[Federal Register: January 31, 2003 (Volume 68, Number 21)]
[Proposed Rules]
[Page 5138-5142]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31ja03-46]
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DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 2, 7, 8, 16, 19, and 42
[FAR Case 2002-029]
RIN: 9000-AJ58
Federal Acquisition Regulation; Contract Bundling
AGENCIES: Department of Defense (DoD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Proposed rule.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council (Councils) are proposing to amend the
Federal Acquisition Regulation (FAR) to implement the recommendations
of the Office of Management and Budget (OMB) in its report entitled.
``A Strategy for Increasing Federal Contracting Opportunities for Small
Business.''
DATES: Interested parties should submit comments in writing on or
before April 1, 2003 to be considered in the formulation of a final
rule.
ADDRESSES: Submit written comments to--General Services Administration,
FAR Secretariat (MVA), 1800 F Street, NW, Room 4035, ATTN: Laurie
Duarte, Washington, DC 20405.
Submit electronic comments via the Internet to--farcase.2002-
029@gsa.gov. Please submit comments only and cite FAR case 2002-029 in
all correspondence related to this case.
FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS
Building, Washington, DC 20405, at (202) 501-4755 for information
pertaining to status or publication schedules. For clarification of
content, contact Ms. Rhonda Cundiff, Procurement Analyst, at (202) 501-
0044. Please cite FAR case 2002-029. The TTY Federal Relay Number for
further information is 1-800-877-8973.
SUPPLEMENTARY INFORMATION:
A. Background
On March 19, 2002, the President unveiled a Small Business Agenda
that proposed several substantive steps toward creating a dynamic
environment where small businesses and entrepreneurs can flourish. The
plan included new tax incentives, health care options, and a reduction
in regulatory barriers. For those small businesses
[[Page 5139]]
seeking to do business with the Federal Government, the President
announced several proposals to improve the access of small businesses
to Federal contracting opportunities. Specifically, the President
called upon the Office of Management and Budget (OMB) to prepare a
strategy for unbundling contracts. Contract bundling is defined in
Section 3(o) of the Small Business Act to mean the consolidation of two
or more requirements for goods or services previously provided or
performed under separate smaller contracts into a solicitation of
offers for a single award contract that is ``unlikely to be suitable
for award to a small business concern.'' 15 U.S.C. 632(o). Over the
past decade, the number and size of bundled contracts have increased
sharply and have resulted in a dramatic decline in small business
Federal contracting opportunities.
In response to the President's call for a strategy to unbundled
contracts, the Office of Federal Procurement Policy (OFPP), within OMB,
created an interagency working group to develop a plan for increasing
contracting opportunities for small businesses. As part of the working
group's efforts, OFPP published a notice in the Federal Register
soliciting public comments and held a public meeting on June 14, 2002,
to provide interested parties an opportunity to express their views on
contract bundling. By the end of the comment period, OFPP received 27
public comments and 14 individual presentations at the June 14 public
meeting.
Based on the working group's analysis of available data and
information, including the public comments received in writing and at
the June 14 public meeting, OMB issued a report in October 2002
entitled ``Contract Bundling: A Strategy for Increasing Federal
Contracting Opportunities for Small Business.'' See http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.acqnet.gov/Notes/
contractbundlingreport.pdf or http://
http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=www.acqnet.gov/. The report cites data indicating that for every 100
``bundled'' contracts, 106 individual contracts are no longer available
to small businesses. The report also notes that according to a report
prepared for the Small Business Administration (SBA) Office of
Advocacy, for every $100 awarded on a ``bundled'' contract, there is a
$33 decrease to small businesses.
To address the harmful effects of contract bundling on the nation's
small businesses, OMB's report offers a nine-point action plan designed
to hold agencies accountable for eliminating unnecessary contract
bundling and mitigating the effects of necessary contract bundling.
Several of these Action Items, such as the Action Items calling for
greater accountability of senior agency management, the collection and
dissemination of best practices for maximizing prime and subcontracting
opportunities for small businesses and facilitating development of the
teams of small business contractors, will be implemented through
initiatives conducted by OMB, SBA, and procuring agencies.
Other Action Items, however, require a series of amendments to
SBA's regulations and applicable provisions of the Federal Acquisition
Regulation (FAR). Action Item 3 recommends regulatory changes to
expressly require bundling reviews of multiple award contract vehicles
and task and delivery orders under such procurements. OMB's report
notes that there has been a significant increase in the use of such
contracting vehicles. Since neither the FAR nor SBA's regulations
specifically require bundling reviews of orders under multiple award
contracts, multi-agency contracts, Governmentwide acquisition contracts
and the General Services Administration (GSA) Multiple Award Schedule
Program, an explicit regulatory amendment mandating such reviews is
necessary.
Action Item 4 proposes the establishment of agency-specific
acquisition dollar thresholds, within the range of $2 million and $7
million, that would trigger bundling reviews by the agency Office of
Small and Disadvantaged Business Utilization (OSDBU). In addition, to
ensure that agencies explore alternative acquisition strategies, Action
Item 5 recommends that when an agency contemplates a bundled
procurement above the established threshold, the agency must identify
alternative acquisition strategies and justify the rationale for
selecting a particular strategy over another that would involve less
bundling.
Finally, as a means of mitigating contract bundling determined to
be necessary and justified, Action Item 6 calls for measures to
strengthen compliance with the plans of large business prime
contractors for subcontracting with small businesses. In addition,
Action Item 7 further requires measures to facilitate small business
teams including joint ventures to effectively compete for bundled
contracts. In connection with Action Item 7, the report requires that
SBA determine whether regulatory changes are appropriate to encourage
the development of such small business teaming arrangements.
This rule proposes to amend the FAR to implement these specific
Action Items. The proposed amendments were drafted in conjunction with
a companion proposal to amend applicable provisions of the SBA
regulations which is also published for comment in the Federal Register
as a separate rulemaking action.
This is a significant regulatory action and, therefore, was subject
to review under Section 6(b) of Executive Order 12866, Regulatory
Planning and Review, dated September 30, 1993. This rule is not a major
rule under 5 U.S.C. 804.
B. Section-by-Section Analysis of the Federal Acquisition Regulation
To implement OMB's Action Item 3 requirement for bundling reviews
of task and delivery orders under multiple award contract vehicles, the
proposed rule would add to the bundling definition in FAR 2.101 the
definition of a ``single contract'' to include (1) an indefinite
quantity contract awarded to two or more sources under a single
solicitation for the same or similar supplies and services, and (2)
include an order under a Federal Supply Schedule contract or a task-or
delivery-order contract awarded by another agency (i.e., Governmentwide
acquisition contract or multi-agency contract). By adding the
definition of a ``single contract'', the regulations would make clear
that some orders may fall within the scope of the definition of
contract bundling and are, therefore, subject to the applicable
requirements for bundling reviews and justifications.
As required in connection with Action Items 4 and 5 of OMB's
report, the proposed rule would add FAR 7.104(d)(1) to require the
planner to coordinate the acquisition plan or strategies with the
cognizant small business specialist (SBS) when the strategy
contemplates award of a contract or order meeting the agency dollar
amounts as indicated in proposed new FAR 7.104(d)(2), unless the
contract or order is entirely reserved or set-aside for small business
under FAR Part 19. As proposed in FAR 7.104(d), the SBS shall notify
the agency OSDBU if the proposed acquisition strategy involves contract
bundling that the agency has not identified as bundled or includes
unnecessary or unjustified bundling of requirements. In addition, as
required in proposed FAR 7.104(d)(2), the acquisition strategy shall be
coordinated with the cognizant small business specialist in accordance
with FAR 7.104(d)(1) if the estimated contract or order value dollar
thresholds established in the proposed three separate agency-specific
dollar
[[Page 5140]]
thresholds: $7 million or more for the Department of Defense; $5
million or more for the National Aeronautics and Space Administration,
the Department of Energy and GSA; and $2 million or more for all other
agencies. The dollar amounts of the three-tier acquisition threshold
are based on a comparative analysis of the number and size of the
contracting actions of the major procuring activities and are intended
to target contracting actions that would most likely involve contract
bundling, while at the same time minimize the extent to which the
bundling reviews would disrupt the procurement process of the
individual agency. GSA specifically invites public comment on the
proposed three-tier acquisition threshold and on alternatives that
would best achieve the intended purposes of Action Items 4 and 5.
As part of Action Item 3, FAR 7.107(b)(1), 7.107(b)(2), 7.107(d),
and 7.107(e) would be revised to add the word ``order'' to the
additional requirements for acquisitions involving contract bundling.
In an effort to streamline the requirements for reviewing and
justifying bundled requirements, the proposed rule would revise the
existing FAR 7.107(e) to define ``substantial bundling'' as any
bundling that results in a contract or order that meets agency dollar
amounts specified in the proposed FAR 7.104(d)(2). This change will
simplify the application of FAR 7.107(e) by using the same dollar
thresholds to trigger SBS notification to the agency OSDBU under the
proposed FAR 7.104(d)(1), and to require supporting documentation for
substantial bundling under 7.107(e). Consistent with OMB's Action Item
5, the FAR would be revised to add 7.107(e)(6) to require the
identification of alternative strategies that would reduce or minimize
the scope of the bundling, and the rationale for not choosing those
alternatives.
In connection with OMB's Action Item 3, FAR 8.404(a)(1) would be
revised to add that the requirement at FAR 19.202-1(e)(1)(iii) applies
to orders placed against Federal Supply Schedules. Further, FAR
8.404(a)(2) would be revised to add that orders placed under a Federal
Supply Schedule contract must comply with all FAR requirements for a
bundled contract when the order meets the proposed FAR definition of
``bundled contract''.
In connection with OMB's Action Item 3, the proposed rule would add
to FAR 16.505(a)(7) that orders placed under a task-order or delivery-
order contract awarded by another agency must comply with all FAR
requirements for a bundled contract when the order meets the proposed
FAR definition of ``bundled contract.''
In connection with OMB's general call for strengthening OSDBU
oversight and greater utilization of their resources, the proposed rule
would add FAR 19.201(d)(11) to impose a new OSDBU oversight function.
Under this proposed FAR 19.201(d)(11), OSDBUs would be required to
conduct periodic reviews to assess: (1) The extent to which small
businesses are receiving their fair share of Federal procurements under
the programs administered under the Small Business Act; (2) the
adequacy of contract bundling documentation and justification; and (3)
the actions taken to mitigate the effects of necessary and justified
contracting bundling on small businesses. Under this proposed rule, FAR
19.201(d)(12) would require OSDBUs to submit a copy of their assessment
to the Agency Head and SBA Administrator.
FAR 19.202 would add a requirement that agencies shall establish
procedures including dollar thresholds for review of acquisitions by
the OSDBU Director, or the Director's designee, as to whether a
particular acquisition should be awarded under FAR Subpart 19.5, 19.8,
or 19.13. This proposed change would further OMB's general
recommendation for the identification of alternative acquisition
strategies to increase small business participation in procurements.
We propose to amend FAR 19.202(1)(e)(1)(iii) to assign additional
responsibilities to the SBA Procurement Center Representatives (PCRs)
and procuring activities in the acquisition planning process by adding
the requirement that the contracting officer provide all information
relative to the justification of contract bundling when the acquisition
involves substantial bundling, including the acquisition plan or
strategy, and if the acquisition involves substantial bundling, the
information identified in 7.107(e). Further, 19.202(1)(e)(iii) will
require the contracting officer to provide this same information to the
agency OSDBU when the acquisition involves substantial bundling.
Consistent with OMB's Action Item 6 proposal to mitigate the
effects of contract bundling by strengthening compliance with small
business subcontracting plans, the proposed rule would add language in
FAR 42.1502 to require an assessment of contractor compliance with the
goals identified in the small business subcontracting plan in contracts
that require a subcontracting plan. As currently written, FAR
15.304(c)(3)(iii) requires that only in solicitations involving
bundling that offer a significant opportunity for subcontracting, the
contracting officer must include a factor to evaluate past performance
indicating the extent to which the offeror attained applicable goals
for small business participation under contracts that required
subcontracting plans. Based on the findings of the General Accounting
Office (GAO) that agency oversight of large business compliance with
subcontracting plans has been inconsistent, this proposed change
contemplates a more systemic review of an agency's general oversight as
well as its individual assessment of contractor subcontracting plan
compliance to facilitate greater consistency in agency oversight in the
future. See GAO Report, ``Small Business Subcontracting Report
Validation Can Be Improved'', GAO-02-166R Subcontracting Data, December
13, 2001.
C. Regulatory Flexibility Act
The changes may have a significant economic impact on a substantial
number of small entities within the meaning of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq., because it proposes to increase
small business contracting opportunities. An Initial Regulatory
Flexibility Analysis (IRFA) has been prepared and will be provided to
the Chief Counsel for Advocacy for the Small Business Administration.
The analysis reads as follows:
1. Reasons for proposed rule
This rule proposes to amend the Federal Acquisition Regulation
(FAR) to implement the recommendations of the Office of Management
and Budget (OMB) in its report entitled ``A Strategy for Increasing
Opportunities for Small Business.'' The proposed FAR changes will:
(1) Clarify the definition of ``bundling'' to indicate it applies to
orders placed against Federal Supply Schedules and another agency's
Governmentwide Acquisition contracts or Multi-agency contracts when
those orders otherwise meet the parameters of the definition; (2)
require the small business specialist to coordinate on agency
acquisition strategies at specified dollar thresholds and notify the
agency Office of Small and Disadvantaged Business Utilization
(OSDBU) when those strategies include contract bundling that is
unnecessary, unjustified, or not identified as such by the agency;
(3) reduce the threshold for ``substantial bundling''; (4) revise
the documentation requirements for substantial bundling to include
identification of alternative acquisition strategies that would
result in the bundling of fewer requirements, along with
justification for not choosing those alternatives; (5) require
contracting officers to provide bundling justification documentation
to the agency OSDBU when substantial bundling is involved; (6)
require performance evaluations to include an assessment of
[[Page 5141]]
contractor compliance with small business subcontracting goals; and
(7) require the OSDBU to be responsible for conducting periodic
reviews to assess agency contract bundling requirements and the
extent to which small businesses are receiving a fair share of
Federal procurements.
2. Objectives of and legal basis for this rule
The objective of this proposed rule is to further the
Administration's commitment of creating a Government strategy for
unbundling Federal contracts to increase Federal contracting
opportunities for small business. In order to accomplish this
commitment, this proposed rule provides FAR coverage that implements
the recommendations of OMB in its report entitled ``Contract
Bundling: A Strategy for Increasing Opportunities for Small
Business.''
3. Description of and Estimate of the Number of Small Entities to
Which the Rule Will Apply, or an Explanation if Such Estimate is
Not Available
The proposed rule will indirectly apply to all large and small
entities that seek award of Federal service contracts. The rule
should have a positive economic impact on small prime contractors
and subcontractors by providing more Federal contracting
opportunities for small businesses. In a report filed last year with
the House and Senate Small Business Committee, the U.S. Small
Business Administration identified from the Federal Procurement Data
Center (FPDS) only four material bundling cases with a total value
of $60 million for the first three quarters of FY 2001. This
represents 0.0004% of Federal contract dollar activity (contract
bundling estimate rate which is $60 million divided by $150 billion
for three-fourths of a year). The new rule now encompasses reviews
of high dollar value orders. At most, this is expected to be $3
billion. For example, using the data from table 1 for FY 2001 at DOD
FFS-GWAC-MACS $7 million or more 659 and FSS+585 = $1.244 billion or
for FY 2002 857+717 = $1.574 billion orders to be reviewed. Applying
the contract bundling estimate rate SBA's .0004% to these previously
un-reviewed contract order dollars of $3 billion, we expect that
approximately $1 million dollars of orders will be identified as
bundled.
4. Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Rule, Including an Estimate of the
Classes of Small Entities Which Will be Subject to the Requirement
and the Type of Professional Skills Necessary for Preparation of
the Report or Record
The proposed rule imposes no reporting, recordkeeping, or other
compliance requirements.
5. Relevant Federal Rules That May Duplicate, Overlap, or Conflict
With the Rule
The companion proposed rule being published by the Small
Business Administration at the same time as the FAR proposed rule.
6. Description of Any Significant Alternatives to the Proposed Rule
Which Accomplish the Stated Objectives of Applicable Statutes and
Which Minimize the Rule's Economic Impact on Small Entities
Currently, there are no practical alternatives that will
accomplish the objectives of this proposed rule.
The FAR Secretariat has submitted a copy of the IRFA to the Chief
Counsel for Advocacy of the Small Business Administration. A copy of
the IRFA may be obtained from the FAR Secretariat. The Councils will
consider comments from small entities concerning the affected FAR parts
2, 7, 8, 16, 19, and 42 in accordance with 5 U.S.C. 610. Comments must
be submitted separately and should cite 5 U.S.C 601, et seq. (FAR case
2002-029), in correspondence.
D. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the proposed
changes to the FAR do not impose information collection requirements
that require the approval of the Office of Management and Budget under
44 U.S.C. 3501, et seq.
List of Subjects in 48 CFR Parts 2, 7, 8, 16, 19, and 42
Government procurement.
Dated: January 24, 2003.
Al Matera,
Director, Acquisition Policy Division.
Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 2, 7,
8, 16, 19, and 42 as set forth below:
1. The authority citation for 48 CFR parts 2, 7, 8, 16, 19, and 42
continues to read as follows:
Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
PART 2--DEFINITIONS OF WORDS AND TERMS
2. Amend section 2.101(b)(2) in the definition ``Bundling'' by
redesignating paragraph (3) as (4) and adding a new paragraph (3) to
read as follows:
2.101 Definitions.
* * * * *
Bundling means--
* * * * *
(3) Single contract, as used in this definition, includes--
(i) An indefinite quantity contract awarded to two or more sources
under a single solicitation for the same or similar supplies and
services (see FAR 16.504(c)); and
(ii) An order placed against an indefinite quantity contract under
a--
(A) Federal Supply Schedule contract; or
(B) Task-order contract or delivery-order contract awarded by
another agency (i.e., Governmentwide acquisition contract or multi-
agency contract).
* * * * *
PART 7--ACQUISITION PLANNING
3. Amend section 7.104 by adding paragraph (d) to read as follows:
7.104 General procedures.
* * * * *
(d)(1) The planner shall coordinate the acquisition plan or
strategy with the cognizant small business specialist when the strategy
contemplates award of a contract or order meeting the dollar amounts in
paragraph (d)(2) of this section unless the contract or order is
entirely reserved or set-aside for small business under Part 19. The
small business specialist shall notify the agency Office of Small and
Disadvantaged Business Utilization if the strategy involves contract
bundling that is unnecessary, unjustified, or not identified as bundled
by the agency.
(2) The strategy shall be coordinated with the cognizant small
business specialist in accordance with paragraph (d)(1) of this section
if the estimated contract or order value is--
(i) $7 million or more for the Department of Defense;
(ii) $5 million or more for the National Aeronautics and Space
Administration, the General Services Administration, and the Department
of Energy; and
(iii) $2 million or more for all other agencies.
4. Amend section 7.107 in paragraphs (b)(1), (b)(2), and (d) by
adding the words ``or order'' after the word ``contract''; revising
paragraph (e), introductory text, paragraphs (e)(4) and (e)(5); and
adding (e)(6) to read as follows:
7.107 Additional requirements for acquisitions involving bundling.
* * * * *
(e) Substantial bundling is any bundling that results in a contract
or order that meets the dollar amounts specified in 7.104(d)(2). When
the proposed acquisition strategy involves substantial bundling, the
acquisition strategy must additionally--
* * * * *
(4) Specify actions designed to maximize small business
participation as subcontractors (including suppliers) at any tier under
the contracts, or order, that may be awarded to meet the requirements;
(5) Include a specific determination that the anticipated benefits
of the
[[Page 5142]]
proposed bundled contract or order justify its use; and
(6) Identify alternative strategies that would reduce or minimize
the scope of the bundling, and the rationale for not choosing those
alternatives.
* * * * *
PART 8--REQUIRED SOURCES OF SUPPLIES AND CONTRACTS
5. Amend section 8.404 in the introductory text of paragraph (a)(1)
by removing the period at the end of the first sentence and adding
``and the requirement at 19.202-1(e)(1)(iii).'' in its place; and
revising paragraph (a)(2) to read as follows:
8.404 Using schedules.
(a) * * *
(2) Orders placed under a Federal Supply Schedule contract--
(i) Are not exempt from the development of acquisition plans (see
Subpart 7.1), and an information technology acquisition strategy (see
Part 39); and
(ii) Must comply with all FAR requirements for a bundled contract
when the order meets the definition of ``bundled contract'' (see
2.101(b)).
* * * * *
PART 16--TYPES OF CONTRACTS
6. Amend section 16.505 by removing the word ``and'' from the end
of paragraph (a)(7)(i); removing the period at the end of paragraph
(a)(7)(ii) and adding ``; and'' in its place; and adding paragraph
(a)(7)(iii) to read as follows:
16.505 Ordering.
(a) * * *
(7) * * *
(iii) Must comply with all FAR requirements for a bundled contract
when the order meets the definition of ``bundled contract'' (see
2.101(b)).
* * * * *
PART 19--SMALL BUSINESS PROGRAMS
7. Amend section 19.201 by removing the period at the end of
paragraph (d)(10) and adding a semicolon in its place; and adding
paragraphs (d)(11) and (d)(12) to read as follows:
19.201 General policy.
* * * * *
(d) * * *
(11) Conduct periodic reviews to assess the--
(i) Extent to which small businesses are receiving a fair share of
Federal procurements, including contract opportunities under the
programs administered under the Small Business Act;
(ii) Adequacy of contract bundling documentation and
justifications; and
(iii) Actions taken to mitigate the effects of necessary and
justified contract bundling on small businesses; and
(12) Provide a copy of the assessment made under paragraph (d)(11)
of this section to the Agency Head and SBA Administrator.
* * * * *
8. Amend section 19.202 by adding a new sentence after the first
sentence to read as follows:
19.202 Specific policies.
* * * Agencies shall establish procedures including dollar
thresholds for review of acquisitions by the Director or the Director's
designee for the purpose of making these recommendations. * * *
9. Amend section 19.202-1 by revising paragraph (e)(1)(iii) to read
as follows:
19.202-1 Encouraging small business participation in acquisitions.
* * * * *
(e)(1) * * *
(iii) The proposed acquisition is for a bundled requirement. (See
10.001(c)(2)(i) for mandatory 30-day notice requirement to incumbent
small business concerns.) The contracting officer shall provide all
information relative to the justification of contract bundling,
including the acquisition plan or strategy and, if the acquisition
involves substantial bundling, the information identified in 7.107(e).
When the acquisition involves substantial bundling, the contracting
officer shall also provide the same information to the agency Office of
Small and Disadvantaged Business Utilization.
* * * * *
PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES
10. Amend section 42.1502 by adding a new sentence to the end of
paragraph (a) to read as follows:
42.1502 Policy.
(a) * * * These procedures shall require an assessment of
contractor compliance with the goals identified in the small business
subcontracting plan when the contract includes the clause at 52.219-9,
Small Business Subcontracting Plan.
* * * * *
[FR Doc. 03-2159 Filed 1-30-03; 8:45 am]