[26 F.R. 2599, Mar. 28, 1961, as amended at 30 F.R. 14075, Nov. 9, 1965] § 1.801-2 Labor surplus area. Labor surplus area means a geographical area which at the time of award is: (a) Classified by the Department of Labor as an "Area of Substantial Labor Surplus" or as an "Area of Substantial and Persistent Labor Surplus" (also called "Area of Substantial and Persistent Unemployment") (herein referred to as an area of persistent labor surplus) and listed as such by that Department in conjunction with its publi#cation "Area Labor Market Trends"; or (b) Not classified as in paragraph (a) of this section, but which is individually certified as an area of persistent or substantial labor surplus by the Department of Labor at the request of any prospective contractor. [27 FR. 1690, Feb. 22, 1962] § 1.801-3 Small business concern. Small business concern is defined in § 1.701. [25 FR. 14097, Dec. 31, 1960] § 1.802 General policy. Except as provided in § 1.806 with respect to depressed industries, it is the ¡ policy of the Department of Defense to aid labor surplus areas by placing contracts with labor surplus area concerns, to the extent consistent with procure*ment objectives and where such contracts can be awarded at prices no higher than those obtainable from other concerns, and by encouraging prime contractors to i place subcontracts with concerns which will perform substantially in labor surplus areas. In carrying out this policy, to accommodate the small business policies of Subpart G of this part, preference shall be given in the following order of priority to (a) persistent labor surplus area concerns which are also small business concerns, (b) other persistent labor surplus area concerns, (c) substantial labor surplus areas concerns which are also small business concerns, (d) other substantial labor surplus area concerns, and (e) small business concerns which are not labor surplus area concerns. But in no case will price differentials be paid for the purpose of carrying out this policy. Heads of Procuring Activities and Heads of Field Purchasing and Contract Administration Activities are responsible for the effective implementation of the Labor Surplus Area Program within their respective activities. Responsibility for administration of the program may be assigned to small business specialists appointed pursuant to § 1.704-3. [30 F.R. 14075, Nov. 9, 1965] § 1.803 Application of policy. (a) Within the policy set forth in § 1.802, the following shall be applied to procurements which are estimated to exceed $10,000: (1) Negotiated procurements shall, where procurement objectives permit, be awarded to labor surplus area concerns: Provided, That in no case shall price differentials be paid for the purpose of carrying out this policy; (2) Where appropriate, procurements shall be made from labor surplus area concerns by partial set-aside procedures, in accordance with § 1.804, and such setasides shall be given preference over any small business set-aside (but no total setaside shall be made for labor surplus area concerns); (3) Each Department shall assure that information identifying labor surplus areas is disseminated promptly to procurement personnel; (4) Department of Labor certification (see 1.801-2(b) shall be considered conclusive with respect to the particular procurement concerned. (5) even though less than a complete bidders list is to be used pursuant to § 2.205-4 of this subchapter, all prospective contractors in labor surplus areas shall be solicited, except that only a pro rata number of prospective labor surplus area concerns may be solicited when the bidders list is composed predominantly of labor surplus area concerns and the estimated award is not expected to be more than $25,000; (6) Subcontracting with concerns in labor surplus areas shall be encouraged in accordance with § 1.805. (b) Records of the total value of all contracts in excess of $10,000 placed with labor surplus area concerns during each fiscal year, and reports based thereon, are maintained by each Department through the Department of Defense Reporting Sytem described in §§ 1.110. Accordingly, each Department in soliciting bids and proposals for any procurement estimated to exceed $10,000 shall request from any bidder or offeror, or other source, any information needed to determine whether the bidder or offeror is a labor surplus area concern. Contract files shall be documented to indicate the extent to which labor surplus area concerns were considered and the action taken with respect thereto. [25 F.R. 14098, Dec. 31, 1960, as amended at 26 F.R. 5300, June 14, 1961] § 1.804 Partial set-asides for labor surplus area concerns. [25 F.R. 14098, Dec. 31, 1960] (a) (1) In accordance with the policy set forth in §§ 1.802 and 1.803, a portion of each procurement shall be set aside for labor surplus area concerns if: (i) The procurement is severable into two or more economic production runs or reasonable lots; and (ii) One or more labor surplus area concerns are expected to qualify as labor surplus area concerns and to have the technical competency and productive capacity to furnish a severable portion of the procurement at a reasonable price, except that a partial set-aside shall not be made if there is a reasonable expectation that bids or proposals will be received from only two concerns with technical competency and productive capacity (one concern which will not qualify as a labor surplus area concern and one concern which will qualify as a labor surplus area concern). Before reaching this conclusion, the contracting officer shall consult with the labor surplus area specialist and may make advance inquiries to determine the number and expected classification of interested concerns. Any deviation from this partial set-aside prohibition must be approved by the Head of the Procuring Activity on a case-by-case basis. (2) In determining whether a proposed procurement is susceptible to division into two or more economic production runs or reasonable lots, consideration should be given to the following factors and any others deemed appropriate: (i) Price and procurement history of the items, (ii) Open industry capacity, (iii) Startup cost including special tooling requirements, (iv) Delivery schedule, and (v) Nature of item and quantity being procured. Before a portion or portions, constituting more than 50 percent of the total requirement may be set aside, a determination must be made that there is a reasonable expectation the action proposed will not result in the payment of a price differential. The determination and supporting information will be made part of the contract file. (3) In furtherance of the policy to assure that a fair proportion of procurements is placed with small business concerns, each labor surplus area set-aside shall provide that, in addition to labor surplus area concerns, small business concerns not performing in such areas are also eligible for participation in the set-aside for such quantities thereof as are not awarded to labor surplus area concerns. In this respect, see the provisions of § 1.804-2(b) for notice to bidders or offerors, and § 1.804-2(c) for conduct of set-aside negotiations. (b) None of the following is, in itself, sufficient cause for not making a setaside: (1) A large part of previous procurements of the item in question has been placed with labor surplus area concerns; (2) The item to be purchased is on an established planning list under the Industrial Readiness Planning Program; (3) The item to be purchased is on a Qualified Products List; (4) A period of less than thirty days from the date of issuance of invitations for bids or requests for proposals is prescribed for the submission of bids or proposals; (5) The procurement is classified; or (6) Labor surplus area concerns are receiving a fair proportion of contracts. (c) Procurement of supplies which were developed and financed in whole or in part by Canadian sources under the U.S.-Canadian Defense Development Sharing Program shall not be set aside for labor surplus areas. Identification of the supplies covered by the Program will be in accordance with Departmenta procedures. [25 F.R. 14098, Dec. 31, 1960, as amended at 26 F.R. 9633, Oct. 12, 1961; 30 F.R. 14706 Nov. 9, 1965] (a) Where a portion of a procurement is to be set aside pursuant to § 1.804-1, the procurement shall be divided into a non-set-aside portion and set-aside portion, each of which shall be not less than ian economic production run or reasonI able lot. Insofar as practical, the setaside portion will be such as to make the I maximum use of the capacity of labor surplus area concerns. Delivery terms and other terms applicable to the setI aside portion of an item and those applicable to the non-set-aside portion of that item shall be comparable. (b) In advertised procurements involving set-asides pursuant to this subpart, each invitation for bids shall contain substantially the following notice. In negotiated procurements, the notice shall be appropriately modified for use = with requests for proposals. The notice shall be made a part of each contract under the set-aside portion of the procurement. NOTICE OF LABOR SURPLUS AREA SET-ASIDE (NOVEMBER 1964) (a) General. A portion of this procurement, as identified elsewhere in the Schedule, has been set aside for award only to one or more labor surplus area concerns, and, to a limited extent, to small business concerns which do not qualify as labor surplus area concerns. Negotiations for award of the setaside portion will be conducted only with responsible labor surplus area concerns (and small business concerns to the extent indiIcated below) who have submitted responsive bids or proposals on the non-set-aside portion at a unit price no greater than 120 percent of the highest unit price at which an award is made on the non-set-aside portion. Negotiations for the set-aside portion will be conducted with such bidders in the following order of priority: Group 1. Persistent labor surplus area concerns which are also small business concerns. Group 2. Other persistent labor surplus area concerns. Group 3. Substantial labor surplus area concerns which are also small business con cerns. Group 4. Other substantial labor surplus area concerns. Group 5. Small business concerns which are not labor surplus area concerns. Within each of the above groups, negotiations with such concerns will be in the order of their bids on the non-set-aside portion, beginning with the lowest responsive bid. The set-aside portion shall be awarded at the highest unit price awarded on the non-set aside portion, adjusted to reflect transportation and other cost factors which are considered in evaluating bids on the non-setaside portion except where a responsive bid has been submitted on the non-set-aside portion at a unit price which when so adjusted is lower than the adjusted highest unit price awarded on the non-set-aside portion but could not be accepted because of quantity limitations or other consideration (such as the bidder's responsibility). In the latter case if the quantity limitation or other considerations do not preclude consideration of the unit price of such unaccepted bid at the time of negotiation for the set-aside portion, a quantity of the setaside portion equal to the quantity of such unaccepted bid shall be offered to eligible concerns in their order of priority at the adjusted unit price of such unaccepted bid. If no eligible bidder will take the entire quantity so offered at the adjusted unit price of the unaccepted bid, then all eligible concerns in their order of priority shall be offered any lesser portion at the same price. (In the event more than one such unaccepted bid is involved, the same procedure shall be applied successively to each such bid on negotiation for the set-aside portion.) Subject to the conditions set forth below any remaining quantity of the set-aside portion shall be offered to eligible concerns in their order of priority at the adjusted highest unit price awarded on the non-set-aside portion. If such an unaccepted bid is submitted by a concern eligible to participate in the setaside, such concern must accept a quantity of the set-aside portion equal to the quantity of the unaccepted bid at the adjusted unit price of the unaccepted bid before any portion of the set-aside may be awarded to that concern at a higher price. If such an unaccepted bid is submitted by a concern not eligible to participate in the set-aside, a quantity of the set-aside portion equal to the quantity of the unaccepted bid must be awarded at the adjusted unit price of such unaccepted bid before any portion of the setaside is awarded to any eligible concern at a higher price. The Government reserves the right not to consider token bids or other devices designed to secure an unfair advantage over other bidders eligible for the setaside portion. (b) Definitions. (1) The term "labor surplus area" means a geographical area which is a persistent labor surplus area or a substantial labor surplus area, or both, as defined below: (1) "Persistent labor surplus area" means an area which (A) is classified by the Department of Labor as an "Area of Substantial and Persistent Labor Surplus" (also called "Area of Substantial and Persistent Unemployment") and is listed as such by that Department in conjunction with its publication "Area Labor Market Trends," or (B) is certified as an area of substantial and persistent labor surplus by the Department of Labor pursuant to a request by a prospective contractor. (11) "Substantial labor surplus area” means an area which (A) is classified by the Department of Labor as an "Area of Substantial Labor Surplus" (also called "Area of Substantial Unemployment") and which is listed as such by that Department in conjunction with its publication "Area Labor Market Trends," or (B) is certified as an area of substantial labor surplus by the Department of Labor pursuant to a request by a prospective contractor. (2) The term "labor surplus area concern" includes persistent labor surplus area concerns and substantial labor surplus area concerns as defined below: (1) "Persistent labor surplus area concern" means a concern that agrees to perform, or cause to be performed, a substantial proportion of a contract in persistent labor surplus areas. A concern shall be deemed to perform a substantial proportion of a contract in persistent labor surplus areas if the costs that the concern will incur on account of manufacturing or production performed in such areas (by itself or its first-tier subcontractors) amount to more than 50 percent of the contract price. (11) "Substantial labor surplus area concern" means a concern that agrees to perform, or cause to be performed, a substantial proportion of a contract in substantial labor surplus areas. A concern shall be deemed to perform a substantial proportion of a contract in substantial labor surplus areas if the costs that the concern will incur on account of manufacturing or production performed in substantial and persistent labor surplus areas (by itself or its first-tier subcontractors) amount to more than 50 percent of the contract price. (3) A "small business concern" is a concern, including its affiliates, which is independently owned and operated, is not dominant in the field of operation in which it is bidding on Government contracts, and can further qualify under the criteria set forth in regulations of the Small Business Administration (Code of Federal Regulations, Title 13, Section 121.3-8). In addition to meeting these criteria, a manufacturer or a regular dealer submitting bids or proposals in his own name must agree to furnish in the performance of the contract end items manufactured or produced in the United States, its possessions, or Puerto Rico, by small business concerns: Provided, That this additional requirement does not apply in connection with construction or service contracts. (4) "Unit price" shall include evaluation factors added for the rent-free use of Government property. (c) Identification of areas of performance. Each bidder desiring to be considered for award as a labor surplus area concern on the set-aside portion of this procurement shall identify in his bid the geographical areas in which he proposes to perform, or cause to be performed, a substantial proportion of the production of the contract. If the Department of Labor classification of any such area changes after the bidder has submitted his bid, the bidder may change the areas in which he proposes to perform, provided, that he so notifies the Contracting Officer before award of the set-aside portion. Priority for negotiation will be based upon the labor surplus classification of the designated production areas as of the time of the proposed award. (d) Agreement. The bidder agrees that, if awarded a contract as a persistent labor surplus area concern under the set-aside portion of this procurement, he will perform, or cause to be performed, a substantial proportion of the production in areas classified at the time of award, or at the time of performance of the contract, as persistent labor surplus areas; and that if awarded a contract as a substantial labor surplus area concern under the set-aside portion of this procurement, he will perform, or cause to be performed, a substantial proportion of the production in areas classified at the time of award, or at the time of performance of the contract, as substantial or persistent laho surplus areas. (c) (1) After the award price for the non-set-aside portion has been determined, negotiations may be conducted for the set-aside portion. Procurement of the set-aside portion shall in all instances be effected by negotiation. Negotiations shall be conducted only with those bidders or offerors who have submitted responsive bids or proposals on the non-set-aside portion at a unit price no greater than 120 percent of the highest award made or to be made on the non-set-aside portion (taking into account the evaluation factors for rent-free use of Government property pursuant to Subpart E, Part 13 of this chapter) and who are determined to be responsible prospective contractors for the set-aside portion of the procurement. Negotiations shall be conducted in the order of priority indicated in the foregoing notices: Provided, That, where equal low bids are received on the non-set-aside portion from concerns which are equally eligible for the set-aside portion, the concern which is awarded the non-set-aside portion (under the equal low bid procedures of § 2.407-6 of this chapter) shall have first priority with respect to negotiations for the set-aside portion. The set-aside portion shall be awarded at the highest unit price awarded or to be awarded for the non-set-aside portion. A bidder or offeror entitled to receive the award for quantities of an item under the non-set-aside portion and who accepts the award of additional quantities under the set-aside portion shall not be requested to accept a lower price because of the increased quantities of the award, nor shall negotiation be conducted with a view to obtaining such a lower price based solely upon receipt of award of #both portions of the procurement. This does not prevent acceptance by the contracting officer of voluntary reductions in price prior to award, acceptance of refunds, or the change of prices after award by negotiation of a contract modification. If the entire set-aside portion cannot be awarded by the method described herein, any unawarded portion may be procured by advertising or negotiations, as appropriate, in accordance with existing regulations (see §§ 3.201-2 (b) (1) and 3.210-3 of this chapter as to negotiation). (2) When the award price for a nonset-aside portion has been determined and where an award will be made to a labor surplus area concern and the same labor surplus area concern is entitled to receive a set-aside portion of the solicitation, the set-aside portion may be added to the basic contract by supplemental agreement. The supplemental agreement shall include the Examination of Records clause, applicable to the setaside portion only. [25 F.R. 14098, Dec. 31, 1960, as amended at If, prior to the award of a contract involving a labor surplus set-aside, the contracting officer considers that the set-aside is detrimental to the public interest, e.g., because of unreasonable prices, the contracting officer shall withdraw the set-aside and complete the procurement by advertising or negotiation as appropriate in accordance with existing regulations. A signed memorandum setting forth the basis of the withdrawal of any set-aside shall be made and retained. [25 F.R. 14100, Dec. 31, 1960] § 1.804-4 Contract authority. Contracts for set-asides made under this Subpart H shall cite as authority 10 U.S.C. 2304(a)(1). For reporting purposes, see §3.201-2(b)(1) of this chapter for contracts awarded to labor surplus area concerns and §3.201-2 (b) (2) for contracts awarded to small business concerns which are not labor surplus area concerns. [25 F.R. 14100, Dec. 31, 1960] § 1.805 Subcontracting with labor surplus area concerns. [27 F.R. 3445, Apr. 11, 1962] § 1.805-1 General policy. It is the policy of the Government to promote equitable opportunities for labor surplus area concerns to compete for defense subcontracts and to encourage placement of subcontracts with concerns which will perform such contracts substantially in areas of persistent or substantial labor surplus, in the order of priority described in § 1.802 where this can be done, consistent with efficient performance of contracts, at prices no higher than are obtainable elsewhere. [27 F.R. 3445, Apr. 11, 1962] § 1.805-2 Labor surplus area subcontracting program. The Government's labor surplus area subcontracting program requires Government prime contractors to assume an affirmative obligation with respect to subcontracting with labor surplus area concerns. In contracts which range from $5,000 to $500,000, the contractor undertakes the simple obligation of using his best efforts to place his subcontracts with concerns which will perform such subcontracts 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. This undertaking is set forth in the contract clause prescribed in § 1.805-3 (a). In contracts which may exceed $500,000, the contractor is required, pursuant to the clause set forth in § 1.805-3 (b), to undertake a number of specific responsibilities designed to insure achievement of the objectives referred to above and to impose similar responsibilities on major subcontractors. [27 F.R. 3445, Apr. 11, 1962] § 1.805-3 Required clauses. (a) The "Utilization of Concerns in Labor Surplus Areas" clause set forth below shall be inserted in all contracts in amounts which may exceed $5,000, except: (1) Contracts with foreign contractors which, including all subcontracts |