A. Background

DoD, GSA, and NASA published a proposed rule in the Federal Register at 74 FR 16823 on April 13, 2009. This FAR final rule implements the Small Business Administration (SBA) final rule published in the Federal Register at 69 FR 29411 on May 24, 2004, and an interim rule amending its HUBZone regulations at 13 CFR part 126 to implement the Small Business Reauthorization Act of 2000, the Consolidated Appropriations Act, 2005, and other various policy changes published in the Federal Register at 70 FR 51243 on August 30, 2005. The public comment period for the FAR proposed rule closed June 12, 2009. Seven respondents submitted comments on the proposed rule. A discussion of the comments and the changes made to the rule as a result of those comments are provided below.

1. Comment: Confirmation of subcontractors' representation. The respondent expressed concern that the addition of paragraph (d)(2) to FAR 52.219-8, Utilization of Small Business Concerns, requiring prime contractors to confirm that a subcontractor's representation as a HUBZone concern has been certified by the SBA, would add time and expense to the solicitation and award of subcontracts, particularly when Web sites are down for maintenance or experiencing technical issues and prime contractors must rely on a written response from the SBA to a letter or e-mail. The respondent is concerned that this requirement imposes an additional burden on prime contractors that will result in no direct improvement in the existing process.

Response: The revision to FAR 52.219-8(d)(2) makes it clear that the contractor is required to verify the "qualified" HUBZone small business status of its subcontractor, using any of the suggested sources in the regulation.

Section 3(p)(5)(D) of the Small Business Act requires SBA to establish a "List of Qualified HUBZone Small Business Concerns" which is available "to any Federal agency or other entity." This final rule includes the SBA Internet site at http://dsbs.sba.gov/dsbs/search/dsp_searchhubzone.cfm available to the public where the list of qualified HUBZone small businesses may be accessed. The list can also be obtained by accessing http://www.sba.gov/hubzone. HUBZone qualified subcontractors are required to be certified by SBA pursuant to the Small Business Act and SBA's regulations and this clause ensure that HUBZone subcontracts are awarded to, and goaling credit received for, eligible concerns.

2. Comment: Applicability of additional paragraph. Three respondents expressed concern with the addition of paragraph (d)(3) in FAR clause 52.219-8, Utilization of Small Business Concerns. According to the respondents, the proposed requirement is not limited in scope.

It would apparently apply to all subcontract competitions, even competitions in which a small business did not compete. One of the respondents believes that there will be a significant impact to the procurement process should this proposed rule be adopted as published, and the respondent also believes that protests are not allowed at the subcontract level. The proposed requirement for advance notice will delay subcontract awards, impact program schedules, require significantly more effort, increase the number of disputes, and increase administrative costs. One of the respondents requested an exception for those contractors that have successfully undergone an approved Contractor Purchasing System Review in accordance with FAR subpart 44.3 and maintain an approved system. A respondent requested a waiver of the clause if the contractor has undergone a successful Contractor Purchasing System Review.

Response: The final rule amends the FAR to conform to existing SBA regulations (13 CFR 125.3(c)(1)(v) for subcontracts above $100,000, and 13 CFR 125.3(c)(1)(vi) which addresses best practices for under $100,000). The SBA regulations prescribe written notification which must include the name and location of the apparent successful offeror and its small business program status. The intent of the notification requirement is to allow the unsuccessful small business subcontractor to protest the size status of the successful subcontractor to the contracting officer or SBA (see FAR 19.703). The SBA regulation was not adequately addressed in the proposed rule and the coverage has been narrowed and moved to FAR 52.219-9, Small Business Subcontracting Plan.

The requirement for notification applies only to prime contractors with contracts requiring subcontracting plans. The notification applies to those subcontracts over the simplified acquisition threshold in which a small business concern received a preference. The Councils do not agree with waiver of the clause if the contractor has undergone a successful Contractor Purchasing System Review.

3. Comment: Commercial items. Two respondents urge the FAR Council not to apply the proposed FAR 52.219-8(d) successful subcontractor notification to prime contractors that are suppliers of commercial items. One respondent stated that the FAR does not define "subcontractor" in the context of commercial item acquisition and believes that the clause requires the prime contractor to reveal competitive information about its subcontractor. The respondents state that it is impractical to segregate the purchases of materials and other supplies and services for products sold under Government contracts from those sold under other commercial contracts. In addition, the proposed rule is not required by statute and SBA is not obligated or permitted to impose this requirement on commercial item acquisitions.

Response: The respondents misinterpreted the commercial item statute. The SBA regulation upon which this is based, 13 CFR 125.3(c)(1)(v), is not required by statute and cannot be waived under FAR subpart 12.5 procedures. However, the SBA regulation was not adequately addressed in the proposed rule, and the coverage has been narrowed and moved to FAR 52.219-9(e)(6). The requirement for notification applies only to prime contractors with contracts requiring subcontracting plans. The notification applies to those subcontracts over the simplified acquisition threshold in which a small business concern received a preference. In addition, "subcontract" is defined in FAR 2.101, and the Councils determined that there was no need to create a special definition for this case. Further, the notification releases only the name of the apparent successful small business subcontractor, its location, and its small business status so that others may protest its size; this does not reveal competitive information about the subcontractor.

4. Comment: Task orders. The respondent requested that the regulations address the use of HUBZones in task-order contracts. The respondent is concerned with the accountability of firms and the oversight afforded them by the contracting officer.

Response: If the contracting officer is notified of possible contractor violations of Federal law involving fraud, waste, or abuse, or a violation of the False Claims Act, the contracting officer must either coordinate the matter with the agency Office of the Inspector General, or take action in accordance with agency procedures and in accordance with FAR part 3, Improper Business Practices and Personal Conflicts of Interest. Additionally, the FAR requires the contracting officer to monitor the contractor's performance throughout the life of the contract. Where the contractor is found to be in noncompliance with the terms and conditions of the contract, such as compliance with the Limitations on Subcontracting clause (FAR 52.219-14), the contracting officer is required to take appropriate action in accordance with FAR part 42.

5. Comment: Geographical restriction. The respondent requested that the rule contain a geographic restriction for HUBZone performance and address contract administration and other enforcement issues.

Response: The comment is outside the scope of this FAR case.

6. Comment: Use of terminology. The respondent noted that FAR 19.1303(a) should be changed to reflect deletion of the word "qualified" in the title of this section.

Response: The final rule deletes the word "qualified."

7. Comment: Sole source authority. The respondent suggested replacing the language at FAR 19.1306, HUBZone sole source awards, to be consistent with the proposed Service-Disabled Veteran-Owned Small Business rule addressing sole source award authority (74 FR 23373, May 19, 2009).

Response: FAR Case 2008-023, Clarification of Criteria for Sole Source Awards to Service Disabled Veteran Owned Small Business Concerns, was published as a final rule in the Federal Register at 75 FR 38687 on July 2, 2010. The changes in that rule have been reflected in this case.

8. Comment: Clause numbering. The respondent stated that the proposed rule, at FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders--Commercial Items, appears to have inadvertently used the wrong subparagraph numbers for the clauses listed in paragraph (b) of the clause.

Response: The paragraph numbering has been revised in the final rule to reflect the current FAR baseline.

9. Comment: Program parity. The respondent stated that the proposed rule should address "parity" among all of SBA's programs, i.e., HUBZone, 8(a), and Service-Disabled Veteran-Owned Small Business.

Response: This comment is outside the scope of this FAR case.

10. Comment: Price preference. The respondent stated that the newly designated FAR 19.1309(b) is inconsistent with the statute creating the HUBZone program and therefore the second sentence should be deleted. The HUBZone Act requires that a HUBZone price preference be applied in the evaluation process for all full and open competitions.

Response: The sentence was deleted. The HUBZone Price Evaluation Preference applies to those contracting actions that are awarded through full and open competition to HUBZone Small Business Concerns. FAR 19.1307(a)(1) has also been deleted.

11. Comment: HUBZone certification by contracting officer. The respondent has requested deletion of the second sentence of FAR 52.219-3(f) and 52.219-4(g) from the final rule, which mandates that a HUBZone offeror provide the contracting officer a copy of its HUBZone eligibility if material changes occur before contract award that could affect its eligibility. The respondent states that the contracting officer is not the authority allowed to take action on such facts; only the SBA has the authority to certify or de-certify a HUBZone small business. In addition, the HUBZone small business may be able to resolve any issue which would prevent the SBA from taking action to de-certify the firm.

Response: The contracting officer does not have the authority to certify or de-certify a HUBZone program participant. If the contracting officer receives a notice of a material change from a HUBZone small business concern, then he/she should file a HUBZone status protest before awarding a HUBZone contract to that concern.

This is not a significant regulatory action and, therefore, was not 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.