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Federal Register / Vol. 86, No. 152 / Wednesday, August 11, 2021 / Rules and Regulations DEPARTMENT OF DEFENSE
GENERAL SERVICES
ADMINISTRATION
NATIONAL AERONAUTICS AND
SPACE ADMINISTRATION
48 CFR Parts 19, 42, and 52
FAC 202107; FAR Case 2019004; Item IV; Docket No. FAR20190030, Sequence No. 1
RIN 9000AN87

Federal Acquisition Regulation: Good Faith in Small Business Subcontracting Department of Defense DoD, General Services Administration GSA, and National Aeronautics and Space Administration NASA.
ACTION: Final rule.
AGENCY:

DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation to implement a section of the National Defense Authorization Act for Fiscal Year 2017, which requires examples of failure to make good faith efforts to comply with a small business subcontracting plan.
DATES: Effective September 10, 2021.
FOR FURTHER INFORMATION CONTACT: Ms.
Dana Bowman, Procurement Analyst, at 2028033188, or by email at dana.bowman@gsa.gov, for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at 202501
4755 or GSARegSec@gsa.gov. Please cite FAC 202107, FAR Case 2019004.
SUPPLEMENTARY INFORMATION:
SUMMARY:

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I. Background DoD, GSA, and NASA published a proposed rule on June 3, 2020, at 85 FR
34155, to implement section 1821 of the National Defense Authorization Act NDAA for Fiscal Year FY 2017
section 1821c of Pub. L. 114328; 15
U.S.C. 637 note. Section 1821 requires the Small Business Administration SBA to amend its regulations to provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan.
SBA issued a final rule at 84 FR 65647, dated November 29, 2019, to implement section 1821 of the NDAA for FY 2017.
In its final rule, SBA amended 13 CFR
125.3d3 to provide guidance on evaluating whether the prime contractor made a good faith effort to comply with its small business subcontracting plan and a list of examples of activities
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reflective of a failure to make a good faith effort.
Additionally, SBA revised 13 CFR
125.3c1iv to require that prime contractors with commercial subcontracting plans include indirect costs in their subcontracting goals.
Other than small business concerns that have a commercial subcontracting plan report on performance through a summary subcontract report SSR. Prior to the publication of its final rule, SBAs regulations required that contractors using a commercial subcontracting plan must include all indirect costs in their SSRs, but did not require these contractors to include indirect costs in their subcontracting goals, which led to inconsistencies when comparing the data reported in the SSR to the goals in the commercial subcontracting plan.
Small business subcontracting plans are required from large prime contractors when a contract is expected to exceed $750,000 $1.5 million for construction and has subcontracting possibilities. FAR 19.704 lists the elements of the plan, which include the contractors goals for subcontracting to small business concerns and a description of the efforts the contractor will make to ensure that small business, veteran-owned small business, servicedisabled veteran-owned small business, HUBZone small business, small disadvantaged business, and womenowned small business concerns have an equitable opportunity to compete for subcontracts. Failure to make a good faith effort to comply with the plan may result in the assessment of liquidated damages per FAR 52.21916, Liquidated DamagesSubcontracting Plan.
This final FAR rule requires that all indirect costs, with certain exceptions, are included in commercial plans and SSRs.
FAR 19.7057 contains examples of a good faith effort, and examples of a failure to make a good faith effort.
Four respondents submitted public comments in response to the proposed rule.
II. Discussion and Analysis The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council the Councils reviewed the public comments in the development of the final rule. A
discussion of the comments received and any changes made to the rule as a result of the public comments are provided as follows:
A. Summary of Significant Changes From the Proposed Rule There are no changes made to the final rule.

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B. Analysis of Public Comments 1. Clarify Applicability to Subcontracts for Commercial Items and Commercially Available Off-the-Shelf COTS Items Comment: One respondent commented that the rule should clarify that the good faith requirement is not applicable to subcontracts for commercial and COTS items under prime contracts. The respondent commented that the proposed rule does not address FAR 52.2199j, which states that subcontracting plans are not required from subcontractors when the prime contract contains the clause at 52.2125, Contract Terms and Conditions Required to Implement Statutes or Executive Orders Commercial Items, or when the subcontractor provides a commercial item subject to the clause at 52.2446, Subcontracts for Commercial Items, under a prime contract.
Response: This rule does not revise the conditions for when a subcontracting plan is required. If a subcontracting plan is not required, then the examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan are not applicable. No changes were made to the final rule as a result of this comment.
2. Material Breach a. FAR Language Broader Than SBA
Language Comment: One respondent stated that the proposed FAR language at 19.705
7d is much broader than the SBA final rule and is unclear on whether material breach refers to the subcontracting plan or a breach of the contract itself.
Response: FAR 19.7055a5
requires that the subcontracting plan become a material part of the contract upon award. The final rule text at FAR
19.7057d, similar to the SBA final rule, cites FAR 52.21916, Liquidated DamagesSubcontracting Plan, which provides the corrective actions available to all Federal Government contracting officers when a contractor fails to make a good faith effort to comply with the subcontracting plan, while also giving consideration to other Federal contracting regulations. In this context, a failure to make a good faith effort to comply with a subcontracting plan is a material breach, sufficient for the assessment of liquidated damages, and also for other remedies the Government may have. No changes were made to the final rule as a result of this comment.

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