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Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations
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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 637a, 637m, 644a, 657a, or 657f of Title 15. Contracts with covered concerns under 15
U.S.C. 637a, 637m, 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 8a 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. 644j are not designated as covered in section 657s see SBAs implementing regulations 13
CFR 125.6a. 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
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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 125.6b 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 52.21914 failed to address mixed contracts. The respondent proposed bringing the FAR
into alignment with SBAs regulation by adding another subparagraph to address mixed contracts.
Response: According to SBAs final rule published in the Federal Register at 81 FR 34243, on May 31, 2016, SBAs regulation at 13 CFR 125.6b 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 officers 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.,
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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 52.21914, 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 52.21933, Nonmanufacturer Rule. FAR
19.507h2 instructs contracting officers not to use 52.21933 when SBA
has waived the nonmanufacturer rule.
Individual and class waivers of the nonmanufacturer rule are addressed in the final rule at FAR 19.505c.
The size standard for nonmanufacturers is located in the solicitation provisions that contain the requirement for offerors to represent size status e.g., 52.2191, Small Business Program Representations.
There is no need to include it in the clause at 52.21933, 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.

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