limit the full realization of 

these improvements for small 

businesses and hinder their 

participation in Federal procurements 

as both prime contractors and 

subcontractors. 

8. Limitations on Subcontracting Too 

Restrictive 

Comment: One respondent suggests 

the proposed rule restricts opportunities 

for small businesses and discourages 

subcontracting arrangements. The same 

respondent recommends eliminating all 

limitations between prime contractors 

and subcontractors, regardless of 

business size. 

Response: The rule does not restrict 

small business subcontracting 

opportunities nor does it discourage 

subcontracting arrangements. Rather, 

the proposed rule provides small 

businesses with greater flexibility in 

how they choose to comply with the 

limitations on subcontracting. 

Moreover, the new rules make it easier 

for small business prime contractors to 

do business with Federal agencies by 

giving them more choices that are less 

burdensome and less costly for pursuing 

and winning larger contracts than 

before. The rule implements an SBA 

final rule intended to ensure that the 

benefits of set-aside contracts flow to 

the intended beneficiaries. The 

recommended elimination of all 

limitations on subcontracting is counter 

to that intent and is beyond the scope 

of this rule. 

9. Mixed Contracts 

Comment: One respondent noted that 

13 CFR 125.6(b) discusses the 

limitations on subcontracting with 

respect to mixed contracts (i.e., 

contracts for both supplies and 

services). The proposed revision to the 

clause at FAR 52.219–14 failed to 

address mixed contracts. The 

respondent proposed bringing the FAR 

into alignment with SBA’s regulation by 

adding another subparagraph to address 

mixed contracts. 

Response: According to SBA’s final 

rule published in the Federal Register at 

81 FR 34243, on May 31, 2016, SBA’s 

regulation at 13 CFR 125.6(b) states that, 

‘‘where a contract combines services 

and supplies, the contracting officer 

shall select the appropriate NAICS 

code’’ that best describes the principal 

purpose of the product or service being 

acquired. The contracting officer’s 

selection of the applicable NAICS code 

determines which limitation on 

subcontracting applies. Thus, for a 

prime contract that includes both 

services and supplies, the NAICS code 

assigned by the contracting officer 

determines the relevant amount for 

purposes of calculating compliance with 

the limitation on subcontracting; e.g., 

when a NAICS code for services is 

assigned, the limitation on 

subcontracting for services applies to 

the services portion of the contract. 

Likewise, for subcontracts, the prime 

contractor will assign the NAICS. To 

provide clarification on calculating the 

50 percent limitation for contracts that 

include both services and supplies (i.e., 

‘‘mixed contracts’’), this final rule 

revises the clause at 52.219–14, 

Limitations on Subcontracting, to 

specify that when a contract is assigned 

a NAICS code for services, the 50 

percent limitation applies only to the 

services portion of the contract, and that 

when a contract is assigned a NAICS 

code for supplies, the 50 percent 

limitation applies only to the supply 

portion of the contract. 

10. Revisions to the Clause on the 

Nonmanufacturer Rule 

Comment: One respondent indicated 

that the proposed solicitation provision 

does not state that the nonmanufacturer 

rule requirements can be waived by 

SBA, either on an individual or class 

basis; and furthermore, the provision 

does not state that nonmanufacturers 

need to have no more than 500 

employees. The respondent further 

stated that the SBA has proposed to 

eliminate its rule about ‘‘kit 

assemblers,’’ and suggested that the 

Council similarly remove all rules about 

‘‘kit assemblers.’’ 

Response: The Councils reviewed the 

area of the rule identified by the 

respondent and found that the SBA 

waiver information for the 

nonmanufacturer rule is not appropriate 

for inclusion in the contract clause at 

52.219–33, Nonmanufacturer Rule. FAR 

19.507(h)(2) instructs contracting 

officers not to use 52.219–33 when SBA 

has waived the nonmanufacturer rule. 

Individual and class waivers of the 

nonmanufacturer rule are addressed in 

the final rule at FAR 19.505(c). 

The size standard for 

nonmanufacturers is located in the 

solicitation provisions that contain the 

requirement for offerors to represent 

size status (e.g., 52.219–1, Small 

Business Program Representations). 

There is no need to include it in the 

clause at 52.219–33, which does not 

address representation of size status. 

The Councils found that removing the 

text on kit assemblers from the FAR is 

premature in this final rule, and must be 

addressed in a separate case. Therefore, 

the suggested revisions have not been 

included in the final rule. 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44237 

11. Orders Under Multiple Award 

Contracts 

Comment: One respondent stated that 

clarification should be provided for 

orders set aside for small business under 

multiple-award contracts regarding 

whether, for the purpose of applying the 

limitations on subcontracting and the 

nonmanufacturer rule, the value is 

determined at the contract level or at the 

order level. The respondent further 

expressed a preference for having the 

value determined at the individual 

order level, so that the nonmanufacturer 

rule would only apply to orders above 

the simplified acquisition threshold. 

Response: The prescriptions for the 

clauses at FAR 52.219–14, Limitations 

on Subcontracting, and 52.219–33, 

Nonmanufacturer Rule, specify use of 

the clauses when ‘‘any portion of the 

requirement is set aside for small 

business and is expected to exceed the 

simplified acquisition threshold’’. The 

prescriptions also specify use of the 

clauses in multiple-award contracts 

when orders may be set aside for small 

business because the clauses apply to 

orders that are set aside for small 

business under multiple-award 

contracts. The applicability of the 

limitations on subcontracting and the 

nonmanufacturer rule is determined 

partly by whether the contract or the 

order is being set aside for small 

business. If an order is set aside for 

small business, the clause applies to the 

order if it exceeds the simplified 

acquisition threshold (see 52.219– 

14(c)(4) and 52.219–33(b)(2)(iii)). 

Alternatively, if a multiple-award 

contract is set aside for small business, 

the clause applies to the contract if it 

exceeds the simplified acquisition 

threshold. 

12a. Additional SBA Rule—Hazardous 

Waste Industry 

Comment: Six respondents stated the 

hazardous waste industry should be 

excluded from the limitations on 

subcontracting as disposal facilities and 

transportation costs are prohibitively 

expensive for small businesses to own 

and operate. Therefore, small businesses 

subcontract out these services, which 

would cause them to exceed the 

limitations on subcontracting. 

Two respondents stated 

environmental remediation requires the 

purchase of significant materials, which 

is similar to construction. The 

respondents requested these materials 

be excluded from the limitations on 

subcontracting. 

Response: These changes are included 

in SBA’s final rule at 13 CFR 125.6(a), 

published in the Federal Register on 

November 29, 2019 (84 FR 65647). 

SBA’s rule updates the limitations on 

subcontracting. A new FAR case would 

have to be opened to implement the 

additional changes, which require 

public comment under 41 U.S.C. 1707 

prior to implementation in the FAR. 

Therefore, the suggested changes are not 

incorporated in this final rule. 

12b. Additional SBA Rule— 

Independent Contractors 

Comment: Two respondents suggested 

additional language be added to the 

proposed rule to define an independent 

contractor. One respondent requested 

that the term ‘‘independent contractor’’ 

be removed from the rule. One 

respondent recommended that 

independent contractors should not be 

subject to FAR 44.201–1, Consent 

requirements. 

Response: SBA made clarifications 

regarding independent contractors in its 

final rule, published in the Federal 

Register on November 29, 2019 (84 FR 

65647), which updates the limitations 

on subcontracting. Those changes are 

beyond the scope of this FAR case. A 

new FAR case would have to be opened 

to implement additional changes in the 

FAR, including publication for notice 

and comment if necessary. The 

suggested changes are not consistent 

with the SBA’s regulations which are 

being implemented in this final FAR 

rule, and therefore will not be included 

in this final FAR rule. 

12c. Additional SBA Rule—Exclusion of 

Materials and Other Direct Costs From 

the Limitation on Subcontracting for 

Services 

Comment: Four respondents stated 

the cost of materials and other direct 

costs for services should be excluded 

from the limitations on subcontracting, 

which would treat these contracts the 

same as supply contracts. 

Response: This rule implements 

SBA’s final rule published in the 

Federal Register at 81 FR 34243 on May 

31, 2016, which does not provide an 

exclusion for the cost of materials or 

other direct costs. These changes are in 

SBA’s final rule, published in the 

Federal Register on November 29, 2019 

(84 FR 65647), which updates the 

limitations on subcontracting. A new 

FAR case would have to be opened to 

implement the additional changes. 

12d. Additional SBA Rule— 

Inconsistencies Between FAR and SBA 

Comment: Two respondents stated 

that because of SBA’s proposed rule 

published December 4, 2018, 83 FR 

62516, the FAR will be inconsistent 

with SBA’s regulations once again, 

which will create new confusion. They 

requested the FAR Council issue an 

interim final rule. 

Response: SBA’s final rule published 

November 29, 2019, 84 FR 6564, made 

updates to the limitations on 

subcontracting. A new FAR case would 

have to be opened to implement the 

SBA’s November 29, 2019 changes. The 

FAR Council may issue an interim rule 

without first publishing a proposed rule 

only when urgent and compelling 

circumstances exist, which justify 

changing the FAR prior to seeking 

public comment. 

13. Information Technology Value 

Added Resellers 

Comment: One respondent requested 

a clarification of whether the 

nonmanufacturer rule applies to 

Information Technology Value Added 

Resellers (ITVAR), NAICS code 541519. 

Response: An ITVAR provides a total 

solution to information technology 

acquisitions by providing multi-vendor 

hardware and software along with 

significant value added services. SBA’s 

regulation at footnote 18 within 13 CFR 

121.201 states that the nonmanufacturer 

rule applies to an ITVAR procurement 

unless SBA has issued a class or 

contract-specific waiver of the 

nonmanufacturer rule. 

14. Out of Scope 

Comment: One respondent stated DoD 

Class Deviation 2019–O0003, 

Limitations on Subcontracting for Small 

Business, contains a requirement 

stating, if the contract falls below the 

SAT, it is not a complete waiver of the 

nonmanufacturer rule because the small 

business must still provide the end item 

of any domestic firm. The respondent 

noted this same requirement is not 

present in the current SBA regulations, 

nor in the current proposed rule change 

and encourages the Councils to proceed 

with issuing a final rule that does not 

include this restriction. A second 

respondent recommended that clear 

definitions of subcontract and 

subcontractor should be provided to 

regulate the use of independent 

contractors (consultants) and ancillary 

services, as well as to formulate policies 

and mechanisms with respect to consent 

to subcontract, flow down of contract 

provisions, and other FAR 

requirements. A third respondent asked 

if the proposed regulation would take 

precedence over a specified agency’s 

clause. 

Response: These comments are 

beyond the scope of this rule. SBA’s 

waiver of the nonmanufacturer rule (13 

CFR 121.406(b)(7)) has no effect on 

requirements external to the Small 


jbell on DSKJLSW7X2PROD with RULES2
44238 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

Business Act which involve domestic 

sources of supply, such as the Buy 

American Act or the Trade Agreements 

Act. Class deviations issued by 

individual agencies do not impact the 

text of this rule. In many instances the 

definition of subcontractor used in the 

FAR varies depending on which statutes 

or FAR regulations apply. It is not 

possible to use the same definition 

across all the parts of the FAR. Agency 

regulations and guidance must be 

consistent with the FAR unless an 

authorized deviation (see FAR 1.404) is 

in place. 

III. Applicability to Contracts at or 

Below the Simplified Acquisition 

Threshold and for Commercial Items, 

Including Commercially Available Offthe-Shelf Items 

The Federal Acquisition Regulatory 

(FAR) Council has made the following 

determinations with respect to the rule’s 

application of section 1651 of the NDAA 

for FY 2013 to contracts at or below the 

simplified acquisition threshold (SAT) 

and for the acquisition of commercial 

items, including commercially available 

off-the-shelf (COTS) items. Discussion 

of these determinations is set forth 

below. 

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 1651 of the NDAA 

for FY 2013. Section 1651 provides 

revised limitations on subcontracting 

that apply across all small business 

programs. It also requires that the 

limitations on subcontracting be 

determined based on the percentage of 

the overall award amount that a prime 

contractor spends on its subcontractors. 

In addition, section 1651 provides that 

the percentage of the award amount that 

the prime contractor spends on 

subcontractors who are similarly 

situated entities is not considered 

subcontracted for purposes of the 

limitations on subcontracting in section 

1651. 

These statutory requirements are 

reflected in SBA’s final rule published 

in the Federal Register at 81 FR 34243, 

on May 31, 2016, which did not exempt 

acquisitions at or below the SAT that 

are set aside for, or awarded on a solesource basis to, 8(a) program 

participants, HUBZone, service-disabled 

veteran-owned, women-owned, or 

economically disadvantaged womenowned small business concerns; or that 

use the HUBZone price evaluation 

preference to award to a HUBZone small 

business concern. SBA’s final rule did 

exempt acquisitions at or below the SAT 

that are set aside for small businesses. 

The law is silent on the applicability 

of these requirements to acquisitions at 

or below the SAT and does not 

independently provide for criminal or 

civil penalties; nor does it include terms 

making express reference to 41 U.S.C. 

1905 and its application to acquisitions 

at or below the SAT. Therefore, it does 

not apply to acquisitions at or below the 

SAT unless the FAR Council makes a 

written determination as provided at 41 

U.S.C. 1905. 

Application of the law to acquisitions 

at or below the SAT will maximize the 

positive impact set-aside and solesource contracts provide for small 

businesses in the socioeconomic 

programs (e.g., HUBZone, 8(a), servicedisabled veteran-owned, and womenowned small business programs) by 

ensuring these benefits extend to the 

many contracts valued below the SAT. 

According to the Federal Procurement 

Data System, an average of 283,374 

contracts per year resulted from FAR 

part 19 set-asides and sole-source 

awards at or below the simplified 

acquisition threshold during fiscal years 

2016–2018. Failure to apply section 

1651 below the SAT would exclude a 

significant number of acquisitions, 

contrary to the goal of promoting 

opportunities for small businesses in the 

Federal marketplace to the maximum 

extent possible. Further, the FAR 

clauses imposing limitations on 

subcontracting and the 

nonmanufacturer rule are currently 

prescribed for use in solicitations and 

contracts at or below the SAT that are 

set aside for, or awarded on a solesource basis to, 8(a) program 

participants, HUBZone, service-disabled 

veteran-owned, women-owned, or 

economically disadvantaged womenowned small business concerns; or that 

use the HUBZone price evaluation 

preference to award to a HUBZone small 

business concern. Making section 1651 

applicable to acquisitions at or below 

the SAT would allow the amended 

versions of those clauses, reflecting the 

requirements of section 1651, to be 

incorporated into such solicitations and 

contracts. Exclusion of the amended 

clauses from those documents would 

create confusion among contractors and 

the Federal contracting workforce. 

Finally, under the FAR clauses 

currently incorporated into those 

documents, contractors are already 

required to comply with the limitations 

on subcontracting and the 

nonmanufacturer rule. The new 

requirements will result in substantial 

savings for contractors. 

For these reasons, it is in the best 

interest of the Federal Government to 

apply the requirements of the 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 acquisitions 

of commercial items. 

The purpose of this rule is to 

implement section 1651 of the NDAA 

for FY 2013. Section 1651 provides 

revised limitations on subcontracting 

that apply across all small business 

programs. It also requires that the 

limitations on subcontracting be 

determined based on the percentage of 

the overall award amount that a prime 

contractor spends on its subcontractors. 

In addition, section 1651 provides that 

the percentage of the award amount that 

the prime contractor spends on 

subcontractors who are similarly 

situated entities is not considered 

subcontracted for purposes of the 

limitations on subcontracting in section 

1651. 

These statutory requirements are 

reflected in SBA’s final rule published 

in the Federal Register at 81 FR 34243, 

on May 31, 2016, which did not exempt 

acquisitions of commercial items. 

The law is silent on the applicability 

of these requirements to acquisitions of 

commercial items and does not 

independently provide for criminal or 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44239 

civil penalties; nor does it include terms 

making express reference to 41 U.S.C. 

1906 and its application to acquisitions 

of commercial items. Therefore, it does 

not apply to acquisitions of commercial 

items unless the FAR Council makes a 

written determination as provided at 41 

U.S.C. 1906. 

The law furthers the Administration’s 

goal of simplifying the acquisition 

process and facilitating easier access to 

the Federal marketplace, in this case for 

small business contractors who make up 

an important component of the 

Government’s industrial base. It 

advances the interests of small business 

prime contractors by making it easier to 

comply with the limitations on 

subcontracting, potentially allowing 

those contractors to compete for larger 

contracts than they could in the past. 

The law also advances the interests of 

small business subcontractors by 

encouraging small business prime 

contractors to award more subcontracts 

to similarly situated small businesses. 

Exclusion of a large segment of Federal 

contracting, such as acquisitions for 

commercial items, would limit the full 

implementation of these objectives. 

Further, the primary FAR clauses 

implementing the limitations on 

subcontracting and the 

nonmanufacturer rule are currently 

prescribed for use in solicitations and 

contracts for commercial items. Making 

section 1651 applicable to acquisitions 

for commercial items would allow the 

amended versions of those clauses, 

reflecting the requirements of section 

1651, to be included in such 

solicitations and contracts. Exclusion of 

those amended clauses from contracts 

for commercial items would create 

confusion among contractors and the 

Federal contracting workforce. Finally, 

the burden on contractors would not 

increase significantly if the 

requirements of section 1651 were 

applied to acquisitions for commercial 

items. Under the FAR clauses currently 

incorporated into contracts for 

commercial items, contractors are 

already required to comply with the 

limitations on subcontracting and the 

nonmanufacturer rule. The new 

requirements will result in substantial 

savings for contractors. 

For these reasons, it is in the best 

interest of the Federal Government to 

apply the requirements of the 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 

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 acquisitions of COTS 

items. 

The purpose of this rule is to 

implement section 1651 of the NDAA 

for FY 2013 (codified at 15 U.S.C. 657s). 

Section 1651 provides revised 

limitations on subcontracting that apply 

across all small business programs. It 

also requires that the limitations on 

subcontracting be determined based on 

the percentage of the overall award 

amount that a prime contractor spends 

on its subcontractors. In addition, 

section 1651 provides that the 

percentage of the award amount that the 

prime contractor spends on 

subcontractors who are similarly 

situated entities is not considered 

subcontracted for purposes of the 

limitations in section 1651. 

These statutory requirements are 

reflected in SBA’s final rule published 

in the Federal Register at 81 FR 34243, 

on May 31, 2016, which did not exempt 

acquisitions of COTS items. 

The law is silent on the applicability 

of these requirements to acquisitions of 

COTS items and does not independently 

provide for criminal or civil penalties; 

nor does it concern bid protest 

procedures developed under the 

authority of the relevant statutes. 

Therefore, it does not apply to 

acquisitions of COTS items unless the 

Administrator for Federal Procurement 

Policy makes a written determination as 

provided at 41 U.S.C. 1907. 

The law furthers the Administration’s 

goal of simplifying the acquisition 

process and facilitating easier access to 

the Federal marketplace, in this case for 

small business contractors who make up 

an important component of the 

Government’s industrial base. It 

advances the interests of small business 

prime contractors by making it easier to 

comply with the limitations on 

subcontracting, potentially allowing 

those contractors to compete for larger 

contracts than they could in the past. 

The law also advances the interests of 

small business subcontractors by 

encouraging small business prime 

contractors to award more subcontracts 

to similarly situated small businesses. 

Exclusion of a large segment of Federal 

contracting, such as acquisitions for 

COTS items, would limit the full 

implementation of these objectives. 

Further, FAR clauses imposing 

limitations on subcontracting and the 

nonmanufacturer rule are currently 

prescribed for use in solicitations and 

contracts for COTS items. Making 

section 1651 applicable to acquisitions 

of COTS items would allow the 

amended versions of those clauses, 

reflecting the requirements of section 

1651, to be incorporated into such 

solicitations and contracts. Exclusion of 

the amended clauses from those 

documents would create confusion 

among contractors and the Federal 

contracting workforce. Finally, the 

burden on contractors would not 

increase significantly if the 

requirements of section 1651 were 

applied to acquisitions for COTS items. 

Under the FAR clauses currently 

incorporated into contracts for those 

items, contractors are already required 

to comply with the limitations on 

subcontracting and the 

nonmanufacturer rule. The new 

requirements will result in substantial 

savings for contractors. 

For these reasons, it is in the best 

interest of the Federal Government to 

apply the requirements of the rule to the 

acquisition of COTS items. 

IV. Expected Cost Savings 

The purpose of this rule is to 

implement statutory authorities and 

SBA regulations that are designed to 

make it easier and less burdensome for 

small business prime contractors to 

comply with requirements related to 

how much work they may subcontract 

under Federal contracts, including task 

and delivery orders under those 

contracts (i.e., the ‘‘limitations on 

subcontracting’’). The changes to these 

requirements would both ease 

compliance costs and provide more 

authorized ways to subcontract. Section 

1651 of the NDAA for FY 2013 revised 

and standardized the limitations on 

subcontracting, including the 

nonmanufacturer rule. The 

nonmanufacturer rule is the 

requirement that the prime contractor, 

who is a reseller of a product (i.e., a 

‘‘nonmanufacturer’’), provide an end 

product manufactured by a small 

business in the United States or its 

outlying areas. The limitations on 

subcontracting and the 

nonmanufacturer rule are meant to 


jbell on DSKJLSW7X2PROD with RULES2
44240 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

ensure that the benefits of contracts and 

orders awarded to small businesses flow 

to the intended beneficiaries. 

Prior to section 1651, the limitations 

on subcontracting and the 

nonmanufacturer rule were inconsistent 

across the small business programs. For 

example, under the 8(a) and WOSB 

Programs, the prime contractor was 

required to perform a certain percentage 

of work itself, whereas under the 

HUBZone and SDVOSB Programs, the 

prime contractor could include 

subcontracts to other HUBZone small 

business or SDVOSB concerns in the 

percentage of work it performed. 

Similarly, with regard to the 

nonmanufacturer rule, a prime 

contractor for a contract or order set 

aside or awarded on a sole-source basis 

under the HUBZone Program was 

required to provide products 

manufactured by another HUBZone 

small business, but for awards under the 

other small business programs, the 

prime contractor was required to 

provide products manufactured by any 

small business. 

In addition, the basis of the 

limitations on subcontracting has 

changed. Prior to section 1651, the 

limitations on subcontracting were 

calculated as a percentage of work to be 

performed by a prime contractor; the 

calculation was based on the 

contractor’s costs to perform the 

contract (e.g., salaries and other 

allowable costs under FAR part 31). As 

a result of section 1651, the limitations 

on subcontracting will be calculated as 

a percentage of the overall contract or 

order amount (i.e., the contract price, 

including costs and profit or fee) to be 

spent by the prime contractor on 

subcontractors. As a result, for the 

purpose of compliance with the 

limitations on subcontracting the prime 

contractor no longer has to track the 

percentage of costs incurred that it 

spends performing work itself. It only 

has to track the percentage of the overall 

award amount (i.e., contract price) that 

it spends on subcontractors. For small 

businesses, this change will reduce the 

burden associated with tracking and 

documenting compliance with the 

limitations on subcontracting. 

Section 1651 also applied the concept 

of ‘‘similarly situated entities’’ to all 

small business programs. A similarly 

situated entity is a small business 

subcontractor that has the same small 

business program status as that which 

qualified the prime contractor for the 

prime contract. The percentage of the 

contract or order amount that the prime 

contractor spends on subcontractors 

who are similarly situated entities is not 

considered subcontracted for purposes 

of compliance with the limitations on 

subcontracting. Prior to section 1651, 

small businesses that wanted to work 

together to comply with the limitations 

on subcontracting were required to form 

a joint venture or a new legal entity 

(except in small business programs 

where the concept of similarly situated 

entities was already applied). The 

concept of similarly situated entities 

eliminates the need for paperwork, 

coordination, and other costs associated 

with forming such a joint venture or 

new legal entity simply to comply with 

the limitations on subcontracting. 

These important changes allow small 

businesses greater flexibility on how 

they choose to comply with the 

limitations on subcontracting. The 

impact is illustrated in the following 

example of a non-construction contract: 

Limitations on subcontracting Previous New 

Contract Value .................................................... $1,000 .............................................................. $1,000. 

Small Business’ Cost of Contract Performance 

incurred for personnel.

$800 ................................................................. Not tracked. 

LOS Requirement ............................................... Contractor must spend $400—i.e., 50 percent 

of the $800 cost of contract performance incurred for its own personnel. The contract 

value (i.e., $1,000) is not used to determine 

compliance under previous rule..

Contractor may pay up to $500 (50 percent of 

the contract price) to a non-similarly situated entity, e.g., large business, AND/OR 

subcontract to a similarly situated entity 

without limitation. 

Under the current limitations on 

subcontracting, the small business only 

has one way to comply. In the example 

above, it must spend at least $400 on its 

own employees and, therefore, must be 

able to track its contract costs to ensure 

compliance with the requirement. 

Under the new limitations on 

subcontracting, there are multiple and 

less costly ways to comply, and the 

small business can choose the most 

efficient option, as demonstrated below: 

• The small business can continue to 

spend $400 on its own employees and 

subcontract $400 to any business, as it 

did to comply with the previous 

limitations on subcontracting. Because 

the prime contractor is not 

subcontracting more than $500 to 

businesses that are not similarly 

situated entities, it will meet the new 

limitations on subcontracting. 

• The small business can subcontract 

to any combination of similarly situated 

and non-similarly situated entities and 

remain in compliance with the new 

limitations on subcontracting as long as 

the amount spent on non-similarly 

situated entities does not exceed $500. 

For example, the small business can 

subcontract $500 to any business and 

spend $300 on its own employees, or 

subcontract $500 to any business, $100 

to a similarly situated entity, and spend 

only $200 on its own employees. 

SBA’s final rule specified that 

similarly situated entities must also 

comply with the limitations on 

subcontracting. As part of implementing 

section 1651, the SBA made a few more 

revisions to their regulations that are 

reflected in this FAR rule: 

• The nonmanufacturer rule does not 

apply to small business set-asides at or 

below the simplified acquisition 

threshold. Note that currently, the FAR 

applies the nonmanufacturer rule to 

small business set-asides above $25,000. 

• Waivers of the nonmanufacturer 

rule will now be allowed for 

procurements under the HUBZone 

Program. Such waivers allow a 

HUBZone small business to provide the 

product of any size business. 

• In the event SBA grants a 

nonmanufacturer rule waiver after the 

issuance of a solicitation, but before 

award, contracting officers are required 

to amend that solicitation to notify 

potential offerors of the waiver and to 

give them more time to submit 

proposals. 

The above changes drive both costs 

and savings; however, the rule is 

expected to result in net savings to 

small entities, as well as to the 

Government. Since the rule will only 

revise regulations under the various 

small business programs, there will be 

no costs or savings to large businesses. 

The expected net savings of the rule, 

calculated at present value using a 7- 

percent discount rate over ten years, is 

estimated to be $189,298,957. 

To access the full regulatory cost 

analysis for this rule, go to the Federal 

eRulemaking Portal at http://

www.regulations.gov, search for ‘‘FAR 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44241 

Case 2016–011,’’ click ‘‘Open Docket,’’ 

and view ‘‘Supporting Documents.’’ 

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. The Office of Information 

and Regulatory Affairs in the Office of 

Management and Budget has 

determined that this is a significant 

regulatory action and, therefore, was 

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 submit for an 

interim or final rule a report 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 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, et seq. The 

FRFA is summarized as follows: 

DoD, GSA, and NASA are amending the 

Federal Acquisition Regulation (FAR) to 

implement changes made by the Small 

Business Administration (SBA) in its final 

rule published in the Federal Register at 81 

FR 34243 on May 31, 2016. SBA’s final rule 

implements the statutory requirements of 

section 1651 of the National Defense 

Authorization Act (NDAA) for Fiscal Year 

(FY) 2013, which revised and standardized 

the limitations on subcontracting, including 

the nonmanufacturer rule, that apply to small 

business concerns under FAR part 19 

procurements. 

The objectives of this rule are to apply the 

limitations on subcontracting consistently to 

the small business concerns identified in 

FAR 19.000(a)(3) and to change the method 

of calculation to the percentage of the award 

amount to be spent on subcontractors. 

There were no significant issues raised by 

the public in response to the Initial 

Regulatory Flexibility Analysis. 

This rule may have a positive economic 

impact on small businesses, because it will 

make application of the limitations on 

subcontracting and the nonmanufacturer rule 

uniform across all small business programs 

and make it easier to calculate compliance 

with the limitations on subcontracting. 

Through the ability to meet the limitations by 

means of subcontracts with similarly situated 

entities, this rule will make it possible for 

small businesses to compete for larger 

contracts than they could in the past. The 

rule will encourage small business prime 

contractors to award subcontracts to other, 

similarly situated, small businesses. 

According to the System for Award 

Management (SAM), there are 315,655 active 

registrants that are considered small for at 

least one North American Industry 

Classification System code. Firms looking to 

be prime contractors for Government 

contracts are required to register in SAM. 

However, firms do not need to register in 

SAM to participate in subcontracting. Thus, 

the number of small business firms impacted 

by this rule may be greater than the number 

of firms registered in SAM. 

This rule does not include any new 

reporting or recordkeeping requirements for 

small entities. This rule does not include any 

new compliance requirements. The FAR 

already required compliance with the 

limitations on subcontracting and the 

nonmanufacturer rule for small business 

prime contractors receiving awards pursuant 

to part 19. This rule simply revises the 

limitations on subcontracting and the 

nonmanufacturer rule to match that required 

by section 1651 of the NDAA for FY 2013. 

According to the Federal Procurement Data 

System, there were approximately 70,992 

contracts per year in fiscal years 2016–2018 

under all the small business programs to 

which the limitations on subcontracting or 

the nonmanufacturer rule would apply. 

This rule is not expected to have a negative 

impact on the majority of small entities. 

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 SBA. 

VIII. Paperwork Reduction Act 

The Paperwork Reduction Act (44 

U.S.C. chapter 35) does apply; however, 

these changes to the FAR do not impose 

additional information collection 

requirements to the paperwork burden 

previously approved under OMB 

Control Number 3245–0374, titled: 

Certification for the Women-Owned 

Small Business Federal Contract 

Program. 

List of Subjects in 48 CFR Parts 19 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 are 

amending 48 CFR parts 19 and 52 as set 

forth below: 

■ 1. The authority citation for 48 CFR 

parts 19 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 19.001 by removing 

the definition of ‘‘Nonmanufacturer’’ 

and adding, in alphabetical order, the 

definition of ‘‘Similarly situated entity’’ 

to read as follows: 

19.001 Definitions. 

* * * * * 

Similarly situated entity means a firsttier subcontractor, including an 

independent contractor, that— 

(1) Has the same small business 

program status as that which qualified 

the prime contractor for the award (e.g., 

for a small business set-aside contract, 

any small business concern, without 

regard to socioeconomic status); and (2) 

Is considered small for the size standard 

under the NAICS code the prime 

contractor assigned to the subcontract. 

■ 3. Revise section 19.505 to read as 

follows: 

19.505 Limitations on subcontracting and 

nonmanufacturer rule. 

(a) Applicability. (1) This section 

applies to small business set-asides 

above the simplified acquisition 

threshold and orders issued directly to 

a small business in accordance with 

19.504(c)(1)(ii) above the simplified 

acquisition threshold. 

(2) This section applies, regardless of 

dollar value, to the following awards 

under subparts 19.8, 19.13, 19.14, and 

19.15: 

(i) Contracts that are set aside. 

(ii) Contracts that are awarded on a 

sole-source basis. 

(iii) Orders that are set-aside as 

described in 8.405–5 and 

16.505(b)(2)(i)(F). 

(iv) Orders that are issued directly in 

accordance with 19.504(c)(1)(ii). 

(v) Contracts that use the HUBZone 

price evaluation preference to award to 

a HUBZone small business concern 

unless the concern waived the 

evaluation preference. 


jbell on DSKJLSW7X2PROD with RULES2
44242 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

(b)(1) Limitations on subcontracting. 

A small business concern subject to the 

limitations on subcontracting is 

required to comply with the following: 

(i) For a contract or order assigned a 

North American Industry Classification 

System (NAICS) code for services 

(except construction), the concern will 

not pay more than 50 percent of the 

amount paid by the Government for 

contract performance to subcontractors 

that are not similarly situated entities. 

Any work that a similarly situated entity 

further subcontracts will count towards 

the concern’s 50 percent subcontract 

amount that cannot be exceeded. When 

a contract includes both services and 

supplies, the 50 percent limitation shall 

apply only to the service portion of the 

contract. 

(ii) For a contract or order assigned a 

NAICS code for supplies or products 

(other than a procurement from a 

nonmanufacturer of such supplies or 

products), the concern will not pay 

more than 50 percent of the amount 

paid by the Government for contract 

performance, excluding the cost of 

materials, to subcontractors that are not 

similarly situated entities. Any work 

that a similarly situated entity further 

subcontracts will count towards the 

concern’s 50 percent subcontract 

amount that cannot be exceeded. When 

a contract includes both supplies and 

services, the 50 percent limitation shall 

apply only to the supply portion of the 

contract. 

(iii) For a contract or order assigned 

a NAICS code for general construction, 

the concern will not pay more than 85 

percent of the amount paid by the 

Government for contract performance, 

excluding the cost of materials, to 

subcontractors that are not similarly 

situated entities. Any work that a 

similarly situated entity further 

subcontracts will count towards the 

concern’s 85 percent subcontract 

amount that cannot be exceeded. 

(iv) For a contract or order assigned a 

NAICS code for construction by special 

trade contractors, the concern will not 

pay more than 75 percent of the amount 

paid by the Government for contract 

performance, excluding the cost of 

materials, to subcontractors that are not 

similarly situated entities. Any work 

that a similarly situated entity further 

subcontracts will count towards the 

concern’s 75 percent subcontract 

amount that cannot be exceeded. 

(2) Compliance period. A small 

business contractor subject to the 

limitations on subcontracting is 

required to comply with the limitations 

on subcontracting— 

(i) For a contract that has been set 

aside, either by the end of the base term 

and then by the end of each subsequent 

option period, or by the end of the 

performance period for each order 

issued under the contract, at the 

contracting officer’s discretion; and 

(ii) For an order set aside under a 

contract as described in 19.504(a), (b), or 

(c)(1)(i) or an order issued in accordance 

with 19.504(c)(1)(ii), by the end of the 

performance period for the order. 

(c) Nonmanufacturer rule. The 

nonmanufacturer rule applies to 

nonmanufacturers in accordance with 

paragraph (c)(1) of this section and to kit 

assemblers who are nonmanufacturers 

in accordance with paragraph (c)(2) of 

this section. 

(1) Nonmanufacturers. Any concern, 

including a supplier, that is awarded a 

contract or order subject to the 

nonmanufacturer rule, other than a 

construction or service acquisition, but 

proposes to furnish an end item that it 

did not itself manufacture, process, or 

produce (i.e., a ‘‘nonmanufacturer’’), is 

required to— 

(i) Provide an end item that a small 

business has manufactured, processed, 

or produced in the United States or its 

outlying areas (see paragraph (c)(3) of 

this section for determining the 

manufacturer of an end item); 

(ii) Not exceed 500 employees; 

(iii) Be primarily engaged in the retail 

or wholesale trade and normally sell the 

type of item being supplied; and 

(iv) Take ownership or possession of 

the item(s) with its personnel, 

equipment, or facilities in a manner 

consistent with industry practice; for 

example, providing storage, 

transportation, or delivery. 

(2) Kit assemblers. When the end item 

being acquired is a kit of supplies— 

(i) The offeror may not exceed 500 

employees; and 

(ii) At least 50 percent of the total cost 

of the components of the kit shall be 

manufactured, processed, or produced 

in the United States or its outlying areas 

by business concerns that are small 

under the size standards for the NAICS 

codes of the components of the kit. 

(3) Identification of manufacturers. 

For the purposes of applying the 

nonmanufacturer rule, the 

manufacturer, processor, or producer is 

the concern that manufactures, 

processes, or produces an end item with 

its own facilities (i.e., transforms raw 

materials, miscellaneous parts, or 

components into the end item being 

acquired). See 13 CFR 121.406(b)(2). 

(4) Waiver of nonmanufacturer rule. 

(i) The SBA may grant an individual or 

a class waiver to the nonmanufacturer 

rule to allow a nonmanufacturer to 

provide an end item of an other than 

small business without regard to the 

place of manufacture, processing, or 

production. 

(A) Class waiver. An agency may 

request that SBA waive the requirement 

at paragraph (c)(1)(i) or (c)(2)(ii) of this 

section for a specific product or class of 

products. See 13 CFR 121.1202 for an 

explanation of when SBA will issue a 

class waiver. 

(B) Individual waiver. The contracting 

officer may also request a waiver of the 

requirements at paragraph (c)(1)(i) or 

(c)(2)(ii) of this section for an individual 

acquisition once the contracting officer 

determines through market research that 

no known small business 

manufacturers, processors, or producers 

in the United States or its outlying areas 

can reasonably be expected to offer an 

end item meeting the requirements of 

the solicitation. This type of waiver is 

known as an individual waiver and 

would apply only to a specific 

acquisition. 

(ii) Waiver requests. Requests for 

waivers shall include the content 

specified at 13 CFR 121.1204 and shall 

be sent via email to nmrwaivers@

sba.gov or by mail to the—Director, 

Office of Government Contracting, 

Small Business Administration, 409 

Third Street SW, Washington, DC 

20416. 

(iii) List of class waivers. For the most 

current listing of class waivers, contact 

the SBA Office of Government 

Contracting or go to https://

www.sba.gov/document/support-nonmanufacturer-rule-class-waiver-list. 

(iv) Notification of waiver. The 

contracting officer shall provide 

potential offerors with written 

notification of any class or individual 

waiver in the solicitation. If providing 

the notification after solicitation 

issuance, the contracting officer shall 

provide potential offerors a reasonable 

amount of additional time to respond to 

the solicitation. 

(5) Multiple-item acquisitions. (i) If at 

least 50 percent of the estimated 

contract value is composed of items that 

are manufactured, processed, or 

produced by small business concerns, 

then a waiver of the nonmanufacturer 

rule is not required. There is no 

requirement that each item acquired in 

a multiple-item acquisition be 

manufactured, processed, or produced 

by a small business in the United States 

or its outlying areas. 

(ii) If more than 50 percent of the 

estimated acquisition cost is composed 

of items manufactured, processed, or 

produced by other than small business 

concerns, then a waiver is required. 

SBA may grant an individual waiver for 

one or more items in an acquisition in 

order to ensure that at least 50 percent 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44243 

of the cost of the items to be supplied 

by the nonmanufacturer comes from 

small business manufacturers, 

processors, and producers in the United 

States or its outlying areas or are subject 

to a waiver. 

(iii) If a small business offeror is both 

a manufacturer of item(s) and a 

nonmanufacturer of other item(s) for an 

acquisition, the contracting officer shall 

apply the manufacturer size standard. 

■ 4. Amend section 19.507 by revising 

paragraphs (e) and (h) to read as follows: 

19.507 Solicitation provisions and 

contract clauses. 

* * * * * 

(e) The contracting officer shall insert 

the clause at 52.219–14, Limitations on 

Subcontracting, in solicitations and 

contracts— 

(1) For supplies, services, and 

construction, if any portion of the 

requirement is to be set aside for small 

business and the contract amount is 

expected to exceed the simplified 

acquisition threshold, and in any 

solicitations and contracts that are set 

aside or awarded on a sole-source basis 

in accordance with subparts 19.8, 19.13, 

19.14, or 19.15, regardless of dollar 

value. This includes multiple-award 

contracts when orders may be set aside 

for small business concerns, as 

described in 8.405–5 and 

16.505(b)(2)(i)(F), and when orders may 

be issued directly to a small business 

concern as described in 19.504(c)(1)(ii). 

For contracts that are set aside, the 

contracting officer shall indicate in 

paragraph (f) of the clause whether 

compliance with the limitations on 

subcontracting is required at the 

contract or order level; 

(2) Using the HUBZone price 

evaluation preference. However, if the 

prospective contractor waived the use of 

the price evaluation preference, or is an 

other than small business, do not insert 

the clause in the resultant contract. 

* * * * * 

(h)(1) The contracting officer shall 

insert the clause at 52.219–33, 

Nonmanufacturer Rule, in solicitations 

and contracts (including multiple-award 

contracts when orders may be set aside 

for small business concerns as described 

in 8.405–5 and 16.505(b)(2)(i)(F), and 

when orders may be issued directly to 

a small business concern as described in 

19.504(c)(1)(ii)), when— 

(i) the item being acquired has been 

assigned a manufacturing or supply 

NAICS code, and— 

(ii)(A) Any portion of the requirement 

is to be— 

(1) Set aside for small business and is 

expected to exceed the simplified 

acquisition threshold; or 

(2) Set aside or awarded on a solesource basis in accordance with 

subparts 19.8, 19.13, 19.14, or 19.15, 

regardless of dollar value; or 

(B) Using the HUBZone price 

evaluation preference. However, if the 

prospective contractor waived the use of 

the price evaluation preference, or is an 

other than small business, do not insert 

the clause in the resultant contract. 

(2) The contracting officer shall not 

insert the clause at 52.219–33 when the 

Small Business Administration has 

waived the nonmanufacturer rule (see 

19.505(c)(4)). 

19.811–3 [Amended] 

■ 5. Amend section 19.811–3 by 

removing from paragraph (d) ‘‘The 

clause at 52.219–18 with its Alternate I 

shall be used when’’ and adding ‘‘Use 

the clause at 52.219–18 with its 

Alternate I when’’ in its place. 

19.1308 [Removed and Reserved] 

■ 6. Remove and reserve section 

19.1308. 

■ 7. Revise section 19.1309 to read as 

follows: 

19.1309 Contract clauses. 

(a) The contracting officer shall insert 

the clause at 52.219–3, Notice of 

HUBZone Set-Aside or Sole-Source 

Award, in solicitations and contracts for 

acquisitions that are set aside or 

awarded on a sole-source basis to, 

HUBZone small business concerns 

under 19.1305 or 19.1306. This includes 

multiple-award contracts when orders 

may be set aside for HUBZone small 

business concerns as described in 

8.405–5 and 16.505(b)(2)(i)(F) or when 

orders may be issued directly to one 

HUBZone small business concern in 

accordance with 19.504(c)(1)(ii). 

(b) The contracting officer shall insert 

the clause at 52.219–4, Notice of Price 

Evaluation Preference for HUBZone 

Small Business Concerns, in 

solicitations and contracts for 

acquisitions conducted using full and 

open competition. 

(c) For use of clause 52.219–14, 

Limitations on Subcontracting, see the 

prescription at 19.507(e). 

(d) For use of clause 52.219–33, 

Nonmanufacturer Rule, see the 

prescription at 19.507(h). 

19.1403 [Amended] 

■ 8. Amend section 19.1403 by 

removing from paragraph (d) 

‘‘19.1407(c)’’ and adding ‘‘19.505’’ in its 

place. 

19.1407 [Removed and Reserved] 

■ 9. Remove and reserve section 

19.1407. 

■ 10. Revise section 19.1408 to read as 

follows: 

19.1408 Contract clauses. 

(a) The contracting officer shall insert 

the clause at 52.219–27, Notice of 

Service-Disabled Veteran-Owned Small 

Business Set-Aside, in solicitations and 

contracts for acquisitions that are set 

aside or awarded on a sole- source basis 

to, service-disabled veteran-owned 

small business concerns under 19.1405 

and 19.1406. This includes multipleaward contracts when orders may be set 

aside for service-disabled veteranowned small business concerns as 

described in 8.405–5 and 

16.505(b)(2)(i)(F) or when orders may be 

issued directly to one service-disabled 

veteran-owned small business 

contractor in accordance with 

19.504(c)(1)(ii). 

(b) For use of clause 52.219–14, 

Limitations on Subcontracting, see the 

prescription at 19.507(e). 

(c) For use of clause 52.219–33, 

Nonmanufacturer Rule, see the 

prescription at 19.507(h). 

19.1507 [Removed and Reserved] 

■ 11. Remove and reserve section 

19.1507. 

■ 12. Revise section 19.1508 to read as 

follows: 

19.1508 Contract clauses. 

(a) The contracting officer shall insert 

the clause at 52.219–29, Notice of SetAside for, or Sole-Source Award to, 

Economically Disadvantaged Womenowned Small Business Concerns, in 

solicitations and contracts for 

acquisitions that are set aside or 

awarded on a sole-source basis to, 

EDWOSB concerns under 19.1505(b) or 

19.1506(a). This includes multipleaward contracts when orders may be set 

aside for EDWOSB concerns as 

described in 8.405–5 and 

16.505(b)(2)(i)(F) or when orders may be 

issued directly to one EDWOSB 

contractor in accordance with 

19.504(c)(1)(ii). 

(b) The contracting officer shall insert 

the clause at 52.219–30, Notice of SetAside for, or Sole-Source Award to, 

Women-Owned Small Business 

Concerns Eligible Under the WomenOwned Small Business Program, in 

solicitations and contracts for 

acquisitions that are set aside or 

awarded on a sole-source basis to WOSB 

concerns under 19.1505(c) or 

19.1506(b). This includes multipleaward contracts when orders may be set 

aside for WOSB concerns eligible under 

the WOSB Program as described in 

8.405–5 and 16.505(b)(2)(i)(F) or when 

orders may be issued directly to one 


jbell on DSKJLSW7X2PROD with RULES2
44244 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

WOSB contractor in accordance with 

19.504(c)(1)(ii). 

(c) For use of clause 52.219–14, 

Limitations on Subcontracting, see the 

prescription at 19.507(e). 

(d) For use of clause 52.219–33, 

Nonmanufacturer Rule, see the 

prescription at 19.507(h). 

PART 52—SOLICITATION PROVISIONS 

AND CONTRACT CLAUSES 

■ 13. Amend section 52.204–8 by— 

■ a. Revising the date of the provision; 

■ b. Revising paragraph (a)(3); 

■ c. Revising the date of Alternate I; and 

■ d. Revising paragraph (a)(2) of 

Alternate I. 

The revisions read as follows: 

52.204–8 Annual Representations and 

Certifications. 

* * * * * 

Annual Representations and 

Certifications (SEP 2021) 

(a) * * * 

(3) The small business size standard for a 

concern that submits an offer, other than on 

a construction or service acquisition, but 

proposes to furnish an end item that it did 

not itself manufacture, process, or produce is 

500 employees if the acquisition— 

(i) Is set aside for small business and has 

a value above the simplified acquisition 

threshold; 

(ii) Uses the HUBZone price evaluation 

preference regardless of dollar value, unless 

the offeror waives the price evaluation 

preference; or 

(iii) Is an 8(a), HUBZone, service-disabled 

veteran-owned, economically disadvantaged 

women-owned, or women-owned small 

business set-aside or sole-source award 

regardless of dollar value. 

* * * * * 

Alternate I (SEP 2021). 

* * * 

(a) * * * 

(2) The small business size standard for a 

concern that submits an offer, other than on 

a construction or service acquisition, but 

proposes to furnish an end item that it did 

not itself manufacture, process, or produce, 

(i.e., nonmanufacturer), is 500 employees if 

the acquisition— 

(i) Is set aside for small business and has 

a value above the simplified acquisition 

threshold; 

(ii) Uses the HUBZone price evaluation 

preference regardless of dollar value, unless 

the offeror waives the price evaluation 

preference; or 

(iii) Is an 8(a), HUBZone, service-disabled 

veteran-owned, economically disadvantaged 

women-owned, or women-owned small 

business set-aside or sole-source award 

regardless of dollar value. 

* * * * * 

■ 14. Amend section 52.212–1 by 

revising the date of the provision and 

paragraph (a) to read as follows: 

52.212–1 Instructions to Offerors— 

Commercial Items. 

* * * * * 

Instructions to Offerors—Commercial 

Items (SEP 2021) 

(a) North American Industry Classification 

System (NAICS) code and small business size 

standard. The NAICS code(s) and small 

business size standard(s) for this acquisition 

appear elsewhere in the solicitation. 

However, the small business size standard for 

a concern that submits an offer, other than on 

a construction or service acquisition, but 

proposes to furnish an end item that it did 

not itself manufacture, process, or produce is 

500 employees if the acquisition— 

(1) Is set aside for small business and has 

a value above the simplified acquisition 

threshold; 

(2) Uses the HUBZone price evaluation 

preference regardless of dollar value, unless 

the offeror waives the price evaluation 

preference; or 

(3) Is an 8(a), HUBZone, service-disabled 

veteran-owned, economically disadvantaged 

women-owned, or women-owned small 

business set-aside or sole-source award 

regardless of dollar value. 

* * * * * 

■ 15. Amend section 52.212–5 by 

revising the date of the clause and 

paragraphs (b)(11), (b)(12), (b)(19), 

(b)(21), (b)(22), (b)(23), (b)(24), and 

(b)(26) 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(11) 52.219–3, Notice of HUBZone SetAside or Sole-Source Award (SEP 2021) (15 

U.S.C. 657a). 

ll(12) 52.219–4, Notice of Price 

Evaluation Preference for HUBZone Small 

Business Concerns (SEP 2021) (if the offeror 

elects to waive the preference, it shall so 

indicate in its offer) (15 U.S.C. 657a). 

* * * * * 

ll(19) 52.219–14, Limitations on 

Subcontracting (SEP 2021) (15 U.S.C. 657s). 

* * * * * 

ll(21) 52.219–27, Notice of ServiceDisabled Veteran-Owned Small Business SetAside (SEP 2021) (15 U.S.C. 657f). 

ll(22)(i) 52.219–28, Post-Award Small 

Business Program Rerepresentation (SEP 

2021) (15 U.S.C. 632(a)(2)). 

ll(ii) Alternate I (MAR 2020) of 52.219– 

28. 

ll(23) 52.219–29, Notice of Set-Aside 

for, or Sole-Source Award to, Economically 

Disadvantaged Women-Owned Small 

Business Concerns (SEP 2021) (15 U.S.C. 

637(m)). 

ll(24) 52.219–30, Notice of Set-Aside 

for, or Sole-Source Award to, Women-Owned 

Small Business Concerns Eligible Under the 

Women-Owned Small Business Program 

(SEP 2021) (15 U.S.C. 637(m)). 

* * * * * 

ll(26) 52.219–33, Nonmanufacturer Rule 

(SEP 2021) (15 U.S.C. 657s). 

* * * * * 

■ 16. Amend section 52.219–1 by— 

■ a. Revising the date of the provision; 

■ b. Removing from paragraph (b)(1) ‘‘— 

’’ and adding a space in its place; 

■ c. Revising paragraph (b)(3); 

■ d. Revising the date of Alternate II; 

and 

■ e. Revising paragraph (b)(2) of 

Alternate II. 

The revisions read as follows: 

52.219–1 Small Business Program 

Representations. 

* * * * * 

Small Business Program 

Representations (SEP 2021) 

* * * * * 

(b) * * * 

(3) The small business size standard for a 

concern that submits an offer, other than on 

a construction or service acquisition, but 

proposes to furnish an end item that it did 

not itself manufacture, process, or produce 

(i.e., nonmanufacturer), is 500 employees if 

the acquisition— 

(i) Is set aside for small business and has 

a value above the simplified acquisition 

threshold; 

(ii) Uses the HUBZone price evaluation 

preference regardless of dollar value, unless 

the offeror waives the price evaluation 

preference; or 

(iii) Is an 8(a), HUBZone, service-disabled 

veteran-owned, economically disadvantaged 

women-owned, or women-owned small 

business set-aside or sole-source award 

regardless of dollar value. 

* * * * * 

Alternate II (SEP 2021). 

* * * * * 

(b) * * * 

(2) The small business size standard for a 

concern that submits an offer, other than on 

a construction or service acquisition, but 

proposes to furnish an end item that it did 

not itself manufacture, process, or produce 

(i.e., nonmanufacturer), is 500 employees if 

the acquisition— 

(i) Is set aside for small business and has 

a value above the simplified acquisition 

threshold; 

(ii) Uses the HUBZone price evaluation 

preference regardless of dollar value, unless 

the offeror waives the price evaluation 

preference; or 

(iii) Is an 8(a), HUBZone, service-disabled 

veteran-owned, economically disadvantaged 

women-owned, or women-owned small 

business set-aside or sole-source award 

regardless of dollar value. 

* * * * * 

■ 17. Amend section 52.219–3 by— 

■ a. Revising the introductory text; 

■ b. Revising the title and date of the 

clause; 


jbell on DSKJLSW7X2PROD with RULES2
Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 44245 

■ c. Revising paragraph (a); 

■ d. In paragraph (b)(1) removing ‘‘sole 

source’’ and adding ‘‘sole-source’’ in its 

place; 

■ e. In paragraph (b)(3) removing ‘‘setaside’’ and adding ‘‘set aside’’ in its 

place; 

■ f. Removing paragraphs (d), (e), and 

(f); 

■ g. Redesignating paragraph (g) as 

paragraph (d); and 

■ h. Removing Alternate I. 

The revisions read as follows: 

52.219–3 Notice of HUBZone Set-Aside or 

Sole-Source Award. 

As prescribed in 19.1309(a), insert the 

following clause: 

Notice of HUBZone Set-Aside or SoleSource Award (SEP 2021) 

(a) Definition. ‘‘HUBZone small business 

concern,’’ as used in this clause, means a 

small business concern, certified by the 

Small Business Administration (SBA), that 

appears on the List of Qualified HUBZone 

Small Business Concerns maintained by the 

SBA (13 CFR 126.103). 

* * * * * 

■ 18. Amend section 52.219–4 by— 

■ a. In the introductory text removing 

‘‘19.1309(b)(1)’’ and adding 

‘‘19.1309(b)’’ in its place; 

■ b. Revising the date of the clause; 

■ c. Removing paragraphs (a), (d), and 

(e); 

■ d. Redesignating paragraphs (b), (c) 

and (f) as paragraphs (a), (b) and (c), 

respectively; 

■ e. Revising newly redesignated 

paragraph (b); and 

■ f. Removing Alternate I. 

The revision reads as follows: 

52.219–4 Notice of Price Evaluation 

Preference for HUBZone Small Business 

Concerns. 

* * * * * 

Notice of Price Evaluation Preference 

for HUBZone Small Business Concerns 

(SEP 2021) 

* * * * * 

(b) Waiver of evaluation preference. A 

HUBZone small business concern may elect 

to waive the evaluation preference, in which 

case the factor will be added to its offer for 

evaluation purposes. 

b Offeror elects to waive the evaluation 

preference. 

* * * * * 

■ 19. Revise section 52.219–14 to read 

as follows: 

52.219–14 Limitations on Subcontracting. 

As prescribed in 19.507(e), insert the 

following clause: 

Limitations on Subcontracting (SEP 

2021) 

(a) This clause does not apply to the 

unrestricted portion of a partial set-aside. 

(b) Definition. Similarly situated entity, as 

used in this clause, means a first-tier 

subcontractor, including an independent 

contractor, that— 

(1) Has the same small business program 

status as that which qualified the prime 

contractor for the award (e.g., for a small 

business set-aside contract, any small 

business concern, without regard to its 

socioeconomic status); and 

(2) Is considered small for the size standard 

under the North American Industry 

Classification System (NAICS) code the 

prime contractor assigned to the subcontract. 

(c) Applicability. This clause applies only 

to— 

(1) Contracts that have been set aside for 

any of the small business concerns identified 

in 19.000(a)(3); 

(2) Part or parts of a multiple-award 

contract that have been set aside for any of 

the small business concerns identified in 

19.000(a)(3); 

(3) Contracts that have been awarded on a 

sole-source basis in accordance with subparts 

19.8, 19.13, 19.14, and 19.15; 

(4) Orders expected to exceed the 

simplified acquisition threshold and that 

are— 

(i) Set aside for small business concerns 

under multiple-award contracts, as described 

in 8.405–5 and 16.505(b)(2)(i)(F); or 

(ii) Issued directly to small business 

concerns under multiple-award contracts as 

described in 19.504(c)(1)(ii); 

(5) Orders, regardless of dollar value, that 

are— 

(i) Set aside in accordance with subparts 

19.8, 19.13, 19.14, or 19.15 under multipleaward contracts, as described in 8.405–5 and 

16.505(b)(2)(i)(F); or 

(ii) Issued directly to concerns that qualify 

for the programs described in subparts 19.8, 

19.13, 19.14, or 19.15 under multiple-award 

contracts, as described in 19.504(c)(1)(ii); and 

(6) Contracts using the HUBZone price 

evaluation preference to award to a HUBZone 

small business concern unless the concern 

waived the evaluation preference. 

(d) Independent contractors. An 

independent contractor shall be considered a 

subcontractor. 

(e) Limitations on subcontracting. By 

submission of an offer and execution of a 

contract, the Contractor agrees that in 

performance of a contract assigned a North 

American Industry Classification System 

(NAICS) code for— 

(1) Services (except construction), it will 

not pay more than 50 percent of the amount 

paid by the Government for contract 

performance to subcontractors that are not 

similarly situated entities. Any work that a 

similarly situated entity further subcontracts 

will count towards the prime contractor’s 50 

percent subcontract amount that cannot be 

exceeded. When a contract includes both 

services and supplies, the 50 percent 

limitation shall apply only to the service 

portion of the contract; 

(2) Supplies (other than procurement from 

a nonmanufacturer of such supplies), it will 

not pay more than 50 percent of the amount 

paid by the Government for contract 

performance, excluding the cost of materials, 

to subcontractors that are not similarly 

situated entities. Any work that a similarly 

situated entity further subcontracts will 

count towards the prime contractor’s 50 

percent subcontract amount that cannot be 

exceeded. When a contract includes both 

supplies and services, the 50 percent 

limitation shall apply only to the supply 

portion of the contract; 

(3) General construction, it will not pay 

more than 85 percent of the amount paid by 

the Government for contract performance, 

excluding the cost of materials, to 

subcontractors that are not similarly situated 

entities. Any work that a similarly situated 

entity further subcontracts will count 

towards the prime contractor’s 85 percent 

subcontract amount that cannot be exceeded; 

or 

(4) Construction by special trade 

contractors, it will not pay more than 75 

percent of the amount paid by the 

Government for contract performance, 

excluding the cost of materials, to 

subcontractors that are not similarly situated 

entities. Any work that a similarly situated 

entity further subcontracts will count 

towards the prime contractor’s 75 percent 

subcontract amount that cannot be exceeded. 

(f) The Contractor shall comply with the 

limitations on subcontracting as follows: 

(1) For contracts, in accordance with 

paragraphs (c)(1), (2), (3) and (6) of this 

clause— 

[Contracting Officer check as appropriate.] 

llBy the end of the base term of the 

contract and then by the end of each 

subsequent option period; or 

llBy the end of the performance period 

for each order issued under the contract. 

(2) For orders, in accordance with 

paragraphs (c)(4) and (5) of this clause, by the 

end of the performance period for the order. 

(g) A joint venture agrees that, in the 

performance of the contract, the applicable 

percentage specified in paragraph (e) of this 

clause will be performed by the aggregate of 

the joint venture participants. 

(End of clause) 

■ 20. Amend section 52.219–27 by— 

■ a. Revising the date of the clause; 

■ b. Removing paragraphs (d) and (e); 

■ c. Redesignating paragraph (f) as 

paragraph (d); and 

■ d. Revising newly redesignated 

paragraph (d). 

The revisions read as follows: 

52.219–27 Notice of Service-Disabled 

Veteran-Owned Small Business Set-Aside. 

* * * * * 

Notice of Service-Disabled VeteranOwned Small Business Set-Aside (SEP 

2021) 

* * * * * 

(d) A joint venture may be considered a 

service-disabled veteran owned small 

business concern if— 

(1) At least one member of the joint venture 

is a service-disabled veteran-owned small 

business concern, and makes the following 

representations: 

(i) That it is a service-disabled veteranowned small business concern, and 


jbell on DSKJLSW7X2PROD with RULES2
44246 Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations 

(ii) That it is a small business concern 

under the North American Industry 

Classification Systems (NAICS) code 

assigned to the procurement; 

(2) Each other concern is small under the 

size standard corresponding to the NAICS 

code assigned to the procurement; 

(3) The joint venture meets the 

requirements of 13 CFR 121.103(h); and 

(4) The joint venture meets the 

requirements of 13 CFR 125.15(b). 

■ 21. Amend section 52.219–28 by 

revising the date of the clause and 

paragraph (e) to read as follows: 

52.219–28 Post-Award Small Business 

Program Rerepresentation. 

* * * * * 

Post-Award Small Business Program 

Rerepresentation (SEP 2021) 

* * * * * 

(e) The small business size standard for a 

Contractor providing an end item that it does 

not manufacture, process, or produce itself, 

for a contract other than a construction or 

service contract, is 500 employees if the 

acquisition— 

(1) Was set aside for small business and 

has a value above the simplified acquisition 

threshold; 

(2) Used the HUBZone price evaluation 

preference regardless of dollar value, unless 

the Contractor waived the price evaluation 

preference; or 

(3) Was an 8(a), HUBZone, service-disabled 

veteran-owned, economically disadvantaged 

women-owned, or women-owned small 

business set-aside or sole-source award 

regardless of dollar value. 

* * * * * 

■ 22. Amend section 52.219–29 by— 

■ a. Revising the section heading, clause 

heading, and date of the clause; 

■ b. In paragraph (a) removing from the 

definition ‘‘Economically disadvantaged 

women-owned small business 

(EDWOSB) concern’’ ‘‘means- A small’’ 

and adding ‘‘means a small’’ in its place; 

■ c. In paragraph (b)(1) removing ‘‘sole 

source’’ and adding ‘‘sole-source’’ in its 

place; 

■ d. Removing paragraphs (d) and (e); 

■ e. Redesignating paragraph (f) as 

paragraph (d); 

■ f. In newly redesignated paragraph 

(d)— 

■ i. In paragraph (1) removing ‘‘NAICS’’ 

and adding ‘‘North American Industry 

Classification System’’ in its place; 

■ ii. In paragraph (3)(v) removing 

‘‘venture.’’ and adding ‘‘venture; and’’ 

in its place; 

■ iii. Removing paragraph (4); 

■ iv. Redesignating paragraph (5) as (4); 

and 

■ v. In newly redesignated paragraph (4) 

removing ‘‘procuring activity’’ and 

adding ‘‘Contracting Officer’’ in its 

place. 

The revision reads as follows: 

52.219–29 Notice of Set-Aside for, or SoleSource Award to, Economically 

Disadvantaged Women-Owned Small 

Business Concerns. 

* * * * * 

Notice of Set-Aside for, or Sole-Source 

Award to, Economically Disadvantaged 

Women-Owned Small Business 

Concerns (SEP 2021) 

* * * * * 

■ 23. Amend section 52.219–30 by— 

■ a. Revising the section heading, clause 

heading, date of the clause, and the 

introductory text of paragraph (a); 

■ b. In paragraph (b)(1) removing ‘‘sole 

source’’ and adding ‘‘sole-source’’ in its 

place; 

■ c. In the second sentence of paragraph 

(c)(1) removing ‘‘WOSB program’’ and 

adding ‘‘WOSB Program’’ in its place; 

■ d. Removing paragraphs (d) and (e); 

■ e. Redesignating paragraph (f) as 

paragraph (d); 

■ f. In newly redesignated paragraph (d): 

■ i. In paragraph (1) removing ‘‘NAICS’’ 

and adding ‘‘North American Industry 

Classification System’’ in its place; 

■ ii. In paragraph (d)(3)(v) removing 

‘‘venture.’’ and adding ‘‘venture; and’’ 

in its place; 

■ iii. Removing paragraph (4); 

■ iv. Redesignating paragraph (5) as (4); 

and 

■ v. In newly redesignated paragraph (4) 

removing ‘‘procuring activity’’ and 

adding ‘‘Contracting Officer’’ in its 

place. 

The revisions read as follows: 

52.219–30 Notice of Set-Aside for, or SoleSource Award to, Women-Owned Small 

Business Concerns Eligible Under the 

Women-Owned Small Business Program. 

* * * * * 

Notice of Set-Aside for, or Sole-Source 

Award to, Women-Owned Small 

Business Concerns Eligible Under the 

Women-Owned Small Business 

Program (SEP 2021) 

(a) Definitions. As used in this clause— 

* * * * * 

■ 24. Revise section 52.219–33 to read 

as follows: 

52.219–33 Nonmanufacturer Rule. 

As prescribed in 19.507(h), insert the 

following clause: 

Nonmanufacturer Rule (SEP 2021) 

(a) Definitions. As used in this clause— 

Manufacturer means the concern that 

transforms raw materials, miscellaneous 

parts, or components into the end item. 

Concerns that only minimally alter the item 

being procured do not qualify as 

manufacturers of the end item. Concerns that 

add substances, parts, or components to an 

existing end item to modify its performance 

will not be considered the end item 

manufacturer, where those identical 

modifications can be performed by and are 

available from the manufacturer of the 

existing end item. 

Nonmanufacturer means a concern, 

including a supplier, that provides an end 

item it did not manufacture, process, or 

produce. 

(b) Applicability. 

(1) This clause does not apply to contracts 

awarded pursuant to the unrestricted portion 

of a partial set-aside or to a contractor that 

is the manufacturer of the product or end 

item. 

(2) This clause applies to— 

(i) Contracts that have been awarded 

pursuant to a set-aside, in total or in part, for 

any of the small business concerns identified 

in 19.000(a)(3); 

(ii) Contracts that have been awarded on a 

sole-source basis in accordance with subparts 

19.8, 19.13, 19.14, and 19.15; 

(iii) Orders expected to exceed the 

simplified acquisition threshold and that 

are— 

(A) Set aside for small business under 

multiple-award contracts, as described in 

8.405–5 and 16.505(b)(2)(i)(F); or 

(B) Issued directly to a small business 

concern under multiple-award contracts as 

described in 19.504(c)(1)(ii); 

(iv) Orders, regardless of dollar value, that 

are— 

(A) Set aside in accordance with subparts 

19.8, 19.13, 19.14, and 19.15 under multipleaward contracts as described in 8.405–5 and 

16.505(b)(2)(i)(F); or 

(B) Issued directly to concerns that qualify 

for the programs described in subparts 19.8, 

19.13, 19.14, and 19.15 under multiple-award 

contracts as described in 19.504(c)(1)(ii); and 

(v) Contracts using the HUBZone price 

evaluation preference to award to a HUBZone 

concern unless the Contractor waived the 

evaluation preference. 

(c) Requirements. 

(1) The Contractor shall— 

(i) Provide an end item that a small 

business has manufactured, processed, or 

produced in the United States or its outlying 

areas; for kit assemblers who are 

nonmanufacturers, see paragraph (c)(2) of 

this clause instead; 

(ii) Be primarily engaged in the retail or 

wholesale trade and normally sell the type of 

item being supplied; and 

(iii) Take ownership or possession of the 

item(s) with its personnel, equipment, or 

facilities in a manner consistent with 

industry practice; for example, providing 

storage, transportation, or delivery. 

(2) When the end item being acquired is a 

kit of supplies, at least 50 percent of the total 

cost of the components of the kit shall be 

manufactured, processed, or produced in the 

United States or its outlying areas by small 

business concerns. 

(End of clause) 

* * * * * 

[FR Doc. 2021–16364 Filed 8–10–21; 8:45 am] 

BILLING CODE 6820–EP–P 


jbell on DSKJLSW7X2PROD with RULES2