(a) The "Utilization of Small Business Concerns" clause below shall be included in all contracts in amounts which may exceed $5,000 except (1) contracts which, including all subcontracts thereunder, are to be performed entirely outside the United States, its possessions, and Puerto Rico; and (2) contracts for services which are personal in nature: UTILIZATION OF SMALL BUSINESS CONCERNS (JAN. 1958)

(a) It is the policy of the Government as declared by the Congress that a fair proportion of the purchases and contracts for supplies and services for the Government be placed with small business concerns.

(b) The Contractor agrees to accomplish the maximum amount of subcontracting to small business concerns that the Contractor finds to be consistent with the efficient performance of this contract.

(b) The "Small Business Subcontracting Program" clause below shall be included in all contracts which may exceed $500,000, 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 but which, in the opinion of the purchasing activity, offer substantial subcontracting possibilities, shall be urged to accept the clause.

SMALL BUSINESS SUBCONTRACTING PROGRAM (MAR. 1963)

(a) The Contractor agrees to establish and conduct a small business subcontracting program which will enable small business concerns to be considered fairly as subcontractors and suppliers under this contract. In this connection, the Contractor shall:

(1) Designate a liaison officer who will (i) maintain liaison with the Government on small business matters, (ii) supervise compliance with the "Utilization of Small Business Concerns" clause, and (iii) administer the Contractor's "Small Business Subcontracting Program."

(2) Provide adequate and timely consideration of the potentialities of small

business concerns in all "make-or-buy" decisions.

(3) Assure that small business 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 small business concerns. Where the Contractor's lists of potential small business subcontractors are excessively long, reasonable effort shall be made to give all such small business concerns an opportunity to compete over a period of time.

(4) Maintain records showing (i) whether each prospective subcontractor is a small business concern, (ii) procedures which have been adopted to comply with the policies set forth in this clause, and (iii) with respect to the letting of any subcontract (including purchase orders) exceeding $10,000, information substantially as follows:

(A) Whether the award went to large or small business.

(B) Whether less than three or more than two small business concerns were solicited. (C) The reason for non-solicitation of small business if such was the case.

(D) The reason for small business failure to receive the award if such was the case when small business was solicited. The records maintained in accordance with (iii) above may be in such form as the individual Contractor may determine, and the information shall be summarized quarterly and submitted by the purchasing department of each individual plant or division to the Contractor's cognizant small business liaison officer. Such quarterly summaries will be considered to be management records only and need not be submitted routinely to the Government; however, records maintained pursuant to this clause will be kept available for review.

(5) Notify the Contracting Officer before soliciting bids or quotations on any subcontract (including purchase orders) in excess of $10,000 if (1) no small business concern is to be solicited, and (ii) the Contracting Officer's consent to the subcontract (or ratification) is required by a "Subcontracts" clause in this contract. Such notice will state the Contractor's reasons for non-solicitation of small business concerns, and will be given as early in the procurement cycle as possible so that the Contracting Officer may give the Small Business Administration timely notice to permit SBA a reasonable period to suggest potentially qualified small business concerns through the Contracting Officer. In no case will the procurement action be held up when to do so would, in the Contractor's judgment, delay performance under the contract.

(6) Include the "Utilization of Small Business Concerns" clause in subcontracts which offer substantial small business subcontracting opportunities.

(7) Cooperate with the Contracting Officer in any studies and surveys of the Contrac

tor's subcontracting procedures and practices that the Contracting Officer may from time to time conduct.

(8) Submit DD Form 1140 reports, in triplicate, to the Military Department that reviews his subcontracting program, except that where the Contractor elects to report on a corporate rather than a plant basis, he may submit his reports to the Military Department having industrial readiness planning responsibility at the corporate headquarters.

(9) Submit DD Form 1140-1 each month in accordance with instructions provided on the form. The reporting requirements of this subparagraph (9) do not apply to Small Business contractors or subcontractors.

(b) A "small business concern" is a concern that meets the pertinent criteria established by the SBA and set forth in paragraph 1-701 of the Armed Services Procurement Regulation.

(c) The Contractor agrees that, in the event he fails to comply with his contractual obligations concerning the small business subcontracting program, this contract may be terminated, in whole or in part, for default.

(d) The Contractor further agrees to insert, in any subcontract hereunder which is in excess of $500,000 and which contains the "Utilization of Small Business Concerns" clause, provisions which shall conform substantially to the language of this clause, including this paragraph (d), and to notify the Contracting Officer of the names of such subcontractors; except that the subcontractor will submit the DD Form 1140 reports to the Military Department having industrial readiness planning responsibility or plant cognizance. (A subcontractor may request advice from the nearest military purchasing or contract administration activity as to the Military Department to which he should submit his reports.)

CODIFICATION: § 1.707-3 was revised, 27 F.R. 3443, Apr. 11, 1962. Subsequently, in paragraph (b), the clause heading was amended and clause paragraph (a) (9) added, 28 F.R. 4881, May 16, 1963.

Prior Amendments

1961: 26 F.R. 2599, Mar. 28; 26 F.R. 5300, June 14.

§ 1.707-4 Responsibility for reviewing the subcontracting program.

(a) Only one Department shall be responsible for reviewing a contractor's Small Business Subcontracting Program. Subject to paragraph (b) of this section, such review shall be the responsibility of:

(1) The Department having industrial readiness planning responsibility at the plant where the contract is being performed; or

(2) If subparagraph (1) of this paragraph is inapplicable, the Department having plant cognizance procurement responsibility (see § 5.1100-2(b) of this subchapter); or

(3) If neither subparagraph (1) nor (2) of this paragraph is applicable, the Department assigned the responsibility through coordinated action of the Director of Small Business Policy of the Department of Defense and the Small Business Advisors of the Departments.

(b) In appropriate instances, however, when jointly determined by the Director of Small Business Policy and the Small Business Advisors of the Departments, criteria other than those specified in paragraph (a) of this section may be used in assigning responsibility to a Department for reviewing an individual contractor's Small Business Subcontracting Program.

(c) The Department placing a contract with a prime contractor containing the "Small Business Subcontracting Program" clause shall either (1) assume responsibility for reviewing the subcontracting program of the prime contractor if such Department meets the criteria specified in paragraph (a) or (b) of this section, or (2) promptly request in writing the Small Business Advisor of the Department which does meet such criteria to assume responsibility for review of this program.

(d) Promptly upon receipt of the names of subcontractors who will participate in the Small Business Subcontracting Program, the Department concerned will assume, or provide for the assumption of, responsibility for review of each subcontractor's program in accordance with procedures set forth in paragraph (a) or (b) of this section.

(e) The responsible Department will determine the adequacy of the contractor's Small Business Subcontracting Program and bring any deficiencies to the attention of the contractor's designated liaison officer with a request for corrective action.

[27 F.R. 3444, Apr. 11, 1962]
Prior Amendments
1961: 26 F.R. 5309, June 14.
§ 1.707-5

Reports on DD Form 1140.

(a) In connection with the submission of DD Form 1140 Reports under the "Small Business Subcontracting Program" clause, a subcontractor may contact the nearest military purchasing or

contract administration activity and request advice as to the Department to which he should submit reports. The military purchasing or contract administration activity shall, through channels, submit such a request to the Small Business Advisor of the Department concerned. The Small Business Advisor shall submit it to the Director for Small Business Policy of the Department of Defense for his determination in coordination with the Small Business Advisors of the Departments.

(b) Each Department shall forward to the Assistant Secretary of Defense (Comptroller), by March 15 and September 15, a copy of each DD Form 1140 received for the semiannual periods ending December 31 and June 30, respectively.

[27 F.R. 3444, Apr. 11, 1962] § 1.707-6

surveys.

Subcontracting studies and

Each purchasing activity shall assist the SBA to obtain such reasonably obtainable information and records concerning the subcontracting of its prime contractors and its subcontractors, having contracts that contain the Small Business Subcontracting Program clause, as the SBA may deem necessary. Accordingly, the contracting officer or his representative, separately, or together with a representative of SBA may periodically conduct studies and surveys of the contractor's subcontracting procedures and practices and those of his subcontractors. Such studies and surveys may originate with the purchasing activity in order to have available the pertinent data concerning subcontracting by its primes, or, if such data is not currently available, the studies and surveys may originate upon the request of the SBA for such data. On the basis of the foregoing studies, surveys, and records, the SBA may make recommendations to the purchasing activity regarding methods for increasing small business participation in subcontract awards. SBA and the purchasing activity will freely interchange, at the operating level, information resulting from these surveys. [27 F.R. 3444, Apr. 11, 1962]

§ 1.707-7 SBA review of agency records.

To the extent that subcontracting records are maintained in purchasing or contract administration activities, such records shall be made available to SBA, upon request for review. [27 F.R. 3445, Apr. 11, 1962]

§ 1.708 Mobilization planning.

The policy of placing a fair proportion of purchases and contracts with small business concerns (see § 1.702) applies in the field of mobilization planning and each Military Department shall continually study its industrial readiness planning procedures to include the Small Business Program, to the maximum practical extent.

[27 F.R. 3445, Apr. 11, 1962]

Subpart H-Labor Surplus Area
Concerns

§ 1.801-1 Labor surplus area concern. Labor surplus area concern includes: (a) Persistent labor surplus area concerns which will perform or cause to be performed any contracts awarded to them as labor surplus area concerns substantially in "Areas of Substantial and Persistent Labor Surplus"; and

(b) Substantial labor surplus area concerns which will perform or cause to be performed any contracts awarded to them as labor surplus area concerns substantially in "Areas of Substantial Labor Surplus."

A concern shall be deemed to perform a contract substantially in "Areas of Substantial and Persistent Labor Surplus" if the costs that it incurs on account of manufacturing or production (by itself or its subcontractors) in such areas amount to more than 50 percent of the contract price. A concern shall be deemed to perform a contract substantially in "Areas of Substantial Labor Surplus" if the costs that it incurs on account of manufacturing or production (by itself or its subcontractors) in such areas or in "Areas of Substantial or Persistent Labor Surplus" amount to more than 50 percent of the contract price.

Example A. ABC Company, manufacturing in a full employment area bids on a contract at $1,000. ABC Company will incur the following costs: Direct labor.

Overhead___

Purchase of materials from XYZ, which manufactures the materials in a labor surplus area----.

$200

200

510

[26 F.R. 2599, Mar. 28, 1961]

§ 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 publication "Area Labor Market Trends";

(b) In advertised procurements involving set-asides pursuant to this Part, each invitation for bids shall contain either substantially the following notice or the notice set forth in paragraph (c) of this section. In negotiated procurements, whichever notice is used will be appropriately modified for use with requests for proposals. The appropriate notice shall be made a part of each contract under the set-aside portion of the procurement.

NOTICE OF LABOR SURPLUS AREA SET-ASIDE (OCT. 1962)

(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 set-aside portion will be conducted only with responsible labor surplus area concerns (and small business concerns to the extent indicated 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 award made on the nonset-aside portion. Negotiations for the setaside 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 concerns.

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 nonset-aside portion, adjusted to reflect transportation and other cost factors which were considered in evaluating bids on the nonset-aside portion. However, 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 set-aside portion.

(b) Definitions. (1) The terms "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:

(i) "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.

labor

(ii) "Substantial 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:

con

(1) "Persistent labor surplus area cern" means a concern that agrees to perform, or cause to be performed, a substantial portion of a contract in persistent labor surplus areas. A concern shall be deemed to perform a substantial proportion of a con

tract 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.

(ii) "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 that (1) is certified as a small business concern by the Small Business Administration, or (ii) is independently owned and operated, is not dominant in its field of operation and, with its affiliates, employs not more than 500 employees. In addition to meeting these criteria, a manufacturer or 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.

(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 area 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 labor surplus areas.