thereunder, are to be performed entirely outside the United States, its possessions, and Puerto Rico; (2) Contracts for services which are personal in nature; and (3) Contracts for construction. UTILIZATION OF CONCERNS IN LABOR SURPLUS AREAS (FEB. 1962) It is the policy of the Government to place contracts with concerns which will perform such contracts substantially in areas of persistent or substantial labor surplus where this can be done, consistent with the efficient performance of the contract, at prices no higher than are obtainable elsewhere. The Contractor agrees to use his best efforts to place his subcontracts in accordance with this policy. In complying with the foregoing and with paragraph (b) of the clause of this contract entitled "Utilization of Small Business Concerns," the Contractor in placing his subcontracts shall observe the following order of preference: (1) Persistent labor surplus area concerns which are also small business concerns; (ii) other persistent labor surplus area concerns; (111) substantial labor surplus area concerns which are also small business concerns; (lv) other substantial labor surplus area concerns; and (v) small business concerns which are not labor surplus area concerns. (b) The "Labor Surplus Area Subcontracting Program" clause below shall be included in all contracts which may exceed $500,000, but which contain the clause required by paragraph (a) of this section and which, in the opinion of the purchasing activity, offer substantial subcontracting possibilities. Prime contractors who are to be awarded contracts that do not exceed $500,000, which in the opinion of the purchasing activity offer substantial subcontracting possibilities, shall be urged to accept the following clause: LABOR SURPLUS AREA SUBCONTRACTING PROGRAM (FEB. 1962) (a) The Contractor agrees to establish and conduct a program which will encourage labor surplus area concerns to compete for subcontracts within their capabilities. this connection, the Contractor shall: In (1) Designate a liaison officer who will (1) maintain liaison with duly authorized representatives of the Government on labor surplus area matters, (ii) supervise compliance with the "Utilization of Concerns in Labor Surplus Areas" clause, (111) administer the Contractor's Labor Surplus Area Subcontracting Program; (2) Provide adequate and timely consideration of the potentialities of labor surplus area concerns in all "make-or-buy" decisions; (3) Assure that labor surplus area concerns will have an equitable opportunity to compete for subcontracts, particularly by arranging solicitations, time for the preparation of bids, quantities, specifications, and delivery schedules so as to facilitate the participation of labor surplus area concerns; (4) Maintain records showing procedures which have been adopted to comply with the policies set forth in this clause; and (5) Include the "Utilization of Concerns in Labor Surplus Areas" clause in subcontracts which offer substantial labor surplus area subcontracting opportunities. (b) A "labor surplus area concern" is & concern which will perform, or cause to be performed, a substantial proportion of any contract awarded to it in "Areas of Substantial and Persistent Labor Surplus" or in "Areas of Substantial Labor Surplus," as designated by the Department of Labor. A concern shall be deemed to perform a substantial proportion of a contract in a labor surplus area if the costs that the concern will incur on account of manufacturing or production (by itself or its first-tier subcontractors) in such areas amount to more than 50 percent of the price of such contract. (c) The Contractor further agrees, with respect to any subcontract hereunder which is in excess of $500,000 and which contains the clause entitled "Utilization of Concerns in Labor Surplus Areas," that he will insert provisions in the subcontract which will conform substantially to the language of this clause, including this paragraph (c), and that he will furnish the names of such subcontractors to the Contracting Officer. [27 F.R. 3445, Apr. 11, 1962] § 1.805-4 Responsibility for reviewing subcontracting program. Only one Department shall be responsible for reviewing a contractor's labor Surplus Area Subcontracting Program. Departmental responsibility shall be assigned and carried out in accordance with § 1.707-4. [27 F.R. 3445, Apr. 11, 1962] § 1.806 Depressed industries. When an entire industry is depressed, the Director of Civil and Defense Mobilization may, under Defense Manpower Policy No. 4, establish appropriate measures on an industry-wide, rather than on an area, basis. Designations of such industries are made by Office of Civil and Defense Mobilization Notifications, and such industries will be given special treatment as specified therein, §§ 1.806-2 through 1.806-5 reflect perti nent requirements of such Notifications with respect to the industries indicated. No price differentials will be paid to carry out policies of these Notifications. [25 FR. 14100, Dec. 31, 1960] § 1.806-2 Apparel industry (Notification No. 53). (a) As used in this section the "apparel industry" means all of the industry identified in the "Standard Industrial Classification Manual," under Major Group 23, except Group No. 239. (b) There shall be no labor surplus area set-asides in this industry. Where feasible, under the same invitation, bids should be requested for jackets or coats * and trousers as separate items so that bidders may bid in combinations of units, and if requirements warrant, at least an equal amount of trousers should be included. [25 F.R. 14100, Dec. 31, 1960] § 1.806-3 Petroleum and petroleum products industry (Notification No. 58). There shall be no labor surplus area set-asides in this industry. [25 F.R. 14100, Dec. 31, 1960] § 1.806 4 Shipbuilding and repairing industry (Notification No. 57). (a) As used in this section, the "shipbuilding and repairing industry" (Industry Category 3731) includes establishments primarily engaged in building and repair of all types of ships, barges, canal boats, and lighters of five gross tons and over, whether propelled by sail or motor power or towed by other craft. Establishments primarily engaged in fabricating or repairing structural assemblies or components for ships, or subcontractors engaged in ship painting, joinery, carpentry work, electrical wiring installation, etc., are not included. (b) There shall be no labor surplus area set-asides in this industry. In placing shipbuilding contracts, preferences shall be given, where practicable, to contractors which can perform the I contracts without substantial use of overtime labor and without constructing new facilities. So as to spread work among a large number of private yards, bids or proposals shall be invited, and contracts awarded, on a small-lot basis rather than on a large-lot basis, to the extent practicable. [25 F.R. 14100, Dec. 31, 1960, as amended at 29 F.R. 14818, Oct. 31, 1964] § 1.806-5 Textile industry (Notification No. 38). (a) As used in this section, the "textile industry" means all of the industry identified in the "Standard Industrial Classification Manual" under Major Group 22 (Textile Mill Products) and Industry Nos. 2391 and 2392 (Curtains and draperies, and house-furnishings), except that it does not include Industry No. 2274 (Linoleum, asphalt-felt base, and other hard-surface floor covering, not elsewhere classified), and Industry No. 2298 (Cordage and twine). (b) No preference shall be given to any area or city in placing contracts in this industry. For the purpose of maintaining the effective functioning of the textile industry as a whole, purchasing activities shall try to place contracts with manufacturers whose weaving operations (in the case of weaving or integrated mills) or whose spinning operations (in the case of spinning mills) during the period of performance of such contracts will not exceed 80 hours per week (not including other supporting activities). (c) In all procurements from the textile industry which are estimated to exceed $10,000, partial set-asides, exclusively for textile industry concerns whose "weaving" or "spinning" operations (as described in (b) above) will not exceed 80 hours per week, shall be made substantially in accordance with the procedures set forth in § 1.804, except that all "textile industry concerns whose weaving or spinning operations will not exceed 80 hours per week" will be treated as "labor surplus area concerns." The notice set forth in § 1.804-2 (b) shall be designated "Notice of 80Hour Week Set-Aside" and appropriately modified for use in accordance with this subparagraph. [25 F.R. 14100, Dec. 31, 1960] Subpart -Responsible Prospective Contractors SOURCE: The provisions of this Subpart I appear at 30 F.R. 11998, Sept. 21, 1965. $ 1.900 Scope of subpart. This subpart sets forth (a) general policy with respect to responsibility of prospective contractors, (b) minimum standards for responsible prospective This subpart applies to procurement, advertised or negotiated, from contractors located in the United States, its possessions, or Puerto Rico and shall be applied in other places except where inconsistent with the laws and customs of the place where the prospective contractor is located. It is not applicable to procurement from (a) other governments, including State and local governments; (b) Canadian Commercial Corporation; (c) other United States Government departments and agencies, or their instrumentalities (such as Federal Prison Industries, Inc.); or (d) National Industries for the Blind. § 1.902 General policy. Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only. A responsible prospective contractor is one which meets the standards set forth in §§ 1.9031 and 1.903-2, and such special standards as may be prescribed in accordance with § 1.903-3 and by overseas commanders. The award of a contract to a supplier based on lowest evaluated price alone can be false economy if there is subsequent default, late deliveries, or other unsatisfactory performance resulting in additional procurement or administrative costs. While it is important that Government purchases be made at the lowest price, this does not require an award to a marginal supplier solely because he submits the lowest bid or offer. A prospective contractor must demonstrate affirmatively his responsibility, including, when necessary, that of his proposed subcontractors. The contracting officer shall make a determination of nonresponsibility if, after compliance with §§ 1.905 and 1.906, the information thus obtained does not indicate clearly that the prospective contractor is responsible. Recent unsatisfactory performance, in either quality or timeliness of delivery, whether or not default proceedings were instituted, is an example of a problem which the contracting officer must consider and resolve as to its impact on the current procurement prior to making an affirmative determination of responsibility. Doubt as to productive capacity Except as in otherwise provided §§ 1.903-1.903-4, a prospective contractor must: (a) Have adequate financial resources, or the ability to obtain such resources as required during performance of the contract (see Defense Contract Financing Regulations, Subpart B, Part 163 of this chapter, and any amendments thereto; see also §§ 1.904-3 and 1.905-2; for SBA certificates of competency, see § 1.705—4); (b) Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing business commitments, commercial as well as governmental (for SBA certificates of competency, see § 1.705-4); (c) Have a satisfactory record of performance (contractors who are seriously deficient in current contract performance, when the number of contracts and the extent of deficiency of each are considered, shall, in the absence of evidence to the contrary or circumstances properly beyond the control of the contractor, be presumed to be unable to meet this requirement). Past unsatisfactory performance, due to failure to apply necessary tenacity or perseverance to do an acceptable job, shall be sufficient to justify a finding of nonresponsibility and in the case of small business concerns, shall not require submission of the case to the Small Business Administration; see §§ 1.705-4(a) (4) and 1.905-2; (d) Have a satisfactory record of integrity; and (e) Be otherwise qualified and eligible to receive an award under applicable laws and regulations; e.g., Subpart F. Part 12 of this chapter. § 1.903-2 Additional standards. (a) Standards for production, maintenance, construction, and research and development contracts. In addition to the standards in § 1.903-1, in procurement involving production, maintenance, construction (see § 18.106 of this chapter), or research and development work (and in other procurement as appropriate), a prospective contractor must: (1) Have the necessary organization. experience, operational controls and technical skills, or the ability to obtain 12 them (this standard includes, where appropriate, such elements as adequacy of production control procedures; quality assurance measures, including those applicable to materials produced or services performed by subcontractors) (see § 1.903-4); and (2) Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them. Where a prospective contractor proposes to use the facilities or equipment of another concern, not a subcontractor, or of his affiliate (see §2.201 (a) (23)), all existing business arrangements, firm or contingent, for the use of such facilities or equipment shall be considered in determining the ability of the prospective contractor to perform the contract; see also § 1.904-3. (b) Standards for food. Procurement of food shall be made only from those sources which, in addition to meeting the standards in § 1.903-1, are approved with respect to sanitation in accordance with standards and procedures prescribed in AR 40-657, NAVSANDA PUB 395, AFR 160-48, and NAVMC 2573. § 1.903–3 Special standards. When the situation warrants, contracting officers shall develop with the assistance of technical personnel or other specialists, special standards of responsibility to be applicable to a particular procurement or class of procurements. Such special standards may be particularly desirable where a history of unsatisfactory performance has demonstrated the need for insuring the existence of unusual expertise or specialized facilities necessary for adequate contract performance. The resulting standards shall form a part of the solicitation and shall be applicable to all bidders or offerors. § 1.903-4 Ability to meet certain minimum standards. Except to the extent that a prospective contractor proposes to perform the contract by subcontracting (see § 1.906), acceptable evidence of his "ability to obtain" such things as resources, equipment, facilities, and personnel (see §§ 1.903–1 (a) and 1.903-2), shall normally be a commitment or explicit arrangement, which will be in existence at the time the contract is to be awarded, for the rental, purchase or other acquisition of such resources, equipment, facilities, or personnel. § 1.904 Determinations of responsibility and nonresponsibility. § 1.904-1 Requirement. Except as otherwise provided in § 1.904-2, no purchase shall be made from, and no contract shall be awarded to, any person or firm unless the contracting officer first makes, signs, and places in the contract file, an affirmative determination that the prospective contractor is responsible within the meaning of § 1.902. The determination of responsibility shall contain a statement justifying the determination. Where a certificate of competency has been issued, the affirmative determination need not be made as to the factors covered by the certificate of competency. Where a bid or offer on which an award would otherwise be made is rejected because the prospective contractor is found to be nonresponsible, a determination of nonresponsibility shall be made, signed, and placed in the file. The determination of nonresponsibility shall set forth the basis of the determination. Supporting documents or reports, including any preaward survey reports (see § 1.905-4) and SBA certificate of competency (see § 1.705-4) shall be attached to the determination. § 1.904-2 Exceptions. Written determinations of responsibility need not be made in the case of: (a) Purchases estimated to be $10,000 or less; (b) Orders under existing Government contracts (except orders of more than $10,000 under basic ordering agreements); or (c) Contracts for perishable subsistence available for immediate shipment. However, contracting officers shall not knowingly make any purchases from, or award contracts to, persons or firms other than responsible prospective contractors, notwithstanding the exceptions in this section. § 1.904-3 Affiliated concerns. (a) Affiliated concerns (see § 2.201(a) (23)) shall be considered as separate entities in determining whether the one of them which is to perform the contract meets the applicable standards for a responsible prospective contractor (but see 1.701-1 with respect to status as a small business concern). (b) Notwithstanding the above, the record of performance and integrity of (a) Before making a determination of responsibility (see § 1.904), the contracting officer shall have in his possession or obtain information sufficient to satisfy himself that a prospective contractor currently meets the minimum standards set forth in § 1.903, to the extent that such standards are applicable to a specific procurement. (b) Maximum practicable use shall be made of currently valid information on file or within the knowledge of personnel in the Department of Defense. Each Department shall, at such level and manner as it deems appropriate, maintain useful records and experience data for the guidance of contracting officers in the placement of new procurement, and shall inform its contracting officers and the other Departments of the means of access thereto. Notwithstanding this direction contract administration offices shall maintain files of information reflecting upon the ability of contractors to perform Government contracts successfully. (c) Any purchasing office becoming aware of circumstances which, for any reason, casts doubt upon the ability of a contractor to perform contracts successfully, shall immediately advise the cognizant contract administration office. A contract administration office, upon being notified by a purchasing office of unfavorable information affecting a contractor under its cognizance, or upon developing unfavorable information during the course of contract administration activities, shall advise the cognizant contract administration offices of the other Departments. When a contract administration office is requested to perform a pre-award survey and it has been notified of the existence of unfavorable information relative to the contractor, it shall obtain the details including full supporting information. Careful and full consideration shall be given such information. If a contract administration office becomes aware of a prospective contract award to a contractor about whom unfavorable informatio exists and no pre-award survey has bee requested, it shall (1) immediatel notify the purchasing office concerne and (2) secure the details of such un favorable information as if it were per forming a pre-award survey and advis the purchasing office concerned. Th purchasing office shall give full conside ation to such advice in determinin whether an award should be made. (d) Generally, information necessar to make determinations of responsibilit shall be obtained only concerning pro spective contractors within range for a award. Generally, information regarding th responsibility of a prospective contract (including pre-award surveys (s § 1.905-4) when deemed necessary) sha be obtained promptly after bid openin or receipt of proposals. However, in ne gotiated procurements, especially tho involving research and developmen such information may be obtained befor the issuance of requests for proposal Notwithstanding the foregoing, infor mation regarding financial resources (st § 1.903-1(a)) and performance capa bility (see § 1.903-1(b)) shall be obtaine on as current a basis as feasible wit relation to the date of contract awar § 1.905-3 Sources of information. Information regarding the respons bility of prospective contractors shall k sought among the following sources: (a) The Joint Consolidated List Debarred, Ineligible, and Suspende Contractors (see § 1.601). (b) From the prospective contractorincluding representations and other in formation contained in or attached 1 bids and proposals; replies to questior naires; financial data, such as balan sheets, profit and loss statements, cas forecasts, financial history of the cor tractor and affiliated concerns; curre and past production records; personn records; and lists of tools, equipmen and facilities; written statements commitments concerning financial a sistance and subcontracting arrang ments; and analyses of operational col trol procedures. Where it is considere necessary by the contracting officer 1 prevent practices prejudicial to fair ar open competition or for other reason prospective contractors may be require |